In order to comply with OECD standards established in Action 13 of the BEPS project, the article 107 of the Finance law for 2018 updates the content of the transfer pricing documentation rules. Moreover, this article introduces a “review” clause of the new provisions by the Parliament by 2020, which should lead the Administration to be more vigilant in its audits.
The new version of article L. 13 AA of the French Tax Procedure Code, applicable to fiscal years beginning as from January 1, 2018, completes the documentation that large companies must produce during accounting audits. By taking exhaustively the international standards of the BEPS Action Plan (Chapter V, Annex 2 of the OECD Principles for Transfer Pricing), the new article L. 13 AA operates deep changes to the information to be produced, especially for those relating to the group to which the company belongs and detailed in the “Masterfile”. However, there is not any amendment either to the scope of these obligations or the applicable penalties. The main evolutions relate to the following points:
- A description of the supply chain for the group’s five largest products and/or service offerings by turnover plus any other products and/or services amounting to more than 5 percent of group turnover
- A list of important service agreements between members of the group
- A functional analysis describing the principal contributions to value creation of the Group’s various entities
- New more detailed section on the Group’s intangible assets
- General description of how the group is financed, covering both intra-group and external financing transactions
- Information and allocation schedules showing how the financial data used in applying the transfer pricing method may be tied to the annual financial statements
A decree must specify the modalities of implementation of these new provisions. It should help defining the “significant” nature of the transactions to document and clarifying some remaining discrepancies between the new French text and the provisions of BEPS, particularly with respect to the documentation of intangibles.
Finally, article 107 of the 2018 Finance law provides for a genuine right for Parliament to “review” the information provided to tax auditors. Indeed, before the finance bill for 2021 is released (i.e. in 2020), the government will have to submit a report to Parliament about the implementation of article L. 13 AA. This report will cover both qualitative and quantitative aspects since, in addition to statistical data on the number of transfer pricing documentation that will meet these new requirements, a check will be carried out on the relevance of the information produced.
These new provisions should lead tax auditors to pay even more attention to these transfer-pricing documents in forthcoming tax audits. Likewise, penalties applicable in the event of a delay in the submission of documentation, as provided for by article 1735 ter of the French General Tax Code, could be implemented more regularly. Companies falling within the scope of article L. 13 AA will therefore need to ensure as soon as possible that their transfer pricing documentation complies with these new requirements and is compatible with this enhanced review expected in future audits.