Tax litigation · International

Transfer pricing: audit and defence of groups

Cross-border intra-group transactions are at the heart of the tax audit of groups. On the basis of article 57 of the French Tax Code, the tax authorities may add back the profits they consider to have been indirectly transferred out of France, where the arm's length principle has not been observed. The amounts at stake are often measured in the millions. The firm secures your transfer pricing policy and defends your reassessments, in coordination with your economists and foreign counsel.

Secure or defend my transfer pricing The mechanism
Strictly confidential exchange · Reply within 24 business hours · Lawyer's professional secrecy
— In brief
Legal basis
French Tax Code art. 57 (indirect transfer of profits between dependent enterprises)
Standard
Arm's length principle (OECD framework)
Documentation
Documentation obligation, French Tax Procedure Code art. L. 13 AA (threshold €400m) and L. 13 B
Doc. penalty
Specific penalty in the event of insufficient documentation (French Tax Code art. 1735 ter)
Profile
Groups and mid-cap companies with international intra-group flows
01

The mechanism of article 57 of the French Tax Code

Article 57 of the French Tax Code allows the tax authorities to add back to the results taxable in France the profits indirectly transferred to associated enterprises located outside France, where a French enterprise is dependent on, or holds control over, a foreign enterprise (or vice versa).

Indirect transfer takes the form of conditions departing from those of the market: increased purchase prices, reduced sale prices, excessive royalties or management fees, unbalanced financing. The reference is the arm's length principle: intra-group transactions must be valued as if they took place between independent enterprises.

02

The documentation obligation

Groups exceeding the thresholds (turnover or gross assets greater than or equal to 400 million euros, assessed at group level) must maintain transfer pricing documentation (French Tax Procedure Code art. L. 13 AA), to be presented when the audit begins. Below that level, the tax authorities may request information on the basis of article L. 13 B.

  • A master file describing the group and its pricing policy;
  • A local file specific to the French entity and its transactions;
  • The functional analysis and the valuation method adopted;
  • Insufficient documentation exposes the group to a specific penalty (French Tax Code art. 1735 ter).
03

The most closely monitored flows

In practice, reassessments concentrate on a few flows: trademark and patent royalties, management fees and intra-group services, reorganisations and transfers of functions or intangible assets, intra-group financing (interest rates, guarantees), and the margins of distributors or contract manufacturers. Each calls for its own economic analysis and an appropriate valuation method.

04

Secure in advance, defend during the audit

Ahead of any audit, the firm helps to document and secure the transfer pricing policy and, where appropriate, to enter into an advance pricing agreement with the tax authorities. During the audit, the defence focuses on the comparability analysis adopted by the tax inspector, the choice of method, the economic reality of functions and risks, and the interaction with tax treaties and mutual agreement procedures to eliminate double taxation. We work in coordination with your economists and your foreign counsel.

At the close of the litigation, close to 36% of transfer pricing matters are resolved, in whole or in part, in favour of the taxpayer. In such a technical field, the quality of the documentation and of the economic analysis often makes the difference.

Frequently asked questions

Transfer pricing: your questions

What is the arm's length principle?

It is the rule under which transactions between associated enterprises must be valued as if they took place between independent enterprises. It serves as the reference for article 57 of the French Tax Code and draws on the OECD principles.

Must my group maintain transfer pricing documentation?

Yes, if the thresholds of article L. 13 AA of the French Tax Procedure Code are met (turnover or gross assets greater than or equal to €400m at group level). Below that level, the tax authorities may nonetheless request information (French Tax Procedure Code art. L. 13 B). Insufficient documentation exposes the group to a penalty (French Tax Code art. 1735 ter).

Can the tax authorities reassess an SME on transfer pricing?

Yes. Article 57 applies regardless of the documentation thresholds as soon as there is a relationship of dependence and an indirect transfer of profits. Only the enhanced documentation obligation is reserved for large groups.

How can double taxation be avoided after a reassessment?

Through the mutual agreement procedures provided for by tax treaties and, where appropriate, by the European arbitration convention. The firm manages these procedures in liaison with the competent authorities.

Can a policy be secured in advance?

Yes, in particular through an advance pricing agreement (APA) with the tax authorities, unilateral or bilateral, which secures the method for future financial years.

Cité par

A transfer pricing reassessment?

A confidential initial consultation to analyse the method and comparability adopted, and to build a defence coordinated internationally.

Request a consultation

This page presents the audit of transfer pricing for information purposes; each matter calls for a specific economic and legal analysis. References to the French Tax Code, to the French Tax Procedure Code and to the OECD principles in force at the date of writing.