Transfer pricing for SMEs in France: no mandatory documentation, but still audited
Your company does not reach the French transfer pricing documentation thresholds, but it invoices or pays for services, goods, royalties or interest with a related company established abroad? Article 57 of the French Tax Code (CGI) applies whatever the size of the enterprise. During an audit, the tax authorities may ask you to justify how your prices were set (French Tax Procedure Code, LPF, art. L. 13 B). This page covers that situation; the obligations of groups subject to documentation are covered in our transfer pricing in France pillar.
Does transfer pricing apply to an SME in France?
Yes. Where a French enterprise is dependent on, or controls, a foreign enterprise, the tax authorities may add back indirectly transferred profits if arm's length conditions are not met (CGI, art. 57), whatever its size. What depends on size are the formal obligations: form 2257-SD from €50m of turnover or gross assets, full documentation from €150m (LPF, art. L. 13 AA).
Note that the thresholds are not aggregated across related companies, but a small subsidiary more than 50% held by a company meeting the relevant threshold is not "below the thresholds". For companies not subject to article L. 13 AA, a tax inspector who has gathered evidence suggesting an indirect transfer of profits may request, during the audit, specific information on the method followed, with a reply period of at least two months (LPF, art. L. 13 B).
Sources: CGI, art. 57 and 223 quinquies B; LPF, art. L. 13 AA and L. 13 B (Légifrance, versions in force on 6 October 2026).
- Principle
- Arm's length between related companies, whatever their size (CGI art. 57)
- Thresholds
- Form 2257-SD from €50m; full documentation from €150m; extended to companies linked by more than 50% to an entity meeting the threshold
- Below the thresholds
- Information request during the audit, reply period of at least two months (LPF art. L. 13 B)
- Flows covered
- Purchases, sales, royalties, services and head-office costs, loans and advances
- Risk
- Transferred profit added back, late payment interest, possible penalties; €10,000 per year with no reply to an L. 13 B request
The arm's length principle applies to companies of every size
Article 57 of the CGI allows the tax authorities to add back to the profit of a French enterprise the profits indirectly transferred to a related enterprise established outside France, by increasing or reducing prices, or by any other means. No turnover threshold limits its scope. The reference is the arm's length principle: the conditions agreed between related companies must be those independent enterprises would have agreed.
The condition of dependence or control is not even required where the foreign enterprise is established in a preferential tax regime state or in a non-cooperative state or territory. The substantive rule is therefore the same for an SME and for a large group; only the formal obligations differ.
Are you really below the thresholds?
The thresholds are checked in three steps. A positive answer to any of the questions below takes the company out of the regime described on this page and into the one covered by the transfer pricing pillar.
- Does your company have turnover excluding VAT, or gross assets, of at least €50m (form 2257-SD) or at least €150m (full documentation, financial years beginning on or after 1 January 2024)?
- Is it more than 50% held, directly or indirectly, by a French or foreign company that reaches one of these thresholds? Or does it hold more than 50% of such a company?
- Does it belong to a French tax consolidated group one of whose members meets one of these conditions?
The lowering of the documentation threshold from €400m to €150m by the Finance Act for 2024 brought many French subsidiaries of medium-sized foreign groups within scope. An independent SME, owned by individuals and related to one or two small foreign companies, remains outside the formal obligations.
The article L. 13 B request during an audit
Where, during a tax audit or a remote examination of the accounts, the tax authorities have gathered evidence suggesting an indirect transfer of profits, they may ask an enterprise not subject to the documentation obligation for information on: the nature of its relations with the foreign enterprises, the method used to set its prices and the elements justifying it, the activities of the related enterprises, and the tax treatment of the transactions abroad.
The request must be specific: it states, by activity or product, the country, the enterprise and, where applicable, the amounts concerned. The reply period cannot be less than two months; it may be extended on a reasoned request, up to three months in total. An insufficient reply triggers a formal notice to complete it within thirty days.
The Conseil d’État set out the stakes (5 July 2023, no. 464928). If the reply sufficiently documents the method, the tax authorities must prove that the prices depart from arm's length. If it is missing or insufficient despite the formal notice, the tax authorities may set aside the enterprise's method and apply their own; all that remains is to challenge that method or the amount retained. The reply is therefore prepared before the audit, not during it.
A proportionate justification file
A company below the thresholds does not have to produce a master file and a local file. The aim is to be able to answer an L. 13 B request within two months, with a file updated every year:
- The organisation chart of the related companies and a description of their activities;
- The signed intra-group agreements (purchase, distribution, services, licence, loan), with their amendments;
- For each category of flow, the pricing method and its justification: prices charged to third parties, cost plus mark-up, market interest rate;
- The comparison data available (quotes, price lists, public studies, bank terms) and evidence that services were actually rendered;
- A simple reconciliation between these flows and the year's accounts.
Where this file sufficiently documents the method followed, it is for the tax authorities to establish that the prices depart from arm's length (CE, 5 July 2023, no. 464928). It is also useful on a sale of the company, where intra-group flows are systematically reviewed.
Typical flows of an SME related to foreign companies
In SMEs, reassessments most often concern simple situations: a French distribution company whose margin remains low or negative while the foreign company supplying it is profitable; management fees and head-office costs invoiced by a foreign holding company without proof of the services rendered; interest-free current account advances granted to a foreign subsidiary; trademark royalties paid to a foreign company owned by the manager.
Where the foreign company itself carries on business in France through the French company or its employees, the question may become one of permanent establishment. Withholding tax (CGI, art. 182 B) may also be due, under conditions, on certain royalties and services provided or used in France and paid abroad, subject to tax treaties and applicable exemptions.
Securing and defending
Upstream, the firm checks your position against the thresholds, maps intra-group flows and builds the justification file. Advance pricing agreements remain open to enterprises of any size (LPF, art. L. 80 B, 7°), but the simplified procedure formerly reserved for SMEs no longer applies (BOI-SJ-RES-20): whether one is worthwhile is assessed case by case.
During the audit, the defence focuses on the regularity of the L. 13 B request (specificity, time limit, formal notice), the comparability analysis adopted by the inspector and the economic reality of functions and risks. If a reassessment is upheld, the mutual agreement procedure under the tax treaty makes it possible to seek elimination of double taxation in the other state; each treaty can be consulted in our tax treaty atlas. The OECD methods, penalties and recent case law are detailed in our transfer pricing in France pillar.
Transfer pricing for SMEs: your questions
Is an SME concerned by transfer pricing in France?
Yes. Article 57 of the CGI applies to any enterprise related to a foreign enterprise, whatever its size. Only the formal obligations (form 2257-SD, full documentation) depend on thresholds.
Must my SME prepare transfer pricing documentation?
The full documentation under article L. 13 AA of the LPF is only mandatory from €150m of turnover or gross assets, an obligation extended to companies linked by more than 50% to an entity meeting that threshold. Otherwise, where they have gathered evidence suggesting a transfer, the tax authorities may request justification of the method during an audit (LPF, art. L. 13 B); a proportionate file, kept up to date, makes it possible to reply within the time limit.
Is the French subsidiary of a foreign group an SME for transfer pricing purposes?
Not necessarily. If it is more than 50% held by a company whose turnover or gross assets reach €150m, it must keep full documentation, even if its own turnover is modest.
How long do I have to answer an article L. 13 B request?
The period set by the tax authorities cannot be less than two months; it may be extended on a reasoned request up to three months in total. An insufficient reply triggers a formal notice to complete it within thirty days.
What is the risk where a price is not justified?
The transferred profit is added back, with late payment interest and, where applicable, penalties. Failure to reply to an L. 13 B request also triggers a €10,000 penalty per financial year covered (CGI, art. 1735, II). Without a sufficient reply to the L. 13 B request, the tax authorities may apply their own method. Double taxation may result, to be addressed through the mutual agreement procedure.
Tax litigation & international
An L. 13 B request or a transfer pricing reassessment?
A confidential initial consultation to check your position against the thresholds, prepare the reply and defend the method followed.
Sources
- French Tax Code (CGI), art. 57 and 223 quinquies B (versions in force on 6 October 2026)
- French Tax Procedure Code (LPF), art. L. 13 AA, L. 13 B and L. 80 B (7°)
- Law no. 2023-1322 of 29 December 2023, Finance Act for 2024, art. 116
- BOI-SJ-RES-20 (advance pricing agreements)
- CE, 5 July 2023, no. 464928
Cette note présente l'état du droit à sa date de publication et ne constitue pas un avis juridique. Chaque situation appelle un examen particulier.
This page presents transfer pricing for companies not subject to mandatory documentation, for information purposes; each matter calls for a specific analysis, including tax treaties and OECD principles. References to the French Tax Code and the French Tax Procedure Code in force at the date of writing.