Transactions between a French company and the group companies established abroad are at the heart of the tax audit of groups. On the basis of article 57 of the French Tax Code (CGI), the tax authorities may add back the profits they consider to have been indirectly transferred out of France where the prices charged depart from arm's length prices. The firm documents and secures your transfer pricing policy, assists you during the audit, challenges reassessments and conducts the mutual agreement procedures designed to eliminate double taxation.
They check that the prices charged between a French enterprise and the foreign enterprises that control it, or that it controls, are those that independent enterprises would have agreed. If not, the difference is added back to the profit taxable in France (CGI, art. 57).
Three thresholds structure the obligations: €50m of turnover or gross assets for the annual return no. 2257-SD, €150m for the full documentation to be available when a tax audit begins (French Tax Procedure Code, LPF, art. L. 13 AA), and €750m of consolidated turnover for the country-by-country report. The thresholds are not aggregated across related companies, but the obligations extend to a company more than 50% owned by an entity meeting the threshold, or owning more than 50% of such an entity. Where the enterprise is not subject to article L. 13 AA and the tax authorities have gathered evidence suggesting an indirect transfer of profits, they may request, during the audit, justification of the method applied (LPF, art. L. 13 B).
Sources: CGI, art. 57, 223 quinquies B and 223 quinquies C; LPF, art. L. 13 AA and L. 13 B (Légifrance, versions in force on 6 October 2026).
Article 57 of the CGI, applicable to corporate income tax by virtue of article 209, provides that profits indirectly transferred to enterprises located outside France, "either by increasing or reducing purchase or sale prices, or by any other means", are added back to the results of the French enterprise that is dependent on them or controls them. It also covers sister companies: a French enterprise dependent on a group that also controls foreign enterprises.
The reference is the arm's length principle: the conditions agreed between related enterprises must be those that independent enterprises would have agreed in comparable circumstances. The OECD Transfer Pricing Guidelines, whose latest consolidated edition dates from January 2022, describe the methods and the comparability analysis; they are not tax legislation, but the tax authorities and the courts refer to them constantly.
The burden of proof lies in principle with the tax authorities. Under settled Conseil d’État case law, where they establish that the prices charged with a related foreign enterprise are lower (or higher) than those of similar enterprises operating normally, they establish the existence of an advantage, unless the French enterprise shows that it received consideration at least equivalent. Without such a comparison, they must demonstrate an unjustified gap between the agreed price and the market value of the goods or services.
For financial years beginning on or after 1 January 2024 (Finance Act for 2024, art. 116), a final paragraph creates a rebuttable presumption for enterprises required to keep documentation: where the method applied departs from the method described in the documentation made available to the tax authorities, the resulting difference in profit is deemed to be an indirectly transferred profit, unless proven otherwise. Documentation is therefore no longer merely supporting evidence: it becomes the standard against which actual prices are measured.
The choice of method is the first point of discussion with the tax inspector. The OECD Guidelines select the most appropriate method for the circumstances, taking into account the functions performed, assets used and risks assumed by each party (functional analysis), and the availability of reliable data on comparable transactions.
On 7 May 2026 (no. 496874), the Conseil d’État held that the mere fact that the method used by a company is not the most appropriate does not prove a transfer of profits: the tax authorities must also determine the arm's length price on the basis of relevant parameters and establish the gap. It also restated that transactions concluded between related companies cannot serve as comparables.
Direct comparison with the price of an identical or very similar transaction between independent parties, including those the enterprise itself concludes with third parties. The most direct method, but demanding in terms of comparability.
The resale price to the independent customer is reduced by the gross margin an independent distributor would have earned. Suited to distributors that do not add significant value to the product.
The supplier's costs are increased by an arm's length mark-up. Common for contract manufacturers, intra-group services and contract research.
Compares the net margin indicator of the tested party (for example, operating profit over turnover) with that of independent enterprises. A method frequently used in practice, based on databases of comparables.
Splits the overall profit of a transaction between the related enterprises according to their respective contributions. Reserved for highly integrated operations or cases where each party contributes unique intangibles.
The thresholds for form 2257-SD and for the documentation are assessed for each legal entity established in France, but the obligation extends to companies that hold more than 50% of the capital or voting rights of an entity that exceeds them, or more than 50% of which is held by such an entity, directly or indirectly, and to members of a French tax consolidated group that includes such a company. A small French subsidiary of a large foreign group is therefore often within scope.
| Obligation | Threshold | Content and deadline | Provision |
|---|---|---|---|
| Annual return no. 2257-SD | Turnover excluding VAT or gross assets ≥ €50m | Stand-alone annual return, described in the guidelines as a simplified version of the documentation: activity, intangibles, pricing policy, transactions with associated enterprises where the aggregate amount per category exceeds €100,000, main method. Filed within six months of the deadline for the corporate income tax return. | CGI, art. 223 quinquies B |
| Full documentation (master file and local file) | Turnover excluding VAT or gross assets ≥ €150m, for financial years beginning on or after 1 January 2024 (€400m previously) | Available from the date the tax audit begins; failing that, formal notice to produce or complete it within thirty days. | LPF, art. L. 13 AA |
| Additional documentation | Enterprises subject to documentation that transact with associated enterprises established in a non-cooperative state or territory | For each beneficiary enterprise, all the documents required from companies subject to corporate income tax, including balance sheet and income statement. | LPF, art. L. 13 AB |
| Country-by-country report | Consolidated turnover ≥ €750m | Country-by-country allocation of the group's profits and aggregates, within twelve months of the year end; due from the French company that prepares consolidated accounts and is not held by an entity already required to file an equivalent report, or, in certain cases, from the French entity of a foreign group. | CGI, art. 223 quinquies C |
| Information request during an audit | Enterprises not subject to article L. 13 AA | Reply within the period set by the tax authorities, at least two months, extendable up to three months in total. | LPF, art. L. 13 B |
The €150m threshold results from the Finance Act for 2024 (Law no. 2023-1322 of 29 December 2023, art. 116), which lowered it from €400m for financial years beginning on or after 1 January 2024. The 2257-SD threshold remains €50m. A significant number of subsidiaries and mid-sized groups previously exempt must now have full documentation available on the day an audit begins.
Public CbCR, which is distinct from the country-by-country report filed with the tax authorities, is covered in a separate note (in French): public CbCR, first report by 31 December 2026.
A transfer pricing review takes place within a tax audit or a remote examination of the accounts. For enterprises subject to article L. 13 AA, the documentation must be available from the date the audit begins. If it is missing or incomplete, the tax authorities send a formal notice to produce or complete it within thirty days, specifying the documents expected and the applicable penalties.
For other enterprises, article L. 13 B allows the inspector who has gathered evidence suggesting an indirect transfer of profits to request specific information: the nature of the links with the foreign enterprises, the pricing method and the elements justifying it, the activities of the related enterprises, and the tax treatment of the transactions abroad. 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 reply is decisive. The Conseil d’État held (5 July 2023, no. 464928) that, where the enterprise sufficiently documents the method it followed, it is for the tax authorities to establish that the prices charged differ from arm's length prices. Where it does not reply, or replies insufficiently despite the formal notice, the tax authorities may set aside its method and apply the one they consider most appropriate; the enterprise can then only challenge that method or show that the reassessment is excessive. In that case, recurring losses in France against steady profits at the foreign subsidiary were enough to justify the request.
Failure to reply, or a partial reply, to the formal notice under article L. 13 AA (or L. 13 AB) triggers, for each audited financial year, a penalty of up to, depending on the seriousness of the failures, the higher of two amounts: 0.5% of the transactions covered by the documents not produced, or 5% of the article 57 reassessments relating to those transactions. The penalty cannot be less than €50,000 (CGI, art. 1735 ter).
Failure to file form 2257-SD, and omissions or inaccuracies in it, fall under the penalties of article 1729 B of the CGI. Failure to reply to an L. 13 B request triggers a penalty of €10,000 for each financial year covered (CGI, art. 1735, II). Where there is no reply to an L. 13 B request or the documentation is not produced, the tax base is assessed by the tax authorities on the basis of the information available to them, under the adversarial procedure (CGI, art. 57).
Beyond the corporate income tax due, late payment interest and, where applicable, penalties for deliberate failure, the advantage may be treated as a deemed distribution to the foreign company (CGI, art. 111, c) and subjected to the withholding tax of article 119 bis, 2 of the CGI, subject to tax treaties and applicable exemptions. The reassessment may also affect the business value-added contribution (CVAE).
Assumptions (simplified, for illustration). A French company distributes in France the products manufactured by its foreign parent company, whose turnover exceeds €150m. The subsidiary has turnover of €40m and buys €30m of goods from its parent. Its operating margin is 0.5%, a profit of €200,000. A benchmarking study of independent distributors shows operating margins between 2% and 4%, with a median of 3%.
| Step | Calculation | Amount |
|---|---|---|
| Arm's length profit retained by the inspector (median) | €40,000,000 × 3% | €1,200,000 |
| Profit reported | €40,000,000 × 0.5% | €200,000 |
| Article 57 reassessment | €1,200,000 − €200,000 | €1,000,000 |
| Corporate income tax at the standard 25% rate | €1,000,000 × 25% | €250,000 |
| Maximum penalty if the documentation is not produced after formal notice | higher of 0.5% × €30,000,000 (€150,000) and 5% × €1,000,000 (€50,000), minimum €50,000 | €150,000 |
The additional tax is increased by late payment interest, the social contribution where applicable and, if the advantage is treated as a distribution, possible withholding tax. As the subsidiary is more than 50% held by an entity exceeding €150m, it must keep full documentation even though its own turnover is below the threshold. The defence turns on three points: the relevance of the comparables (functions, risks, market), the position retained within the range, and the subsidiary's own circumstances (start-up phase, foreign exchange losses, documented market penetration strategy).
In practice, reassessments concentrate on a few flows: trademark and patent royalties, intra-group services and head-office costs, reorganisations and transfers of functions, risks or intangibles, intra-group financing (interest rates, guarantees, cash pooling), and the margins of distributors and contract manufacturers. Each calls for its own economic analysis.
Intra-group services have their own evidential logic, set out in our note on management fees and head-office costs: reality of the service, benefit to the paying company, no duplication, allocation key. Where the activity carried out in France by a foreign company goes beyond a mere flow of goods, the question becomes that of a permanent establishment for corporate income tax and, for VAT, a VAT fixed establishment; the attribution of profits to a permanent establishment is also governed by the arm's length principle.
A transfer pricing reassessment in France creates economic double taxation: the same profit is taxed in France and in the state of the related company. Three routes make it possible to obtain a corresponding adjustment in the other state.
According to the administrative guidelines, acceptance of a reassessment by the enterprise, even following a settlement, an overall agreement or a regularisation during the audit (LPF, art. L. 62), does not deprive it of the right to request the opening of the EU dispute resolution procedure (BOI-INT-DG-20-30-30-10). The choice of route, its interaction with domestic litigation and the timetable are decided as soon as the proposed reassessment is received.
An advance pricing agreement (APA) is a formal position taken by the tax authorities on the method for determining the prices of future intra-group transactions. It is binding on the tax authorities under article L. 80 B, 7° of the LPF, where it has been concluded either with the competent authority of a state that has a tax treaty with France (bilateral agreement) or with the taxpayer alone (unilateral agreement).
Only a bilateral agreement protects on both sides of the border; a unilateral agreement does not rule out a reassessment in the other state. A request for a bilateral agreement must be filed at least six months before the start of the first financial year covered, after a preliminary meeting with the tax authorities; an ongoing audit does not prevent a request concerning future transactions, but the request does not suspend the audit (BOI-SJ-RES-20-10). The simplified procedure formerly available to SMEs no longer applies (BOI-SJ-RES-20).
These decisions draw a clear line: where the enterprise has sufficiently documented its method, it is for the tax authorities to establish the gap with arm's length conditions; absent a sufficient reply, the tax authorities may apply their own method, the enterprise retaining the right to challenge it and its amount. In practice, the firm orders its work accordingly: document first, then discuss comparability.
Convertible bonds subscribed by a French company in its wholly owned foreign subsidiary, bearing 1.085% against 4.41% for an arm's length bond loan. The conversion option cannot justify the gap: it has no value for a sole shareholder. The transaction is treated as intra-group financing remunerated below its value.
How article L. 13 B works: where the enterprise sufficiently documents its method, the burden of proving the gap lies with the tax authorities; absent a sufficient reply after formal notice, the tax authorities may set aside the enterprise's method and apply their own. Recurring losses of a parent company against steady profits of its distribution subsidiary.
Services invoiced by a French company to its foreign subsidiaries at cost plus 10%. The inspector relied on an equal profit split drawn from clauses agreed between related companies. The tax authorities failed to establish the gap: transactions between related companies are not relevant comparables, and the fact that a method is not the most appropriate does not prove a transfer. The decision does not, as such, validate the 10% mark-up.
Ahead of any audit, the firm helps to document and secure the transfer pricing policy: checking thresholds and scope, reviewing intra-group agreements, ensuring consistency between the documentation, form 2257-SD and actual flows, and assessing whether an advance pricing agreement is worthwhile. During the audit, the defence focuses on the comparability analysis adopted by the inspector, the choice of method, the economic reality of functions and risks, the regularity of the procedure (L. 13 B request, formal notice, time limits) and the interaction with tax treaties. We work in coordination with the group's economists and 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.
Companies not subject to the documentation obligation will find a dedicated analysis in our note on transfer pricing for SMEs: article 57 without a documentation obligation, the L. 13 B request and a proportionate justification file.
François Ouairy, partner admitted to the Paris Bar, leads the firm's work on transfer pricing: upfront analysis, assistance during the audit, mutual agreement procedures and defence before the tax authorities and the courts. Firm ranked Best Lawyers 2026.
It is the rule under which transactions between associated enterprises must be concluded on the terms independent enterprises would have agreed in comparable circumstances. It is the reference for article 57 of the French Tax Code and draws on the OECD Transfer Pricing Guidelines.
For financial years beginning on or after 1 January 2024, from €150m of turnover excluding VAT or gross assets (LPF, art. L. 13 AA), compared with €400m previously. The obligation extends to companies more than 50% held by an entity reaching that threshold, to companies holding such an entity, and to members of a tax consolidated group that includes one.
Legal entities established in France whose turnover excluding VAT or gross assets reach €50m, those holding more than half of the capital or voting rights of an entity reaching that threshold or more than half of which is held by such an entity, and members of a tax consolidated group that includes one (CGI, art. 223 quinquies B). It is filed electronically within six months of the deadline for the corporate income tax return. The detailed statement of transactions only covers categories whose aggregate amount exceeds €100,000.
After a formal notice that receives no sufficient reply, the penalty may reach, for each audited year, the higher of 0.5% of the undocumented transactions and 5% of the related reassessments, with a minimum of €50,000 (CGI, art. 1735 ter).
Yes. Article 57 applies regardless of the size of the enterprise as soon as there is a relationship of dependence and an indirect transfer of profits. Where the enterprise is not subject to the documentation obligation, the inspector may request justification of the method during the audit (LPF, art. L. 13 B).
Through the mutual agreement procedure under the applicable tax treaty, the EU Arbitration Convention (90/436/EEC) or the dispute resolution procedure under Directive (EU) 2017/1852 (LPF, art. L. 251 B et seq.). According to the guidelines, accepting the reassessment does not prevent recourse to the EU dispute resolution procedure.
Yes, through a unilateral or bilateral advance pricing agreement (LPF, art. L. 80 B, 7°). A bilateral request is filed at least six months before the start of the first financial year covered. Only a bilateral agreement protects in both states.
A confidential initial consultation to analyse the method and comparability adopted, check the procedure and build a defence coordinated with the other state.
Sources
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 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.
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