Updating the content of the transfer pricing documentation

Companies belonging to large economic groups (annual turnover not including tax or gross assets indicated in the balance sheet of at least 400 million euros) have an obligation to establish transfer pricing documentation, the content of which is prescribed by article L13AA of the tax procedure handbook. This documentation is only sent to the tax authorities upon their request and as part of an accounting audit.

Under the impetus of the BEPS report, the French government wished to impose on groups the documentation standard provided by Action 13 of the OECD plan.  Article 107 of the 2018 finance bill has updated the content of the documentation in France by requiring more detailed information on the group.

From now on, the documentation must include information on the design requirements of intangible assets, namely an indication of where the research equipment is located as well as on the intra-group agreements related to these assets.

A new category related to inter-company financial activities in a multi-national group has also been introduced.  It requires the company to provide information on important financing transactions including those with entities that do not belong to the group.

Contrary to Action 13 of the BEPS plan, the new French documentation standard does not require a general description of group policies on transfer pricing as related to research and development; it is, however, possible that this provision will be integrated into the implementing decree that will provide a clear structure for the documentation content.

Such standards have already been adopted by several European countries such as Germany, Belgium, the Netherlands and Spain.  This new wording of article L13AA allows the French tax authorities to to have access to the same information as their European neighbours.

These new obligations are therefore a means of simplifying the process and harmonising transfer pricing documentation standards across countries.

From a practical point of view, most international groups already comply with OECD standards in several countries, and will therefore be able to meet these requirements without any great difficulty.

The 2018 finance bill came into effect on 1 January 2018 and this provision applies to audits on financial years beginning after this date.