Transfer prices are defined as the prices of transactions between entities within the same group that are resident in different countries. They cover the sale of goods and merchandise, as well as all inter-company service arrangements. The transfer prices used between subsidiaries can have a direct and significant impact on the group’s tax position.
What are the French rules in this area? Here is what you need to know about the current legislation.
Understanding the French Regulatory Framework
The arm’s length principle requires that intra-group transaction prices be aligned with those charged between independent companies. In France, this requirement is governed by the General Tax Code (CGI) and Article L.13 AA of the Tax Procedures Code (LPF).
Since 1 January 2024, companies with annual turnover or gross assets exceeding €150 million are required to prepare detailed documentation on their transfer pricing policies and keep it available for the tax authorities at all times (see below).
Companies with annual turnover or gross assets of €50 million or more, as well as those that hold a subsidiary or are held by direct or indirect shareholders, must also file an annual transfer pricing return within 6 months of submitting their tax package.
Finally, companies that directly or indirectly hold or control one or more legal entities established outside France, or that have foreign branches, and whose consolidated annual turnover is at least €750 million, are subject to Country-by-Country Reporting (CbCR). Within 12 months of the financial year-end, these companies must report their activities and profits on a country-by-country basis.
These three distinct obligations were introduced to prevent the indirect transfer of profits abroad between group entities and to curb aggressive tax planning.
Preparing Compliant Documentation
Transfer pricing documentation must be prepared in advance and be available at all times for the tax authorities, particularly in the event of a tax audit. It generally comprises two components:
Master File: a presentation of the group, its activities, its organisational structure and its global transfer pricing policy.
Local File: a document setting out all details specific to the French entity, including intra-group transactions, functional analyses and pricing methods.
This documentation must demonstrate that the prices applied comply with the arm’s length principle, drawing in particular on comparability analyses.
Note: several countries have adopted the OECD global documentation standard also applied in France — including Germany, China and Spain. In these jurisdictions, the Master File prepared for France can be reused, and the same format may be retained for the Local File.
Identifying the Entities Concerned
Transfer pricing obligations apply to French companies or establishments based in France that have relationships with related entities, whether located in France or abroad. These prices must be anticipated before setting up in France in order to limit risk.
SMEs and mid-sized companies, even if often below the relevant turnover thresholds, are not exempt. In the event of a tax audit, they may be required to provide the same information as larger companies. This is why the subject should not be overlooked, even by businesses that do not appear to be directly concerned.
Anticipating Penalties for Non-Compliance
Failure to comply with transfer pricing obligations exposes businesses to significant financial penalties. Since 2024, the fine for absent or insufficient documentation is a minimum of €50,000 per financial year. It can reach 0.5% of the value of undocumented transactions or 5% of any tax reassessment made.
As for Country-by-Country Reporting, companies that fail to comply are liable to a fine of up to €100,000.
Ensuring Consistency Between Documentation and Actual Practice
Transfer pricing documentation is legally binding on the company. This means that if the methods described do not reflect actual practice, the tax authorities may presume an indirect transfer of profits. It is therefore essential to ensure full consistency between the documentation, the contracts and the company’s actual operations.
Managing Hard-to-Value Intangible Assets
Intangible assets such as patents and trademarks present particular valuation challenges. The 2024 Finance Act allows the tax authorities to reassess these assets on the basis of results arising after the transaction, extending the reassessment period to six years.
Integrating Transfer Pricing into Your Setup Strategy
Transfer pricing is not merely a tax obligation, it also shapes the company’s setup strategy. A well-defined policy can help optimise the group’s overall tax burden while facilitating relations with the authorities. It is therefore advisable to factor in this dimension from the very first stages of establishing a presence in France.
Working with Specialists
Given the complexity of transfer pricing rules and the associated risks, engaging international tax specialists is strongly recommended. Specialist lawyers or chartered accountants can support you throughout the process.
Key Takeaways
A successful setup in France requires careful attention to transfer pricing rules — thorough advance preparation and consistent documentation are essential to meet tax requirements and avoid penalties.
France imposes three transfer pricing obligations (depending on turnover thresholds): documentation, annual filing and Country-by-Country Reporting.
Transfer pricing must be considered from the outset of the setup process to limit tax risk.
Intra-group transactions must be aligned with market prices charged between independent entities.
Non-compliance exposes businesses to significant financial penalties under French law.
