Strengthening of Transfer Pricing Obligations

Since January 1, 2024, the Finance Law for this year has introduced significant measures regarding transfer pricing, modifying both the documentary obligations of companies and the audits conducted by the tax administration. This reform follows in the footsteps of the Essoc Law of August 10, 2018, and the Law of October 23, 2018, on combating tax fraud, reflecting a renewed ambition for tax transparency and the fight against abusive tax optimization.

1. Expansion of the Scope of Documentary Obligations

Since 2010, entities or establishments subject to transfer pricing documentation requirements were those whose net sales or total gross assets exceeded €400 million. The 2024 Finance Law amends Article L 13 AA of the Livre des procédures fiscales (LPF) by lowering this threshold to €150 million as of January 1, 2024.

This change increases the number of taxpayers subject to this obligation, without any adaptation or transition period. These companies must now comply with the new documentary requirements or face strengthened penalties, with minimum fines of €50,000 per year.

2. Enforceability of Documentation and Reversal of the Burden of Proof

The 2024 Finance Law also amends Article 57 of the Code général des impôts (CGI) to strengthen transfer pricing controls.

A new provision states that if the method used to determine transfer pricing differs from the one presented in the documentation submitted to the tax authorities, the discrepancy is presumed to constitute a transfer of profits abroad. However, the taxpayer may rebut this presumption by demonstrating, by any means, the absence of abusive transfer.

This provision has significant consequences in the event of a tax audit. It is common to observe discrepancies between the declared transfer pricing policy and the transactions recorded in accounting. From now on, the tax administration may challenge these discrepancies by presuming that they constitute a profit transfer, placing the burden on the taxpayer to prove otherwise.

3. Impact on French Taxpayers

Taxpayers subject to this new regulation must consider several key aspects:

• Increased scrutiny of the consistency between transfer pricing documentation and actual transactions.

• Greater responsibility in justifying any discrepancies, under the risk of tax reclassification.

• A need for rapid adaptation, given the absence of a transitional period to comply with these new requirements.

Affected companies must anticipate and adjust their documentation strategy to avoid potential tax reassessments.