On 29 December 2023, France issued the Finance Law for 2024 (Law nº 2023-1322) in the Official Gazette, introducing several important measures with significant impact on the French taxpayers’ obligation to prepare the Transfer Pricing Documentation and elevating the amount of the applicable penalties in case the documentation is incomplete or inexistent.
What’s new?
Among other measures, the Finance Law introduces the Pillar II Income Inclusion Rule and Undertaxed Payment/Profit Rule for the implementation of the Global Minimum Tax of 15% for multinational groups with annual turnover of, at least, 750 million EUR in minimum two of the preceding four fiscal periods.
The Finance Law also includes a complementary national tax rule with regards to the introduction of a QDMTT (Qualifies Domestic Minimum Top-Up Tax) for in-scope group entities.
These rules will be applicable for fiscal periods commenced on or after 31 December 2023, with the exception of the Undertaxed Payment/Profit Rule that will be applicable a year later, for fiscal periods commenced on or after 31 December 2024.
Impact on Transfer Pricing
The Finance Law for 2024 also strengthens the capacity of the French Tax Administration to sanction the abusive use of Transfer Pricing rules for profit shifting.
In this sense, the annual turnover and gross assets threshold for the obligation of elaborating the Transfer Pricing documentation is reduced from the former 400 million EUR to 150 million EUR.
The minimum penalties applicable in case of incomplete or inexistent documentation is increased from 10,000 EUR to 50,000 EUR.
In case the Transfer Pricing method applied differs from that documented in the Local File, the burden of proof is shifted to the taxpayer, assuming profits may have been shifted abroad.
Considerations for hard to value (HTV) intangible asset transfers
- Tax Authorities may reassess the sale price based on the results after the transaction’s fiscal year.
- The standard 3-year period of the statute of limitation is extended to 6 years for HTV intangibles.
- The fiscal year in which the transaction took place can be subject to tax audit, even if it has already been subject to a full general tax audit previously (certain exceptions apply).
Key actions
To comply with the new requirements and mitigate risks arising from the changes, French taxpayers must carry out a risk assessment and ensure the preparation of the proper Transfer Pricing Documentation.
