Documentation transfer price: an update on the situation following the publication of the decree 2018-554 dated June 29, 2018

March 11th 2020

Alignment of the French regulations for transfer prices in accordance with the OECD recommendations

The 2018 finance law, published at the end of 2017, had updated the documentation content on transfer prices (Art. L.13 AA of the French Tax Procedure Code) by proceeding with an alignment of the provisions of the French General Tax Code with the standard set by the OECD in the context of action 13 of the BEPS project.

Since this update, the transfer price documentation to be kept by the relevant companies must be presented according to a double format:

  • A master file presenting the general and standardized information for the documentation of the group’s transfer prices
  • A local file with the specific information for such transactions

The implementation decree, published 6 months after the publication of the law, was accompanied by uncertainties and ambiguities, which were not raised in the administrative comments published on July 18, 2018
(BOI-BIC-BASE-80-10-40).

The contributions of the decree 2018-554 on the content of the transfer price documentation

On the one hand, the decree specifies the content of certain information and, on the other hand, sets rigorous formalities with regard to the structure of the documentation and the expected support for its communication, in particular, with regard to the figures behind the price transfer policy.

Accordingly, the documentation must be made available for the administration in an electronic format (e.g. PDF) and all the figures must be presented as data tables integrating calculation formula that are able to be verified by the administration (e.g. excel spreadsheets).

The documentation plan, which is obligatory, is defined as follows:

1. A Master File, divided into five sections, in the following order:

a. Organizational structure of the multinational group

b. Description of the multinational group’s sectors

c. The multinational group’s intangible assets

d. The multinational group’s intercompany’s financial activities

e. The multinational group’s financial and tax situation  

2. A Local File, divided into three sections, in the following order:

a. Entity in France

b. Controlled transactions

c. Financial information

A more stringent price transfer documentation and extended obligations for the French companies

Whilst the adjustments provided by the legislator mainly comply with the BEPS project’s recommendations, it is evident that the implementation decree and the BOFiP’s comments extend the requirements beyond the recommendations formulated by the OECD in the context of action 13 of the BEPS project.

This is particularly true with regard to the group’s organizational presentation or the information anticipated concerning the group’s intangible assets, requiring, in many situations, more extensive information to be provided than that recommended by the OECD.

Accordingly, whilst the companies’ upgrades to their price transfer documentation with the OECD standards is nonetheless necessary, it is not sufficient.

It appears to be general practice for French companies to develop this harmonization with the OECD standards in order to meet the specific requirements of the French regulations.

Nonetheless, the compliance with the French documentation requires a forward thinking strategy by French companies, given the quality and nature of the information required both by the “French” Master File and the Local File.

The groups’ practice of last minute price documentation being drafted during audits should be abolished and must be replaced by a forward thinking strategy upon the close of the annual accounts, more appropriate for the systematization and simplification for the setup of the price transfer documentation.

Clément Resta