Draft Finance Bill 2024: Transfer pricing measures already announced

15^th june 2023

The government's roadmap in the fight against “all forms of frauds” includes several measures relating to transfer pricing to be included in the PLF for 2024. The measures are designed to build trust and effective accountability between the taxpayers and the tax administration. In terms of security, a substantial increase in the tax administration workforce should enhance access to Advance Pricing Agreements. 

To “enhance” the position of the tax authorities during transfer pricing audits, more taxpayers would fall in the scope of the transfer pricing documentation requirement.  The threshold would be decreased to €150 million turnover or gross assets (currently €400 million) [note: this threshold is assessed at the level of the French company or other companies in the group]. Greater attention should also be paid to transfer pricing documentation: higher penalties would be imposed for lack or insufficient documentation and, where the transfer pricing policy implemented is not in line with the documentation, the burden of proof would fall with the taxpayer instead of the tax authorities. This would be a significant change because case law shows that it is still difficult to provide convincing evidence.

Another measure, which should not be limited to companies falling within the scope of transfer pricing documentation, presented as the implementation of the OECD's BEPS actions, would extend the statute of limitation when the French company transfers hard-to-value intangible assets to foreign related parties. Some intangible assets are difficult to value at the time of the sale. The purpose of the measure is to favor a review of the terms and conditions years after the transfer to take into account real results produced by the intangible (ex post approach).

The reform cannot be limited to this position, which is unfavorable to taxpayers: in order to comply with the rule underlying transfer pricing, according to which associated enterprises must act in a manner similar to independent enterprises, the OECD Transfer Pricing Guidelines also state that ex post elements should only be used if they could have reasonably been taken into account by the associated enterprises at the time the transaction was concluded (2. of Annex II to Chapter VI.). A pure ex post analysis, which is clearly favorable to the tax authorities, is not in line with economic reality: we have to consider "that the probability-weighting of such an outcome requires scrutiny, taking into account what was known and could have been anticipated at the time of entering into the transaction involving the HTVI [hard-to-value intangible]" (6. of Appendix II to Chapter VI.). According to the OECD, this approach is not intended to apply if “the taxpayer provides […] details of the ex ante projections used at the time of the transfer to determine the pricing arrangements, including how risks were accounted for in calculations to determine the price" (OECD Guidelines 6.193).

With a view to providing certainty to the taxpayers, the OECD was also careful to specify that “tax administrations should identify and act upon HTVI transactions as early as possible." (10. of Annex II to Chapter VI.).

The PLF for 2024 will have to take this into account if it is not to create an unfair situation that does not reflect the situation that would prevail between independent companies.