FRANCE: TRANSFER PRICING ASSESSMENTS; WITHHOLDING TAX RELIEF FOR REPATRIATED PROFITS
New Article L. 62 A of the French tax procedure code (published in the official bulletin on 2 September 2015) sets forth rules that effectively regularize the tax treatment of certain profits transferred abroad by French taxpayers, and allows for the repatriation of these funds without additional tax—and in particular, without application of withholding tax. Under the “regularization process,” qualified deemed dividend distributions that are repatriated into France will not be subject to withholding tax, provided that the taxpayer-company accepts a transfer pricing reassessment made by the tax authorities—that is, a reassessment made under application of either Article 57 or Article 238 A of the French tax law. The new measure also applies to assessments related to reconsideration of the deductibility of expenses.
NEW PROCEDURE
An explanation of Article L. 62 A—provided in comments released by the French tax authorities—outlines the requirements for taxpayers to follow so that withholding tax does not apply on the deemed distributed income, transferred abroad.
First, this new procedure may be applied with respect to any company that was the subject of a proposed reassessment when profits transferred abroad are subsequently reintegrated in the taxable base of the company or when certain charges or expenses were later found to be non-deductible. Second, the amounts must have been considered to be “deemed dividends” by the tax authorities, thereby triggering a requirement for withholding tax pursuant to the provisions of an income tax treaty signed by France.
When these conditions are met, the new procedure under Article L. 62 A can be applied, provided that: (1) no collection notice has yet been issued for the payment of withholding tax; and (2) the beneficiary of the deemed dividends is not located in a “non-cooperative” country or territory.
CONDITIONS TO CLAIM THE PROCEDURE
The regularization procedure can be asserted by a company when it files a written request indicating: (1) the income potentially subject to withholding tax; (2) the amount of tax and related penalties; (3) the tax periods covered by the request; (4) the taxpayer’s acceptance of a reassessment, per the notice of the tax authorities; and (5) information on the distributed income repatriation procedures.
In the explanatory comments by the French tax authorities, it is noted that the repatriation of amounts qualifying as deemed dividends is to be made either through an effective payment or remittance made to the audited company or through the cancellation of debt (or a combination of both, when the amount of the debt of the audited company is less than the amount of the deemed dividends so recognized). The actual repatriation and evidence showing that repatriation has been accomplished must be completed and submitted within a 60-day period from the date when the tax authorities receive the taxpayer’s request.
Also in their explanatory comments, the French tax authorities indicated that taxpayers would not have an option to repatriate deemed dividends through the registration of a single accounting entry or by means of a capital contribution or a contribution to a current account facility.
To facilitate the implementation of this regularization process, a sample letter was provided in the official bulletin release.
POSSIBLE OUTCOME
If a taxpayer meets all the conditions provided by Article L. 62 A, the withholding tax and related penalties or sanctions will not apply. Because the transferred profits or a denied claim for deduction would already have been subject to tax in France through the reassessment by the tax authorities, the repatriated funds therefore would not be considered to be subject to corporate income tax of the audited French company.
