France – Enhanced penalty proposed for transfer pricing documentation noncompliance

November 28:  The French legislative assembly on 18 November 2014 passed a draft Finance Bill for 2015, thereby sending the bill to the Senate for its consideration. One of the provisions in this legislation would “tighten” the transfer pricing penalties for a taxpayer’s failure to respond to a request by the tax authorities for production by the taxpayer of its transfer pricing documentation.

Background

Taxpayers are required to maintain contemporaneous documentation of their transactions with related parties—transfer pricing documentation—and to submit this transfer pricing documentation to the tax authorities on request.

When a taxpayer fails to respond to a request by the French tax authorities for production of its transfer pricing documentation (as provided for by Articles L 13AA and L 13AB of the French tax procedures regime), penalties apply—with the penalties equal to 0.5% of the amount of related transactions covered by the transfer pricing documentation or, if greater, €10,000 up to 5% of the transfer pricing reassessment.

Enhanced penalty regime under proposal

The legislation proposes to tighten the penalty regime applicable for taxpayer failures to honor transfer pricing documentation requests. The proposed measure would shift the penalty regime from a lump-sum penalty of €10,000 when no reassessment has been made, to a 0.5% penalty that would be based on the value of related transactions subject to the transfer pricing documentation requirement.

In other words, the effect would be to determine imposition of the penalty by reference to a turnover basis, instead of a profit basis.