Doing Business in France - RSM International
Doing Business in France - RSM International
Doing Business in France - RSM International
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4.2.5 Controlled Foreign Company (CFC)<br />
Profits made by Controlled Foreign Companies (CFC) that are established <strong>in</strong> a low-tax<br />
countries and whose parent company is subject to French corporate tax are subject to<br />
said tax at the French parent company’s level (i) wherever the French company directly<br />
or <strong>in</strong>directly holds more than 50% of the shares <strong>in</strong> the subsidiary and (ii) wherever it<br />
cannot be proven that the subsidiary’s ma<strong>in</strong> activity is truly <strong>in</strong>dustrial or commercial<br />
carried on with non affiliated companies <strong>in</strong> said low-tax country.<br />
Safe-harbor clauses are provided by the French Tax Code <strong>in</strong> particular for CFC<br />
established <strong>in</strong> the European Union.<br />
4.2.6 Transfer pric<strong>in</strong>g<br />
The French Tax Code allows the French Tax Authorities to levy tax on a French enterprise<br />
that transfers profit to a related entity located abroad, if the <strong>in</strong>ter-company transactions<br />
are not carried out at an arm’s-length price.<br />
In addition, the French Tax Authorities are allowed to request <strong>in</strong>formation and<br />
documentation <strong>in</strong>volv<strong>in</strong>g transactions between associated enterprises. In practice, the<br />
French Tax Code provides that if, <strong>in</strong> the context of a tax audit, the French Tax Authorities<br />
have gathered sufficient evidence to presume that the French company transferred<br />
profits abroad, they may require said company to provide the follow<strong>in</strong>g documents and<br />
<strong>in</strong>formation:<br />
i. the features of the commercial relations exist<strong>in</strong>g with foreign affiliated enterprises<br />
with which transfers of profits are deemed to have occurred;<br />
ii.<br />
iii.<br />
iv.<br />
the method used to set the prices of the <strong>in</strong>dustrial, commercial and f<strong>in</strong>ancial<br />
operations carried out <strong>in</strong> the above affiliated enterprises, as well as evidence<br />
support<strong>in</strong>g this method and potential forms of consideration granted;<br />
the activity carried out by the affiliated enterprises with which transfers of profits<br />
abroad are deemed to have occurred;<br />
the tax treatment applied to the above operations by the foreign affiliated<br />
companies <strong>in</strong> question.<br />
These <strong>in</strong>formation and documentation must be provided to the Tax Authorities with<strong>in</strong><br />
two months after request.<br />
If the company fails to reply or does not provide sufficient <strong>in</strong>formation, a €10K f<strong>in</strong>e may<br />
be <strong>in</strong>curred for each fiscal year <strong>in</strong> question. Moreover, the Tax Authorities may, <strong>in</strong> that<br />
case, calculate the amount of the profit transfer on the basis of any <strong>in</strong>formation they<br />
may have <strong>in</strong> their possession.<br />
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