More disclosure demanded—with short time frame—on related-party transactions.
Cracking down on transfer pricing abuses is a high priority for the Obama administration. But it’s not only a US phenomenon. France has just passed new requirements for disclosure of related-party transactions in its amended budget law. While the requirements don’t specifically tighten transfer pricing guidelines, the additional documentation could shed unwelcome light on some related-party business practices.
According to a tax update from Deloitte, the documentation requirement applies to companies established in France that satisfy any of the following criteria:
1. The company’s annual turnover, excluding tax or gross assets on its balance sheet, is at least EUR 400 million;
2. The company holds directly or indirectly, at the close of the financial year, more than 50% of the share capital or voting rights of a legal entity (established in or outside France and including agencies, trusts, etc.) that satisfies the EUR 400 million turnover criterion;
3. More than 50 percent of the share capital or voting rights of the company are held directly or indirectly, at close of the financial year, by a legal entity (established in or outside France) satisfying the EUR 400 million criterion;
4. The company benefits from the consolidated profits tax regime (so all enterprises taxable in France that are part of a consolidated group are subject to the documentation requirement); or
5. The company belongs to a group that has elected the tax integration regime and at least one entity in the group satisfies any one of the four preceding criteria.
Deloitte says the new rules require that documentation provide general information on business activities by the subsidiaries and group as a whole in a “master file” as well as the activities of the local business. The documentation is required by the date the tax authorities say they will audit a company’s accounts. That could be a problem, Deloitte says, since tax authorities typically only give two weeks advance notice of an audit. The accounting firm therefore recommends that international groups prepare or adapt their transfer pricing documentation as soon as possible.