The idea behind the APA procedure is to provide multinational companies with a stable tax environment.

French or foreign companies that seek tax certainty can ask the tax administration’s agreement on an appropriate transfer pricing methodology they will apply to all future intra-group transactions.  

These arrangements are especially designed for situations where the implementation of the arm’s length principles raises major issues concerning reliability and accuracy, or when the specific conditions in which the transactions are carried out are unusually complex.

They provide a preventive solution to the uncertainty faced by multinational companies whilst, at the same time, ensuring the chosen method complies with tax legislation and with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

APA scope

Arrangements may be signed either unilaterally, bilaterally or bi/multilaterally with States having entered with France a tax convention that contains the equivalent of article 25 of the OECD Model Tax Convention.

The APA procedure

Request for an APA

Before filing a request, companies should contact the French Competent Authority to assess the circumstances in which an arrangement could be requested and examined.

The official request must be sent to the French Competent Authority at least six months prior to the first financial year concerned by the arrangement. As a result, companies with a 31 December year-end must send requests to the French Competent Authority before 30 June of the year prior to the first financial year referred to in the request.

However, when appropriate, the French Competent Authority can deliver APA containing a 3-year roll-back period.

As a minimum requirement for validity, the APA request must contain the following information and documents:

General information

- A list of the entities covered by the request for advance arrangement (company name, address and tax identification number);

- The description of the transactions covered by the request;

- The type of request (unilateral, bilateral, multilateral);

- A list of the other States party to the request (if applicable); 

- The desired duration (years) of the agreement and the financial years concerned;

- The organisation chart of the entire group with the capital structure;

On-the-shelf information 

- The group's master file in accordance with Article L. 13 AA of the French Tax Procedures Code (LPF) for the last three tax years;

- The local file of each covered entity in accordance with Article L. 13 AA of the LPF for the last three tax years;

- The parent entity's tax returns for the last three tax years;
Information relating to the transfer pricing method 

- A description of the proposed transfer pricing methodology;

- A justification of the proposed transfer pricing methodology (functional and economic analyses);
Financial data 

- A spreadsheet detailing, by transaction and by financial year covered, the actual or estimated financial implications;

- A spreadsheet presenting the income statement of the entity(ies) tested in the light of the proposed transfer pricing method;

- A spreadsheet presenting the studies of comparables (‘benchmarks’) where applicable;
Other information 

- An indication, for the transactions covered by the agreement, of the functional currency of each party and the currency in which the transactions between the parties are settled;

- An indication of the prior agreements entered into by other group companies or relating to transactions other than those covered by the request for agreement submitted to the French authorities;

-  The description of the main financial accounting methods used by the entities established abroad and which have a direct impact on the proposed transfer pricing method;

- The description of any question relating to the transfer pricing method, which has been examined or is still being examined, indicating the position of the taxpayer and that of the administration concerned and the solution eventually adopted. Finally, any other information that may have an impact on the transfer pricing methodology and the underlying data of any party to the request.

Processing the APA request

As part of its due diligences about the request, the French Competent Authority may ask the taxpayer for further information. The latter endeavors to reply as soon as reasonably possible and cooperates fully.

Once the French Competent Authority has made-up its position regarding the transfer pricing policy put forward by the taxpayer, negotiations begin either directly with the taxpayer for unilateral APAs or with the foreign Competent Authority for bilateral APAs.

For bilateral APA requests, the administration keeps the taxpayer informed of the progress made during the discussions with the foreign Competent Authority and may request them to provide further information as discussions continue.

Obtaining an APA

It should be noted that the French Competent Authority is not under any obligation as regards the outcome of discussions on an APA request.

Hence, should negotiations fail, the taxpayer is informed that their request has been dismissed. In the event of transfer pricing adjustments for the financial years covered by the failed APA request, the double taxation may be eliminated as part of the mutual agreement procedure.

Should the competent authorities reach an agreement, the taxpayer may either accept or reject it.

If the company accepts it, it has the assurance that provided that the terms and condition of the APA are met, the covered tax administrations may not challenge the transfer pricing policy during the period covered by the arrangement.

When the agreement is refused by the taxpayer, any future double taxation may be eliminated as part of the mutual agreement procedure.

Information provided during a request for an APA is confidential

The French competent authority does not disclose any information provided by the group as part of its request for an APA to third parties other than the competent authority party to the arrangement.

France has however entered a number of international agreements (treaties, directives) that provide for exchange of information in various contexts (tax conventions, EU, OECD). In some cases, certain information set out in the arrangements may be disclosed to the country where a foreign enterprise associated with a French enterprise is based.

The APA procedure is independent of any tax audit. This means that a taxpayer subject to an audit may file an APA request for his or her future transactions at any time. No information will be provided to the audit department.