Advance pricing arrangement
The idea behind the APA procedure is to provide multinational enterprises with a stable tax environment.
French or foreign companies that wish to benefit from the procedure can receive the tax administration’s agreement on an appropriate transfer pricing methodology that will apply to all their future intra-group transactions.
These arrangements are intended to apply, in particular, when the implementation of 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 problems faced by multinational enterprises whilst, at the same time, ensuring that the method chosen in compliance with tax legislation is in conformity with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
APA scope
Arrangements may be signed either unilaterally, bilaterally or multilaterally with States having executed a tax convention with France.
The APA procedure
Request for an APA
Before actually filing a request, companies should contact the competent French authority to assess the circumstances in which an arrangement could be requested and examined.
A full request must be sent to the competent French authority at least six months prior to the start of the first financial year concerned by the requested arrangement. As a result, companies with a 31 December year-end must send requests to the competent French authority before 30 June of the year prior to the first financial year referred to in the request.
As a minimum requirement for validity, the APA request must contain the following information and documents:
- The organisation chart for the whole group with a list of entities covered by the request; corporate name, address, tax ID number
- A description of the group’s industrial or commercial transactions, its world-wide organisational structure, shareholding, the main transaction flows between the parties
- Financial and tax data regarding the parties for the last three tax years, and any other information or document in support of the proposed transfer pricing methodology
- A functional analysis of each party setting out their business activities, the assets used, the financial costs incurred and risks assumed
- An economic analysis or study of price setting practices and of the business activities carried on, as observed in the professional sector within the geographic areas covered by the arrangement
- A list of the taxpayer’s competitors and a case study of a number of transactions, type of activity or non-controlled companies, which may be comparable or similar to those referred to in the request
- Details of appropriate measurements of investment profitability and return
- A detailed study of the research carried out and the criteria applied to identify and choose the independent data able to be compared, and the way in which the criteria were applied to the potential points of comparison
Processing the request for an APA
As part of processing the request, the competent French authority may ask the taxpayer for further information. The latter undertakes to reply as soon as reasonably possible and to cooperate fully.
Once the competent French authority has adopted its position regarding the method for determining the transfer pricing put forward by the taxpayer, negotiations begin either directly with the taxpayer for unilateral APAs or with the competent foreign authority for bilateral APAs.
For bilateral APA requests, the administration keeps the taxpayer apprised of the progress made during exchanges with the competent foreign authority and may request him to provide further information as discussions advance.
Obtaining an APA
It should be noted that the competent French authority is not under any obligation as regards the outcome of discussions on a request for an APA.
In light of the foregoing, should negotiations break down, the taxpayer is informed that his or her request has been dismissed. In the event of transfer price adjustments for the financial years having been subject to an APA request, any double taxation may be eliminated as part of the mutual agreement procedure.
Should the competent authorities reach an agreement, the taxpayer is advised of this and may either accept or reject it.
If he or she accepts it, the taxpayer has the assurance that the signatory tax administrations may not challenge the transfer pricing policy during the period covered by the arrangement and on the basis of its terms and conditions.
In the event of a refusal, 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 undertakes not to disclose any information provided by the group as part of its request for an APA to third parties other than the competent authority that is party to the arrangement.
France has however executed a number of international agreements (treaties, directives) that provide for the exchange of information in various contexts (tax conventions, EU, OECD). In some cases, certain information set out in the arrangements may be sent 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.