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French Report Recommends TP Overhaul

by Ulrika Lomas,, Brussels

11 June 2013

In its latest report, the French General Inspectorate of Finance (IGF) has put forward a raft of recommendations aimed at strengthening existing transfer pricing rules applicable to international groups in France, to better combat tax optimization and avoidance by multinational companies.

The IGF was tasked with comparing international practices used to prevent tax optimization and avoidance via intra-group financial and economic transfers. On the basis of its analysis of regulations currently in place in the US, the UK, Germany, and the Netherlands, the IGF advocated a series of measures to reinforce the French Tax Administration's own arsenal in the area of transfer pricing.

Underlining the need for existing legislation to be adapted, clarified, and improved, the IGF recommended crucially the introduction of the arm's length principle. This principle provides that if affiliated parties enter into a transaction, third party conditions regarding the transaction are to be used, to ensure that transactions are based on principles customary in commerce.

Furthermore, the IGF suggested that the burden of proof be reversed in certain "risk situations," such as corporate restructuring, and proposed that sanctions and penalties be modified and toughened for groups failing to have the appropriate transfer pricing documentation in place. Finally, the body recommended that tougher accounting transparency rules be imposed on taxpayers, and that the Tax Administration has better access to pertinent accounting information in future.

The report has been published on the Finance Ministry's website.

TAGS: compliance | Finance | tax | tax compliance | Netherlands | tax avoidance | commerce | accounting | corporation tax | legislation | transfer pricing | France | Germany | regulation | penalties

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