Transfer Pricing Lawyer

Form 2257-SD is mandatory for companies:

• established in France,
• whose turnover or gross assets exceed €50 million, or which belong to a group exceeding this threshold,
• and that carry out transactions with related entities established abroad.

This declaration must be filed within six months following the filing of the tax return (e.g., early November for a fiscal year ending December 31). Failure to file or any inconsistency between the Local File and 2257-SD is a strong indicator of risk for a tax audit.

In the absence of cross-border flows with related entities, reporting is not required.

Several signs may indicate a risk of transfer pricing adjustment, including:

• outdated or incomplete documentation,
• margin levels that are inconsistent with the functions performed and the risks assumed,
• intra-group financing that is unpaid or insufficiently remunerated,
• recurring losses within entities whose activity does not justify such a situation,
• significant differences between entities with comparable activities,
• the absence of intra-group contracts, or a discrepancy between contracts and operational reality.

A transfer pricing diagnosis makes it possible to identify and prioritize these risks, estimate the level of tax exposure, and formulate appropriate recommendations.

A transfer pricing benchmark involves comparing the margins or rates applied within the group to those those of independent companies engaged in a comparable activity.

Based on specialized databases, it identifies a market profitability range, within which the remuneration of the related entity must fall in order to be in line with the arm's length principle.

The benchmark is a central element of transfer pricing documentation and a key tool for justifying group policies, particularly in the event of a tax audit.

According to Article L.13 AA of the Tax Procedures Book, transfer pricing documentation includes:

• one Master File, prepared at the group level, presenting its organization, activities, and general transfer pricing policy,
• and a Local File, established for each entity concerned.

The Local File describes the entity, the intra-group transactions carried out and, for each of them, thefunctional analysis, the transfer pricing method used and its implementation, in order to demonstrate the compliance of the transfer pricing policy with the arm's length principle.

This documentation must be kept up to date, in practice by fiscal year, and made available to the tax authorities within 30 days upon request.

An advance pricing agreement (APA) provides certainty for several fiscal years regarding the pricing method applicable to one or more intra-group transactions.

It can be unilateral, bilateral, or multilateral, depending on the countries involved. Once concluded, the APA prevents the tax authorities from challenging the transactions covered, subject to compliance with the terms of the agreement and the absence of any significant change in circumstances.

Concluding an APA may be particularly relevant when the same intra-group flows are likely to be assessed differently by several tax administrations, with a risk of double taxation.

However, such an approach requires commitment in terms of time and sufficient anticipation, and is generally part of a negotiation process lasting several months.

In the event of a tax audit focusing on transfer pricing, the challenge is to anticipate the tax authorities' expectations, structure a coherent defense, and control the risk of reassessment.

Support can be provided at every stage of the audit:

• upstream, by analyzing existing documentation, identifying points of weakness and, where necessary, defining actions to be implemented to reduce the identified risks;
• during the audit, by managing exchanges with the tax authorities, defining the response strategy, and drafting observations;
• at the end of the audit, by implementing appropriate solutions, including amicable procedures or, if necessary, litigation.

This approach makes it possible to control the risk of reassessment and secure the group's positions on transfer pricing issues.