The lowering of the reporting threshold from €400 million to €150 million in revenue or gross assets, introduced by Article 116 of the 2024 Finance Act, has brought hundreds of mid-sized companies and French family-owned groups within the scope of transfer pricing documentation requirements. For many of these groups, this is their first encounter with a regulatory framework they are unfamiliar with, and whose practical implications are often underestimated.
This article provides an overview of the applicable requirements, common mistakes observed in practice, and practical steps for achieving compliance.
A new threshold, new companies affected
From 400 million to 150 million euros
Until the 2023 fiscal year, the requirement to prepare comprehensive transfer pricing documentation ( Master File and Local File) applied only to companies whose annual turnover excluding tax or gross assets on the balance sheet exceeded €400 million, or that were owned by an entity exceeding this threshold, or that owned such an entity (Article L. 13 AA of the Book of Tax Procedures).
Section 116 of the 2024 Finance Act lowered this threshold to 150 million euros. This measure applies to all fiscal years beginning on or after January 1, 2024.
In practice, it is primarily growing French mid-sized companies and family-owned groups that are now subject to these requirements: regional industrial groups, as well as companies in the construction, agri-food, and services sectors, which have surpassed the €150 million threshold as they have grown, without ever having had to formally address transfer pricing issues.
From minimal documentation to comprehensive documentation
Prior to the 2018 reform, French companies subject to the requirements of Article L. 13 AA of the French Tax Code (LPF) could rely on simplified documentation specific to the French framework. Since 2018, France has implemented the OECD’s recommendations under Action 13 of the BEPS project and now requires comprehensive documentation structured in two parts:
- The Master File provides an overview of the group as a whole: its activities, organizational structure, overall transfer pricing policy, and the allocation of revenue and functions among the group’s entities. It does not address the details of intra-group transactions involving a specific entity, but rather offers a comprehensive view of the group’s economic rationale.
- The Local File is specific to each entity. It describes its intra-group transactions, functional analyses (functions performed, risks assumed, assets used), the transfer pricing methods adopted, and the comparability studies justifying that the prices charged are at arm’s length.
For mid-sized companies that exceed the €150 million threshold, this means they must submit documentation in the OECD Action 13 format, rather than a simplified version.
The Annual 2257-SD Report
In addition to the documentation, companies must file an annual transfer pricing policy statement (Form 2257-SD), as required byArticle 223 quinquies B of the French General Tax Code. This statement summarizes the main intra-group transactions, the transfer pricing methods used, and the amounts involved.
The threshold for filing Form 2257-SD is €50 million in revenue or gross assets. This threshold is therefore lower than that for the reporting requirement (€150 million): in practice, mid-sized companies newly subject to reporting under Article L. 13 AA of the LPF were often already required to file Form 2257-SD. For groups that had not yet filed it, this return must be submitted within six months of the deadline for filing the income statement.
The most common compliance errors
Beyond the sheer lack of documentation, several compliance errors are regularly observed among companies that are just becoming aware of these obligations.
A single Local File for multiple entities
Some groups prepare a single local file covering all of the group’s French entities. However, Article L. 13 AA of the LPF stipulates that the documentation must be prepared by each entity subject to the requirement. Each group company that meets the threshold requirements, either directly or through its ownership structure, must have its own Local File, describing its specific intra-group transactions, its own functional analysis, and the justification for the prices charged at its level.
A single local file, even if its content is comprehensive, does not meet regulatory requirements and exposes each affected entity to the risk of penalties for inadequate documentation.
A single Local File for multiple exercises
Similarly, it is not acceptable to prepare a Local File covering multiple tax years. The documentation must be updated annually and reflect the transactions, financial data, and comparability analyses for the relevant tax year. A Local File labeled “tax years 2024–2025” does not meet this requirement.
In the event of a tax audit, the tax authorities are entitled to request separate documentation for each fiscal year under review. The absence of proper documentation for a given fiscal year constitutes a failure to provide documentation, even if documentation exists for another fiscal year.
Outdated documentation
The benchmark (comparability study) is a central component of the documentation. It must be conducted or updated at regular intervals to reflect the current market conditions relevant to the transactions being documented. A benchmark conducted in 2020 cannot, in 2026, serve as justification for the prices charged: economic conditions have changed, comparable companies may have shifted in profile, and the financial data is no longer representative.
The lack of documentation for groups without cross-border transactions
Some family-owned groups with revenues exceeding €150 million have no foreign subsidiaries and conduct all their intra-group transactions between French entities. A common mistake is to assume that the absence of cross-border transactions means that no documentation is required.
It is true that, in this scenario, transfer pricing issues in the strict sense are limited: transactions between French entities subject to corporate income tax at the same rate are not subject to adjustment under Article 57 of the General Tax Code, even though they may be subject to adjustment on the grounds of an abnormal business decision.
In any case, the documentation requirement is mandatory and, in theory, does not provide for any exemption based on the absence of cross-border transactions. In practice, for these groups, the pragmatic approach consists of preparing a Master File describing the group, its business, and its organization (the Master File covers the group and not the intragroup transactions themselves), and formalizing a Local File template that includes all the required descriptive sections for the entity and indicates the absence of transactions with foreign related entities. This approach allows the group to comply with the legal obligation while remaining proportionate to the group’s actual circumstances.
The consequences of inadequate documentation
Penalties provided for by law
Article 1735 ter of the General Tax Code provides for a minimum fine of 50,000 euros per audited fiscal year in the event of failure to submit transfer pricing documentation. This amount, increased by the 2024 Finance Act (it was previously €10,000), applies to each fiscal year for which the documentation is not submitted or is deemed insufficient.
In practice, a tax audit covering three fiscal years therefore exposes the group to a minimum penalty of 150,000 euros for the documentation issue alone, even before any discussion of the substance of the transfer pricing.
In addition, the 2024 Finance Act introduced the principle ofthe enforceability of transfer pricingdocumentation. In practical terms, any discrepancy between the transfer pricing policy described in the documentation and the prices actually charged may be presumed to constitute an indirect transfer of profits within the meaning of Article 57 of the General Tax Code. The documentation is no longer merely a formal requirement: it is binding on the taxpayer.
The impact on the relationship with the tax authorities
Beyond the monetary penalties, the absence of documentation—or its non-compliance—significantly impacts the conduct of a potential tax audit.
A company that provides structured, up-to-date documentation consistent with its disclosures conveys a sense of rigor and transparency to the tax authorities. This facilitates communication with the auditor, and requests for additional information are generally more targeted and less intrusive.
Conversely, a group that cannot provide any documentation, or that submits a document that is clearly inadequate (a single file covering multiple entities, outdated data, a generic functional analysis), gets off to a bad start. The auditor is entitled to conclude that the group has not taken its obligations seriously, which may lead to a more thorough review and a less accommodating stance on the part of the administration.
The quality of transfer pricing documentation is, to a large extent, the primary factor that sets the tone for the audit.
Compliance: an upfront investment, long-term value
For a group that has never prepared transfer pricing documentation, the initial process can seem tedious. It involves identifying and mapping all intra-group transactions, formalizing the functions performed and risks assumed by each entity, selecting and justifying appropriate transfer pricing methods, and conducting comparability studies.
This work requires a significant investment of time and internal coordination, particularly between the finance, legal, and operations departments.
But experience shows that groups that undertake this exercise reap benefits that go beyond mere regulatory compliance. Transfer pricing documentation requires formalizing and scrutinizing internal practices that, in many family-owned groups, are based on long-standing, unwritten customs: why does a particular subsidiary charge this price for its services? What is the rationale behind the allocation formula for head office expenses? Does the service agreement between the holding company and its subsidiaries reflect the actual services provided?
Many organizations report that this formalization process, while initially demanding, has helped them clarify their understanding of internal workflows and improve their management processes. It is not merely a compliance exercise; it is a governance exercise.
And once the initial documentation is complete, annual updates are significantly less time-consuming, especially when intra-group flows are stable and limited. The bulk of the work then consists of updating the financial data, verifying that transactions have not changed significantly, and updating the benchmark if necessary.
Practical steps to achieve compliance
For groups newly subject to reporting requirements, here are the key steps for compliance:
- Identify the relevant entities: determine which group companies are subject to the requirement, taking into account direct and indirect ownership relationships and whether the €150 million threshold has been exceeded.
- Mapping intra-group transactions: identifying all flows between related entities (sales of goods, provision of services, royalties, financing, management fees, secondment of personnel, etc.).
- Conduct a functional analysis: for each entity, describe the functions performed, the risks assumed, and the assets used. This forms the foundation of any transfer pricing analysis.
- Select transfer pricing methods: choose the most appropriate method for each transaction category, in accordance with the 2022 OECD Principles and the provisions of Article 57 of the French General Tax Code.
- Conduct comparability studies: identify comparable transactions or companies in the market to demonstrate that the prices charged are at arm’s length.
- Prepare the Master File and the Local Files: document the entire process in the two documents required by Article L. 13 AA of the LPF, in accordance with the structure set forth in the OECD recommendations (BEPS Action 13) and the BOFiP.
- Prepare and file Form 2257-SD: complete the annual reporting form summarizing intra-group transactions and the methods used.
- Establish an annual update process: organize the updating of documentation at the end of each fiscal year.
It is recommended that you consult a lawyer or a specialist advisor, at least for the initial documentation, to ensure that the deliverable complies with regulations and to obtain an objective assessment of the group’s transfer pricing policy.
FAQ: Transfer Pricing Documentation Requirements for Mid-Sized Companies
Which companies are subject to the €150 million transfer pricing threshold?
This applies to companies established in France whose annual revenue excluding tax or gross assets as shown on the balance sheet exceed 150 million euros, as well as those directly or indirectly owned by an entity exceeding this threshold, or that own such an entity (Article L. 13 AA of the Public Finance Act, as amended by Article 116 of the 2024 Finance Act). This threshold applies to fiscal years beginning on or after January 1, 2024.
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Is it necessary to prepare transfer pricing documentation even if there are no cross-border transactions?
The reporting requirement is formally triggered when the threshold of 150 million euros is exceeded, regardless of the location of the intra-group transactions. In theory, a Master File and a Local File are required. In practice, for groups whose entire cash flows are domestic, the recommended approach is to prepare a Master File presenting the group, and a Local File template if necessary, focusing on the descriptive sections and noting the absence of transactions with foreign related entities. This pragmatic approach satisfies the requirement while remaining proportionate to the stakes involved.
What is the penalty for failing to provide transfer pricing documentation?
Article 1735 ter of the General Tax Code provides for a minimum fine of 50,000 euros per audited fiscal year for failure to provide documentation. For an audit covering three fiscal years, the minimum penalty therefore amounts to 150,000 euros. Added to this is the risk of a tax reassessment under Article 57 of the CGI if transfer prices do not comply with the arm’s length principle.
Can a single Local File cover multiple entities or multiple fiscal years?
No. The regulations require a separate Local File for each entity subject to the reporting requirement and for each fiscal year. A single document covering multiple entities or multiple fiscal years does not meet the requirements of Article L. 13 AA of the LPF and constitutes a failure to provide adequate documentation, exposing the group to the applicable penalties.
Is the documentation process truly useful beyond mere compliance?
The initial implementation requires an investment of time and coordination. However, experience shows that formalizing a transfer pricing policy enables groups to clarify their internal transactions, streamline their intercompany billing practices, and improve their management processes. Once the initial documentation is complete, annual updates are significantly less burdensome, particularly when intra-group transactions remain stable.
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