International Tax Planning and Transfer Pricing Planning: France from a US perspective

Autor:Professor Dr. Rainer Zielke
Cargo del Autor:Professor in business economics at Østfold University College, Halden, Norway
Actualizado a:April 2017
 
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Contenido
  • 1 Abstract tax planning
  • 2 Abstract transfer pricing planning
    • 2.1 Introduction
    • 2.2 The high tax country France in the OECD context
    • 2.3 Transfer pricing rules of France
      • 2.3.1 Country-per-Country (CbC) reporting
      • 2.3.2 Scope of legislation
      • 2.3.3 Arm's length principle
      • 2.3.4 Transfer pricing methods
      • 2.3.5 Country-by-Country reporting
      • 2.3.6 Documentation requirements
      • 2.3.7 Cost sharing
      • 2.3.8 Business restructuring
      • 2.3.9 Dispute resolution
    • 2.4 Calculation of the case studies in international tax planning between France and the USA
      • 2.4.1 Design of the tables
      • 2.4.2 The treaty France-USA in brief
      • 2.4.3 BEPS Project progress
      • 2.4.4 France in brief
      • 2.4.5 The USA in brief
      • 2.4.6 Design of case studies
      • 2.4.7 Case study 1: Dividends from France to the US
      • 2.4.8 Case study 2: Interests from France to the US
      • 2.4.9 Case study 3: Royalties from France to the US
      • 2.4.10 Case study 4: Management and technical service fees from France to the US
      • 2.4.11 Case study 5: Capital gains with France as asset country to the US as seller country
      • 2.4.12 Case study 6: Dividends from the US to France
      • 2.4.13 Case study 7: Interests from the US to France
      • 2.4.14 Case study 8: Royalties from the US to France
      • 2.4.15 Case study 9: Management and technical service fees from the US to France
      • 2.4.16 Case study 10: Capital gains with the US as asset country and France as seller country
    • 2.5 Concluding remarks
  • 3 Notes
Abstract tax planning

According to the International Monetary Fund France confirms in 2016 with a gross domestic product (GDP) of US$ 2,488,290 million the third-highest GDP of Europe. The standard corporate income tax is 33.3%. Dividend payments are subject to an additional tax of 3%. A social surtax is imposed on companies realizing more than EUR 7,630,000 of turnover. The social surcharge is levied at the rate of 3.3%. The Amending Finance Law for 2011, introduce a new corporate income tax surcharge of 5%. The surcharge is applicable on an intermediary period, i.e. to fiscal years ending on or after 31 December 2011 until 30 December 2016. The surcharge is valid to the gross income tax liability of companies that have a gross income exceeding EUR 250 million. However, with effect from 1 January 2014, the surcharge is increased to 10.7%. Thus, France is a high tax country. Especially for multinational enterprises, it is therefore interesting to realize profits in lower taxing countries by means of tax planning measures. France has introduced numerous anti-avoidance rules to avoid erosion of the taxable basis and to avoid profit shifting. According to the OECD, French GDP growth is projected to edge up to 1.6% by 2018, as tax cuts and faster job growth support stronger private consumption. Business investment should also pick up owing to tax reductions and low interest rates. In turn, the unemployment rate should continue to gradually fall, thanks to lower social security contributions, hiring subsidies and significant upscaling of training available to jobseekers. Inflation will remain low, as slack persists. A continued reduction in debt servicing costs and some spending restraint is projected to bring the fiscal deficit down to just below 3% of GDP in 2018. Tax and social security cuts have reduced labor costs and improved the investment climate. A recent labor law reform clarifies conditions for dismissals and gives more importance to firm-level agreements on working time. This chaper provides a survey on the actual tax law frame conditions in France and practical support in international tax planning and transfer pricing planning between France and the US based on cross border case studies.

Abstract transfer pricing planning

With respect to transfer pricing, France applies the arm’s length principle and the OECD Guidelines, especially the the following transfer pricing methods: the comparable uncontrolled price method. The first method to consider in this respect is the comparable uncontrolled price method. Setting the transfer price by comparison with the price charged in a comparable transaction between unrelated companies is the most direct way of obtaining an arm's length price, as indicated in the 2010 OECD Guidelines; Article 57 of the CGI is applicable only in respect of transactions between related enterprises, except when the foreign undertaking involved is located in a low-tax jurisdiction. The General Tax Code does not define the concept of “enterprise” (undertaking), nor the term “control”, which have been interpreted by Administration doctrine and the courts. It may be noted that both the OECD and French tax regulations refer to legal control as well as de facto control. Companies are required to keep documentation on transactions with related companies. Cost sharing is allowed, with respect to business restructuring special rules apply, there is a conection between customs valuation and transfer pricing and with respect to dispute resolution advance pricing agreements are available. There are rules for dispute resolution and advance pricing agreements are available.

Introduction

International tax planning and transfer pricing planning between France, a member of the Group of 7 (formerly G8) leading industrialized countries, as of 2014, it is ranked as the world's ninth largest and the EU's second largest economy by purchasing power parity, and the US as most important national economy of the world based on cross-border case studies is of central importance. In addition, the USA confirm with a population of 321 million inhabitants in 2015 3rd place of the most populous countries in the world (4.4% of the world population). [1] Further, France is one of the most populous countries in Europe.

According to the International Monetary Fund[2] France confirms in 2016 with a gross domestic product (GDP) of US$ 2,488,290 million the third-highest GDP of Europe. The standard corporate income tax is 33.3%. Dividend payments are subject to an additional tax of 3%. A social surtax is imposed on companies realizing more than EUR 7,630,000 of turnover. The social surcharge is levied at the rate of 3.3%. The Amending Finance Law for 2011, introduce a new corporate income tax surcharge of 5%. The surcharge is applicable on an intermediary period, i.e. to fiscal years ending on or after 31 December 2011 until 30 December 2016. The surcharge is valid to the gross income tax liability of companies that have a gross income exceeding EUR 250 million. However, with effect from 1 January 2014, the surcharge is increased to 10.7%. Thus, France is a high tax country. Especially for multinational enterprises, it is therefore interesting to realize profits in lower taxing countries by means of tax planning measures. France has introduced numerous anti-avoidance rules to avoid erosion of the taxable basis and to avoid profit shifting.

According to the OECD[3], French GDP growth is projected to edge up to 1.6% by 2018, as tax cuts and faster job growth support stronger private consumption. Business investment should also pick up owing to tax reductions and low interest rates. In turn, the unemployment rate should continue to gradually fall, thanks to lower social security contributions, hiring subsidies and significant upscaling of training available to jobseekers. Inflation will remain low, as slack persists. A continued reduction in debt servicing costs and some spending restraint is projected to bring the fiscal deficit down to just below 3% of GDP in 2018. Tax and social security cuts have reduced labor costs and improved the investment climate. A recent labor law reform clarifies conditions for dismissals and gives more importance to firm-level agreements on working time. At 57% of GDP, France has one of the highest public spending ratios in the OECD, and high taxes are needed to finance it. The overall fiscal stance is largely neutral over the projection period. However, further tax and social security contribution cuts should be pulled forward to stimulate the economy and reduce unemployment faster. In the longer term, to lower the high tax burden, the government should continue to reduce spending, focusing more on limiting inefficiencies and non-priority areas. This requires continued efforts to better target social spending, reduce the number of sub-central governments and the overlaps in their competencies.

According to Orbitax[4] (Daily Tax News Digest of 5 December 2016), on 25 November 2016, the French Constitutional Council (Conseil Constitutionnel) issued its decision that the 75% withholding tax on dividends paid to a non-cooperative state or territory is constitutional. In particular the Court found that the provisions of the Tax Code regarding the withholding tax are consistent with the constitution, provided that the taxpayer is allowed to prove that the distribution does not have the purpose or the effect of allowing tax evasion by locating such income in a non-cooperative state or territory. In cases where non-evasion purposes are proven, the taxpayer may be exempted from the 75% rate. [5]

According to Orbitax[6] (Daily Tax News Digest of 23 November 2016), on 18 November 2016, the French Government submitted the draft Amending Finance Bill for 2016 to the National Assembly. Two of the main amendments in the bill are in relation to the exemption from the tax on profit distributions for French tax-consolidated groups and the 5% voting rights requirement for the dividends participation exemption — both of which have been ruled unconstitutional.

  • Profit Distribution Tax Exemption Amendments

Under current rules, French tax-consolidated groups are eligible for an exemption from the 3% tax on profit distributions, while foreign-parented groups are not. The amendments would extend the exemption to foreign companies that are subject to corporate tax and directly or indirectly hold at least 95% of the capital of the French company distributing the profits. If the foreign company is established in a non-cooperative...

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