France: Intergroup arrangements identified in tax-avoidance transactions list

France: Intergroup arrangements, tax-avoidance

The French tax administration has posted on its website, on a webpage dedicated to tax audits, an updated list of practices or arrangements (Carte des pratiques et montages abusifs) that are considered to be contrary to the law. Among these are certain intergroup arrangements. The new list (April 2015) replaces all previously published lists of “tax avoidance schemes.” While some of the items previously included on earlier lists are no longer included on the April 2015 list, the fact that an item is not listed on the April 2015 list does not mean that the tax authorities no longer consider that particular item is no longer fraudulent or tax abusive.

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List of practices, arrangements

Among the 17 newly identified schemes in the area of direct taxation (as well as practices in the areas of value added tax (VAT), individual (personal) income tax, and registration duties) are some that are linked to international relations and intragroup transactions, including the following items:

Relocation of profits to a more favorable tax jurisdiction after restructuring: The reduction of the French company’s result is not proportional to the risks and functions transferred abroad, and possible implications for taxpayers include add-back of the transferred profits and possibly an indemnity, to be paid to the French company.

Read the tax administration’s description (French) [PDF 29 KB] of this item: Délocalisation de profits suite à restructuration

 

Unjustified payment of commissions or royalties: Payments to a company that has no premises or means of operation, and for which the French company is unable to justify the rationale of the services supplied; moreover, the French company did not declare the sums paid on the DAS2 return.  The possible implications for taxpayers include:         

  • Risk of losing eligibility to deduct the expense and recognition of deemed distributed income subject to withholding tax
  • Penalty provisions (1) a 40% penalty for deliberate failure; (2) a penalty equal to 50% of the amounts that were not reported on the DAS 2 return; and (3) taxation of the actual beneficiary in France. 

Read the tax administration’s description (French) [PDF 29 KB] of this item: Versement non justifié de commissions

 

Abuse of a tax treaty by interposing a structure, concealing the actual beneficiary of a royalty: The interposed structure only plays a “relay” role with respect to payment of the amount of royalty paid, and does not have any substance. Implications for taxpayers could include an adjustment of the withholding tax and imposition of an 80% penalty.

Read the tax administration’s description (French) [PDF 34 KB] of this item: Abus de convention fiscale

 

Other practices, arrangements identified by the tax administration as tax-avoidance or abusive are: 

  • Disguised relocation of staff
  • Double deductions claimed for loan interest       
  • Non-application of withholding tax on dividends
  • Convertible bonds issued, with a distribution of dividends

KPMG observation

Tax professionals with Fidal* have observed that the important information here is that tax avoidance schemes are being updated on a regular basis, and as far as transfer pricing is concerned, two items continue to be on the list: (1) the absence of economic substance; and (2) the justification for services supplied.

Also note that the French tax administration is now inviting taxpayers who have been involved in any of these types of arrangements to contact the tax authorities, with an intention to “regularize” their situations. This begs the question: Would a new “regularization unit”—similar to one that has been established for individual taxpayers—be planned for the future? In any event, companies may view this “invitation” to regularize their tax situations as a possible indication or trigger for a tax audit.

 

For more information, contact a tax professional with the Global Transfer Pricing Services group (Fidal*) in Paris:  

Olivier Kiet | + 33 1 55 68 1615 | olivierkiet@fidalinternational.com

Pascal Luquet | + 33 1 55 68 15 22 | pluquet@fidalinternational.com

Kate Noakes | + 33 1 55 68 16 57 | katenoakes@fidalinternational.com         

François Vincent | + 33 1 55 68 14 92 | fvincent@fidalinternational.com

Anne-Laure Goetzinger | + 33 1 47 38 89 32 | anne-laure.goetzinger@fidal.fr

Nadia Sabin | + 33 1 55 68 17 38 | Nadia.Sabin@fidal.com

 

* FIDAL is an independent legal entity that is separate from KPMG International and its member firms.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

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