Repression of International Tax Evasion in France
More and more companies, subsidiaries or branches are created in France and are under control of alien companies established overseas, sometimes in tax havens (so-called dependency). However, your French lawyer should warn you since some transactions could be considered as tax evasion, whether or not it is intentionally.
Billing for goods or services in a paltry or excessive amount could lead the tax administration to get severe...
1. Indirect overseas transfers of profits
The Article 57 of the French Tax Code punishes indirect transfer of profit transactions for companies based abroad and not under the normal management of the company.
It tends to prevent certain practices of "pricing transfer" (“transfert de prix) allowing to transfer profits abroad that are normally taxable in France.
The companies targeted are those within the corporation tax or income tax scope (BIC category), which are dependent on, or who control the alien company.
- The burden of proof
The French government has the burden to prove the dependency. Nevertheless, the establishment of this arm's length is not necessary when the business is located in a tax haven.
What is illegal is the indirect transfer of benefits done either by increasing or decreasing prices for the purchase or sale. It also encompasses the payment of excessive fees or without consideration, granting loans without interest or at a reduced rate, debt waivers, etc…
The French government must prove that the benefits have been indirectly transferred. Thus, it can adjust the benefits conferred on the results of the company located in France.
2. Prior agreement on Pricing Transfer
Prior agreement for determining “Pricing Transfer” can be reached between French or foreign companies conducting cross-border transactions and the Tax administration.
This has the effect of preventing any enhancement of taxation on prices in accordance with the agreement between the government and the business entity.
Please note that any disregard from the company as to the agreement may lead to its cancellation.
In addition, in case the administration is suspicious about the validity of transfers may request the relevant company to provide any useful document or information in order to construe the relationships among foreign companies.
If no satisfactory explanation is given, the administration has the opportunity to assess the amount of the transfer of profits based on information it might holds.
3. Sanctions
According to Articles 57 and 1735 ter of the CGI (Code General des Impots), the fine may reach 5% of profits transferred if the amount exceeds € 10,000.
The penalties are the same as in the case of non production of documentation to assess the nature of profit transfers.
Finally, a billing or under-billing could lead you to such sanctions. Try to be reasonable before the tax administration makes you being so! In any doubt, make sure you follow the advice of your French Attorney regarding those issues.
Sebastien Gaddini
New York Bar
Last update: 08.17.2010
NB: A list of tax havens
• Costa Rica
• Malaysia
• Anguilla
• Antigua and Barbuda
• Netherlands Antilles
• Aruba
• Bahrain
• Barbados
• Belize
• Bermuda
• Cayman Islands
• Cook Islands
• Costa Rica
• Delaware
• Dominica
• Gibraltar
• Grenada
• Liberia
• Liechtenstein
• Malaysia
• Marshall Islands
• Montserrat
• Nauru
• Niue
• Panama
• Philippines
• Saint Kitts and Nevis
• St. Vincent and the Grenadines
• San Marino
• St. Lucia
• Samoa
• Islands Turkey and Caicos
• Uruguay
• Vanuatu
• British Virgin Islands
Offshore Financial Centers "by the IMF in 2007
• Netherlands Antilles
• Bahamas
• Bermuda
• Cayman Islands
• Grenada
• Bahrain
• United Arab Emirates
• Hong Kong
• Singapore
• Guernsey
• Jersey
• Luxembourg
• Malta
• Isle of Man
• United Kingdom
• Switzerland
• Vatican
Tax havens by ATTAC
• Ghana
• Liberia
• Morocco
• Mauritius
• Seychelles
• Tunisia
• Anguilla
• Antigua and Barbuda
• Netherlands Antilles
• Aruba
• Bahamas
• Barbados
• Belize
• Bermuda
• Cayman Islands
• Costa Rica
• Delaware
• Grenada
• Honduras
• Jamaica
• Montserrat
• Panama
• St. Barthelemy
• Saint Kitts and Nevis
• St. Vincent and the Grenadines
• St. Lucia
• Trinidad and Tobago
• Islands Turkey and Caicos
• British Virgin Islands
• Hainan
• Hong Kong
• Singapore
• Andorra
• Campione
• Gibraltar
• Guernsey
• Jersey
• Isle of Man
• Luxembourg
• Monaco
• Switzerland
• Liechtenstein
• Bahrain
• Oman
• Cook Islands
• Marshall Islands
• Nauru
• Pitcairn
• Tonga
• Vanuatu
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