Transfer pricing France 2026: documentation, OECD methods and Pillar Two

Up to date as of 15 May 2026.

Transfer pricing is no longer an issue confined to CAC 40 multinationals. As soon as a group has at least one subsidiary or sister company abroad, arm's length rules apply and the French tax administration has increasingly precise detection tools. This guide sets out the legal obligations, the OECD-recognised methods, the penalties incurred and the interaction with Pillar Two, to help group managers calibrate their risk level and anticipate audits.

A transfer price is the price agreed for a transaction between two entities belonging to the same group: delivery of goods, supply of services, licensing of an intangible asset (trademark, patent, know-how), or an intra-group loan.

These transactions are not fiscally neutral. By freely setting internal prices, a group could, in theory, concentrate profits in low-tax jurisdictions and artificially depress results in high-tax countries. This is why international tax law imposes a central rule: the arm's length principle.

Article 57 of the CGI (French Tax Code): profits indirectly transferred abroad by means of inflated purchase prices or deflated sale prices are added back to the French taxable base. The presumption of transfer applies as soon as there is a relationship of dependence between entities and the price departs from what an independent enterprise would have obtained.

The arm's length principle (OECD, Article 9 of the Model Convention, 2022 Guidelines) means that the price of an intra-group transaction must be identical to that which would have been agreed between independent parties in comparable circumstances.

Three steps are required to apply it:

1. Identify intra-group transactions (actual or implicit flows).
2. Analyse the functions performed, assets used and risks assumed by each entity (FAR analysis).
3. Compare with comparable transactions conducted at arm's length between third parties (benchmarks).

This three-step framework is both the method for building a compliant transfer price and the framework the administration uses to challenge it.

The formal documentation obligation (LPF art. L13 AA) applies to French companies meeting at least one of the following conditions:

• Net turnover or gross assets exceeding EUR 400M
• Direct or indirect ownership of more than 50% of the capital or voting rights of a foreign entity exceeding EUR 400M in turnover or balance sheet
• Membership of a group in which a foreign entity exceeds EUR 400M

Below these thresholds, formal documentation is not legally required. Most French SMEs operating internationally are therefore not subject to the Master File + Local File obligation. This does not mean they are immune from a reassessment under Article 57 of the CGI: the presumption of transfer can apply to any related company, regardless of size.

Our recommendation for SMEs: build a streamlined but structured file (FAR analysis, justification of the pricing method, summary market comparison), even without a legal obligation, to have credible answers ready if an inspector calls.

The TNMM is the most widely used method in practice for mid-sized groups, given the availability of benchmark data in commercial databases (Orbis, Amadeus, Bureau van Dijk). The CUP is the most robust but requires a near-identical comparable, often difficult to find outside commodities.

Simplified regime for low-value-adding services#

For intra-group support services with low value added (general administration, accounting, HR, routine IT), the OECD 2022 Guidelines authorise the application of a 5% mark-up on costs without the need for external benchmarks. This simplified approach is valuable for SME groups, provided the services in question do not form the group's core activity and do not involve significant intangibles.

The FAR analysis (Functions, Assets, Risks) is the core of any transfer pricing file. It describes precisely what each group entity does.

• Functions: what activities does each entity actually carry out (design, production, distribution, after-sales, R&D, administration)?
• Assets: what assets does each entity use or own (machinery, patents, trademarks, customer base, know-how)?
• Risks: what risks does each entity actually bear (inventory risk, currency risk, customer credit risk, development risk)?

The entity that assumes more functions, assets and risks must receive higher remuneration. Conversely, a "routine" entity justifies only a limited margin.

The administration always compares economic reality (who does what, who makes decisions, who absorbs losses) with the contractual structure and the formal profit allocation. A divergence between the two is a strong red flag for the inspector.

Master File and Local File (OECD BEPS Action 13)#

For groups subject to the documentation obligation (LPF art. L13 AA):

Master File: group-level document covering:

• Organisational and legal structure
• Description of activities and value chain
• Key intangible assets (trademarks, patents, know-how)
• Intra-group financial arrangements
• Consolidated tax positions

Local File: document specific to the French entity, covering:

• Description of the company and its environment
• List of intra-group transactions by category with amounts
• Detailed FAR analysis
• Transfer pricing method chosen and justification
• Benchmarks and comparability analysis
• Copies of key intra-group contracts

These documents must be held available during a tax audit and submitted within 30 days of an administration request (verify applicable procedure under current law).

Country-by-Country Reporting (CbCR)#

The country-by-country declaration (LPF art. L223 quinquies C) applies to groups with consolidated turnover exceeding EUR 750M. It requires disclosure, for each jurisdiction, of revenues, pre-tax profit, taxes paid, headcount, capital, reserves and tangible assets. The DGFiP exchanges this data automatically with its foreign counterparts under multilateral tax conventions.

1. Management fees#

Recharging of management services (strategic guidance, general management, governance) is one of the most scrutinised items during an audit. The administration systematically checks: (a) that the service was actually rendered (evidence by contract, meeting minutes, emails, supporting materials); (b) that the allocation key is coherent (revenue, headcount or value-added pro-rata); (c) that the margin applied is justified.

A lump-sum management fee without a documented key, or charged to a loss-making subsidiary for a service whose value is hard to demonstrate, is near-systematically challenged.

2. Royalties on intangible assets#

Transferring or licensing a trademark, patent or know-how royalty-free — or at a derisory rate — constitutes an indirect profit transfer. Conversely, royalties that are too high without substance (the recipient entity lacks the staff to manage and develop the asset) will be recharacterised.

French case law on IP migrations (transfer of intangibles to foreign holding structures) is extensive and strict. Article 238 A of the CGI creates an additional unfavourable presumption for transactions with entities in preferentially taxed jurisdictions.

3. Intra-group financing#

The interest rate on an intra-group loan must correspond to the rate the borrowing entity could have obtained from an independent bank, given its own financial situation and implicit credit rating. A zero-rate loan or a rate manifestly below market constitutes a disguised subsidy. Interest deductibility is also subject to thin capitalisation rules (CGI art. 212 bis — verify current parameters).

Transfer pricing reassessments are among the heaviest a company can face. They cover several years — the general limitation period is 3 years, extended to 6 years for suspected fraud or transactions with non-cooperative jurisdictions — and cumulate tax due, interest and penalties.

Pillar Two (EU Directive 2022/2523, transposed in France by the Finance Act for 2024) establishes a global minimum tax rate of 15% for groups with consolidated turnover exceeding EUR 750M. Its central mechanism is the Top-up Tax: where the effective tax rate of a group entity in its jurisdiction falls below 15%, the shortfall is collected either in the parent company's state (Income Inclusion Rule) or in the state of the under-taxed subsidiary (Undertaxed Profits Rule).

The interaction with transfer pricing is direct. A transfer pricing policy that concentrated profits in a 5% jurisdiction may well comply with the arm's length principle, but will trigger a Top-up Tax of 10 percentage points at group level. The economic advantage initially sought largely disappears for groups in scope.

For groups below the EUR 750M threshold, Pillar Two does not apply directly. But the emergence of a 15% global minimum as an international norm makes structures that relied on tax rate differentials less attractive.

Where an intra-group transaction is recurring and significant, a preventive solution exists: the Advance Pricing Agreement (APA). Based on Article L80 B of the LPF, the tax ruling procedure allows a company to submit its methodology to the DGFiP and obtain a formal endorsement binding for a set period.

A bilateral APA — concluded between the tax authorities of the two countries involved through the mutual agreement procedure — offers the best protection: it covers both the French and the foreign risk and prevents double taxation. The procedure is lengthy (several months to several years) and requires detailed documentation, but provides rare fiscal visibility on important flows.

Treating transfer pricing as a purely documentary compliance topic is a frequent mistake. Based on the files we work with, the recurring stumbling blocks are:

Late documentation. Preparing the Local File after receiving an audit notice is possible, but contemporaneous documentation carries far greater probative weight. The inspector knows this and uses it.

Disconnect between operational reality and contractual structure. Well-drafted contracts that do not match actual flows (who decides, who absorbs losses) are easily dismantled in a contradictory FAR analysis.

Benchmarks based on outdated comparables. A benchmark carried out in 2019 on a five-year-old database does not hold up against an inspector who has access to the same databases updated.

Forgotten implicit flows. Some value transfers involve no invoicing: royalty-free trademark use, database sharing, uncompensated commercial synergies. The administration can recharacterise these as profit transfers even in the absence of financial flows.

The underestimated risk: zero-interest intra-group loans between sister companies. Common in group structures with centralised treasury, they are often treated as simple current account advances. The administration analyses them as loans that should bear interest at market rate. The shortfall is added back into the lending entity's taxable result.

Illustrative scenario — no real client data.

A French SAS (EUR 50M turnover, industrial sector) has a German subsidiary (GmbH, EUR 8M turnover). Three intra-group flows coexist.

Flow 1 — Management fees. The French SAS charges EUR 150,000 per year to the GmbH for general management, finance and HR services. The allocation key is revenue pro-rata (8/58 = 13.8%). The margin applied is 5% on costs. This flow must be documented by a service agreement, meeting minutes and a FAR analysis note. The CPM with a 5% mark-up is defensible under the OECD simplified regime for low-value-adding services.

Flow 2 — Trademark royalty. The French SAS charges a royalty of 2% of the GmbH's revenue for use of the group trademark in Germany. This rate must be justified by a comparable (royalty rates for comparable trademarks in the industrial sector). Specialist databases (RoyaltyStat, ktMINE) allow this rate to be positioned within an arm's length range. The SAS's substance (marketing team, trademark development budget) must be documented.

Flow 3 — Intra-group loan. The SAS lent EUR 500,000 to the GmbH in 2023, interest-free. This loan must carry the rate the GmbH could have obtained from a German bank, given its balance sheet and implicit credit rating. A reasonable reference rate can be built from Euribor plus a credit spread (verify against market conditions in force). The complete absence of interest constitutes an indirect profit transfer within the meaning of Article 57 of the CGI.

This group, well below the thresholds of Article L13 AA, is not subject to the formal documentation obligation. It is not immune from audit. A streamlined but coherent file covering these three flows is a reasonable precautionary measure.

• Map all intra-group flows (goods, services, intangibles, financing)
• Carry out the FAR analysis for each group entity
• Choose and justify the appropriate OECD method for each flow category
• Formalise intra-group contracts (service agreement, licence, loan)
• Build benchmarks from updated databases
• Check whether LPF art. L13 AA thresholds are met (Master File + Local File obligation)
• Assess CbCR obligation if consolidated turnover exceeds EUR 750M
• Evaluate Pillar Two impact for groups above EUR 750M
• Consider an APA for recurring and significant transactions
• Update documentation following any structural change (restructuring, new subsidiary, new flow)

Managing transfer pricing brings together international taxation, economic analysis and legal documentation. At Hayot Expertise, we support group managers at two levels: (1) an audit of the existing transfer pricing policy to identify areas of fragility before an inspection, and (2) the preparation or update of documentation files (Local File, FAR analysis, benchmarks) in coordination with your local advisers abroad.

If your group carries out recurring cross-border transactions and your documentation has not been reviewed recently, now is a good time to discuss it.

Written by Samuel Hayot, chartered accountant (expert-comptable), Cabinet Hayot Expertise, Paris. Up to date as of 15 May 2026. This article is for information purposes only and does not replace a personalised review of your situation, documents and applicable law. Sources: CGI art. 57 and 238 A, LPF art. L13 AA, L13 AB, L223 quinquies C, L80 B, OECD 2022 Transfer Pricing Guidelines, EU Directive 2022/2523 (Pillar Two), French Finance Act 2024.