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France’s tax authority published a note aimed at easing “transitional” compliance problems for French subsidiaries of multinationals from countries that have lagged France in adopting international guidelines on country-by-country reporting of corporate tax data.
Because the note is ”very badly written,” and the tax code’s language on noncompliance penalties for the requirement is vague, multinationals could face some gray areas when dealing with the French tax authority on the issue, Jan Martens, of EY Paris told Bloomberg Tax Dec. 7.
The authority’s Dec. 4 note said France will accept “voluntary parent company filing” to deal with transitional reporting compliance problems that might arise for multinationals whose parent companies are in countries that didn’t implement a country-by-country reporting requirement for big companies as of Jan. 1, 2016—the date France’s requirement took effect.
The Organization for Economic Corporation and Development’s recommendations for fighting base erosion and profit shifting—which Group of 20 leaders approved in November 2015—called for jurisdictions to exchange country-by-country reports starting in 2018, based on global tax and profit data that companies with revenues over 750 million euros ($882 million) would have to report for the 2016 financial year.
France was among a handful of countries to adopt the requirement early. That created potential problems for French units of parent companies in jurisdictions that hadn’t yet done so.
French subsidiaries of U.S. multinationals have been seen as facing a potential compliance bind, because U.S. rules consistent with the OECD’s mechanism weren’t supposed to take effect before 2017 for most companies. With that snag also a potential for units in some other countries, the OECD published guidance in June 2016 including a recommendation for a workaround: parent companies could voluntarily file country reports to tax authorities in home countries not yet requiring them and the authorities could voluntarily furnish that information to tax authorities in jurisdictions that do require it.
Updated OECD guidance in December 2016 listed the U.S., Japan, Switzerland, Hong Kong, Liechtenstein, Nigeria, and Russia as jurisdictions accepting voluntary reporting.
In late November this year, the U.S. Internal Revenue Service said it was negotiating a bilateral arrangement with France to exchange country-by-country tax reports.
France’s new note said voluntary filing in a country could be sufficient for the French country reporting requirement, but only if the information is communicated to French authorities. However, the text is silent on how that information should or could be communicated, Martens said.
“I read this as meaning that an inspector would use the existing administrative assistance procedure, say with the USA, to obtain the American head office’s country-by-country reporting,” he said. “But unless the French government clarifies such practical details, the only way to be certain for a French subsidiary of a U.S. multinational to avoid country-by-country reporting filing penalties is either to file itself, or for its head office to designate a surrogate filing entity in a country that is on the official French list of compliant countries and file there.”
That option would require the subsidiary to notify the French tax authority, on its 2016 tax return, that the surrogate entity will file the country report, he said.
Although the French country reporting measure, mostly follows the OECD mechanism, it added a penalty of up to 100,000 euros ($117,665) for companies that don’t comply.
Martens said France hasn’t made clear when the penalty applies; for example, what would happen if a U.S. multinational declared on a voluntary basis, but the U.S. tax authority did not exchange automatically?
French authorities have communicated that they will be “flexible” for the first year of reporting, when the multinational is headquartered in a “friendly” country, such as the United States that has not yet implemented automatic exchange, Martens said.
Although the authority’s informal communications “do not offer legal protection, U.S.-based multinationals should be able to take some comfort from this, in combination with the text that was published this week,” Martens said.
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