International legal and administrative frame work: necessary legal and administrative frame works Central American Tax Administration october 5-7 Dan salvador El Salvador

1/ Transfert pricing documentation article L13AA French Procedure: obligation to justifie Transfert Prices 2/ MAP ’s and Arbitration procedure ( UE and US) No double taxation 3/ APA No adjustment and security for companies 4/ information exchange and anti-evasion and avoidment rules

1/ Transfert pricing documentation A documentation to justify Transfert Prices A recommandation of the UE Council (Code de conduite adopted le 27 juin 2006) Objectives : More security for the companies the tax administration will get a writing documentation to make an evaluation of the transfert pricing policy the documentation gives informations: the tax administration have the possibility to ask questions during the audit and to audit deeply some questions

1/ Transfert pricing documentation Principes documentation have to be « contemporain »: the company have to modify the documentation when necessary ( one changement of organisatin which have an impact on transfert pricing policy and the documentation have to evoluate)… …if no: sanction for the company an obligation for: big companies ( turnover or assets = 400.000K€) or subsidiaries (or Permanent etablishment) hold > + 50% by a foreign company wich provides bussiness in France if the mother company = 400.000K€ have to justify the transfert pricing policy ( all transactions with linked companies definited by the french Code article 57)

1/ Transfert pricing documentation Transfert pricing documentation: 2 levels of informations general one on the group spécific on the french company audit general informations group activities (incuded evolution during the years audited) juridics and operational structures and organisation description and allocation of the fonctions and the risks main intangible assets( brands, know how, …) transfert pricing policy

1/ Transfert pricing documentation Specific informations french company activities (included evolution during the years auditing) transactions with linked companies (nature, amounts included management fees, royalties, Cost Contribution Arrangements, …..) APA, rulings methods to determinate the transfert pricing (fonctions analysies, assets used or rent, risks assumed, justification of the choise methods) strategie to elaborate the comparables panel, analysis of the comparables other informations

1/ Transfert pricing documentation Practical Modalities documentation have to be « contemporaine » presentation when the audit start suppose that the documentation is already established and actualise when the income taxdeclaration is subscribe transfert princing have to be conform with the OECD principles compables panel have to be a new one ( with recent informations) each transaction: general and specific informations

1/ Transfert pricing documentation Sanctions obligation non satisfied no respect of the obligations or if the documentation is not correct official letter to ask the documentation, 30 days to present the documentation mention of the elements of the documentation that the company have to provide and of the sanctions which can be applied if the company aske for 30 days more it could be accorded: reasons have to be explain in a lettre by the company Penalties for each periode audit 10 000 € or 5% of the total amounts of the profits transfered according the disposition of the french Code (article 57)

1/ Transfert pricing documentation Penalties application the audit team manager decides which kind of penalties will be applied company don ’t lose the right to open a MAP procedure ( means that the penalty is not a grave one according the eurpean convention 23 juillet 1990) the company have to pay the penalty (article L 189 A of LPF non applicable in case of MAP) all informations are confidential ( fiscal secret)

2/ MAPs and Arbitration procedure in France and in the European Union Article 25 convention OCDE model Objectiv : Elimination of Double taxation ( origine an adjustment in transfert pricing) Consequences correction of the fiscal profit ( it could be in the 2 countries) and the foreign company have to bring the money back to the company which support the tax adjustment

2/ MAPs and Arbitration procedure in France and in the European Union Principes to open the procedure: different timings( the convention): Germany : no ; US : 3 years ; Belgique : 6 months no obligation to find a solution but negociations succeed in 98% of cases no timing to find a solution but solution find between 18 months and 6 years a negociation between the competent autorities ( company not representated)

2/ MAPs and Arbitration procedure in France and in the European Union Evolutions article L189A : the (only) TP adjustment amount is not recovered: ( from the opening date of the MAP procedure to the 3rd month after the decision have been notified to the tax payer ( agreement or not)). négociations 2 times per year with our main partners France: a pragmatic approach respect of the OECD preconisations number of procedures increase and are ore and more complex

2/ MAPs and Arbitration procedure in France and in the European Union Arbitration procedure in the UE and with US European Convention of Arbitration (adopted 23/07/90) Principes if the MAP ’s doesn ’t succeed after 2 years of negociation, possibility to open an arbitration procedure have to be open before 3 years according to the dtae of the adjustment proposition in some cases of tax avoidance specific penalties: no possible to open MAP ’s (en France : mauvaise foi)

MAPs and Arbitration procedure in France and in the European Union Consequences 2 years to find a solution if not the Arbitration Commission have 6 months to propose a resolution the tax payer can be heard decision must be find in a delay of 6 months France position ’s favorable to the arbitration only 2 cases at this time and 2 cases with France Draft 3 septembre 2009 Pratique des Prix de Transfert - 6 octobre 2009 - Paris 14

2/ MAPs and Arbitration procedure in France and in the European Union OECD influence more resources allocated to MAPs less agressiv legislations: because MAPs will be open new paragraphe 5 article 25 of the OECD convention: after 2 years discussion, if no success arbitration France support OECD position Arbitration procedure included in the new convention signed with the US. Draft 3 septembre 2009 Pratique des Prix de Transfert - 6 octobre 2009 - Paris 15

3/ APA since the 17 september 1999, french tax administration propose to the companies to present their transfert pricing policy. An analyse and a validation of this policy this procedure is performant for delicate situations according the armth length principle the companie ask the competent authorities to give an agreement on different kinds of transactions To succeed dialogue and coopération are necessary

3/ APA Article L 80 B 7° du LPF and instruction 4 A-8-89, n°171 du 17 septembre 1999 Objectifs more security for the companies and for the states ( in a changing context) less double taxation risks determination of the method to build the transfert prices with the company and modalities to control the respect of the agreement Caracteristics agreement negociation and conclusion between the competent autorities according the fiscal conventions agreement concluded generally for 5 years transparence and exchanges between the company and the competent autorities

Pratique des Prix de Transfert - 6 octobre 2009 - Paris 3/ APA Documentation and informtion asked in an administrative instruction 17 septembre 1999 juridic and operational organisation, financial documentation, TP policy, economic documentations, work on comparables ( research strategy, final panel, ….) A simple procedure contacts and elaboration of the agreement project agreement project deposit work with the competent autorities négociation between competent autorities agreement ratification and signature the companies have to apply and respect the greement Draft 3 septembre 2009 Pratique des Prix de Transfert - 6 octobre 2009 - Paris 18

Pratique des Prix de Transfert - 6 octobre 2009 - Paris 3/ APA France Doctrinal position more bilateral and multilateral agreement the APA objectiv des APP is to give security to companies: possible only between different competent autorities OECD recommandations Transparency with our partners ( no avoidance pratics) Possibility for an unilateral agreement less security for the company some partners give unilateral agreement Draft 3 septembre 2009 Pratique des Prix de Transfert - 6 octobre 2009 - Paris 19

Pratique des Prix de Transfert - 6 octobre 2009 - Paris 3/ APA Unilateral APA: an exception in France If APA does not exist in the other country part to the transaction Small companies, many small transactions with many countries, simple transactions, limited risks for France French APA: the main Caracteristics 83% bilateral ; 4% multilateral ; 13% unilateral 75%: an agreement for 5 ans ore more about 20 months to get the agreement cars products, finance area, foods industries Draft 3 septembre 2009 Pratique des Prix de Transfert - 6 octobre 2009 - Paris 20

Pratique des Prix de Transfert - 6 octobre 2009 - Paris 3/ APA Connections with the audits directorate even if an APA is open, an audit is possible no retroactivity for an APA (administrativ instruction 4 A-8-99 2009) Specific procedure for small companies administrativ instruction 4 A-13-06 28 november 2006 PME usually don ’t have any transfert pricing documentation a simplify procedure: « diet » documentation to produce services to the small companies to write transfert pricing policy and to find comparables Draft 3 septembre 2009 Pratique des Prix de Transfert - 6 octobre 2009 - Paris 21

4/ information exchange and anti- avoidment and evasion rules information exchange: a new concept in the french law: non cooperativ state and territory ( article 238 O A french code) different rules for territories which don’t accept international standards in terms of information exchange ( more than 120 conventions already signed) one list of countries the 1st january 2010: criteria - not an UE member - no convention about information exchange concluded with France - no convention of information exchange signed with 12 states or territories - the quality of the information exchange will be auditing by the OECD ( peer review group will make an evaluation on 87 juridictions) countries will keep out and some will be new, every years, on the list

4/ information exchange and anti evasion rules Very strong new anti evasion rules: the objectiv is not to have to apply them but that the exchange of information progress profits coming from a non cooperatif state: dividend, royalties and interests will be tax in France ( 209B 1 5°). If a tax have been payed in the non cooperatif state it will not be imputed ( X2 taxation) one french company have a subsidiarie - in a non cooperativ state: the company will have to prove that this entity have a real activity ( industrial or commercial) and that the reason to be located in this territory is not only to pay less taxes( ex companies in Hong kong to developpe bussines in China). If it doesn ’t prove the profit will be tax in France. It will have also to prove the origin of the profit ( royalties from linked companies, management fees to linked companies, gestion of the shares of the linked companies). If the profit coming from those activities represent more than 20% of the all profit they will be tax in France ( company have to produce all the element to prove)

4/ information exchange and anti evasion rules A french company pay an expense: - to a foreigner living in a territory with law level of taxes: the company have to prove that the payment is armth length and that something have been done: if the evel of prove is not satisfied adjustment - to a foreigner living in a non cooperativ country: the company will have to subscribe a special declaration and have to prove that the payment is armth length, that a service have been provided and that it will not have another choise than to pay in those kind of state. If no prove adjustment and taxation in France.

4/ information exchange and anti evasion rules Dividends pay by a french company to a person wich is not a resident have to be submit to RAS ( article 119bis 2 French Code) 18% with a special return of 40% for persons who leave in a country which have sign a convention with an article wich provide administrativ assistance to fight against tax evasion new article 119 bis create a specific rate of taxe: a dividend pay to a person living in a non cooperativ country will support 50% of RAS. That means for ex if the dividends are pay to a financial subsidiary ( which is there to introduce opacity) the RAS will be apply payment by an assurance company to will be support 50% of tax if the ayment is done to a person which is a resident in a non cooperativ state Dividends receive from a subsidiary located in a non cooperativ state wil not be eligible to the mother an daughter regim

PERFIL de los FONCTIONARIOS Tax inspector must have an exam in a university: 3 years minimu a selection: one natinal exam 7.000 persons: 720 succeed 1 year training in a national school to learn: compatability, fiscal rules, procedure rules….

PERFIL de los FONCTIONARIOS Tax inspecteur in DVNI a selection date of arrival 1 september. Until march: training with tax inspector whom have experience. Go on site. 4 weeks of theorical training to learn specific rules for large tax payers companies Transfert princing team - international expert: 3 lawyers, jurists, 2 economists, - financial experts: 2 doctors in mathematics, high level in finance - private training: - training in TP, in comparative fiscal organisation and tax heaven

4/ information exchange and anti evasion rules Gracias Questions?