CbCR: situation of French subsidiaries of foreign entity residing in a state that does not apply the automatic exchange of information, example of Switzerland and the United States

Under OECD recommendations, jurisdictions should require, in a timely manner, the filing of Country-by-Country declarations by the ultimate parent companies of MNE group resident in their countries and exchange this information, on an automatic basis, with the jurisdictions in which the MNE group operates and in which subsidiaries meet the requirements for filing Country-by-Country reporting (CbCR).

France has introduced this requirement by article 223 quinquies C of the French Tax Code; a July 6th, 2017 Finance Minister decision (“arrêté”) has listed the countries which will send the CbCR to France and be recipient of the CbCR filed in France. This list does not include certain important commercial partners such as Switzerland or the United States of America.

Following a derogatory procedure “Ultimate Parent Surrogate Filing” outlined by the OECD, the Public Finances Directorate General (DGFiP) has announced in December 2017 that the French subsidiaries of foreign groups, whose parent entity resides in a country which has not signed an agreement on the automatic exchange of CbCRs with France, will not be forced to file this declaration in France, if:

  • The parent entity of the group has filed a Country-by-Country declaration for the concerned fiscal year in its country of residence (including voluntary filings)
  • The country authorizes the voluntary filing of CbCRs 
  • A bilateral tax treaty presently in force authorizes the spontaneous exchange of information with France 
  • The country is formally engaged to send on a voluntary basis the declarations filed by the ultimate parent entities residing on their territory

Initiated in the framework of negotiations on the agreement for automatic exchange of CbCRs with the United States of America, this procedure has been expanded to all the countries offering the same information access level to the French tax authorities. This applies to Switzerland whose tax administration indicates that it “can exchange on a voluntary basis with these partner States [France is one of them] the Country-by-Country declarations for the fiscal periods of 2016 and 2017 (state on December 21th, 2017)”.

Thus, even though the entities residing in Switzerland are not obliged to submit the Country-by-Country declaration before the fiscal year 2018 and even though Switzerland does not intend to introduce the automatic exchange before 2020, the French subsidiaries, whose parent entities are Swiss residents, are exempted from the CbCR filing in France, if its parent entity has voluntarily filed a CbCR in Switzerland.

The French tax authorities do not take into account the list of foreign administrations meeting this criteria. It is up to a tax payer to verify, case by case, his situation. The groups looking for a greater legal security may choose to submit to the French administration a hard copy of the CbCR report submitted to the tax administration of their parent entity. Those who prefer to be sure that the French administration will not automatically diffuse the CbCR to its partners, should mention that the copy of the CbCR is transmitted for information purposes only and cannot be considered as transmitted according to the “Surrogate Filing” procedure outlined by the OECD, which is different from the one described above.

Eric Lesprit

Eric has more than 15 years’ experience in transfer pricing and international tax. Since 1998, Eric Lesprit worked for the French Tax Administration regarding companies and individuals international taxation issues. […]