1. 1 Transfert Pricing San Salvador P. Kerevel Tax Audits in France 1/ General Features 2/ Large Companie’s audits Central American taxation October 5-7, 2010

2. 2 Transfert Pricing San Salvador P. Kerevel 1/ General Features: 3 main targets Deterring Tax Avoidance : the field of Tax Audits concerns potentially all type of Taxpayers, with no exception. Preserving Fiscal Revenue Of the State : direct actions: audit adjustments and application of penalties recovered. Indirect effect: big companies know ( big adjustments) know they are often audit. Punishing Tax Fraud : apply financial penalties against fraudulous Taxpayers, and prosecute them.

3. 3 Transfert Pricing San Salvador P. Kerevel 1/ General Features: 3 planning levels National targets : the Head Office of French Tax Administration Concludes a framework contract with the Ministry of Finance  For International audits: one dedicated office CF3 definite the objectives. Interregional Level (10 regions) : after discussions and propositions, each manager of this level defines a Plan. In September 2010 elaboration of the planning for 3 years ( organisation, risk analysis, number of audits, strategic subjects ( tax heaven) …. On Department Level : in each of the French Departments, the Tax Office concludes his own Contract with the Head Interregional Office

4. 4 Transfert Pricing San Salvador P. Kerevel 1/ General Features: 3 territorial levels  Department level: the smallest administrative division of France. 107 Departments  Regional level: 10 directorates  National Level ( competent on all France): DVNI for companies, DNEF for research and information, DNVSF for persons with high incomes, 1 National Tax School

5. 5 Transfert Pricing San Salvador P. Kerevel 3 Territorial Levels 107 Local Offices (Départements)10 Interregional Offices

6. 6 Transfert Pricing San Salvador P. Kerevel 1/ General Features: some figures Companies Taxes in France:  V.A.T.: 4,2 millions companies pay 160 billions €  Corporate Taxes: 1,6 millions companies pay 51 billions €  other taxes on companies: 35 billions€ Audits:  51.615 audits on site: 7,6 billions €  DVNI: 1350 audits: 5 billions € controls from the office:  4,8 billions €

7. 7 Transfert Pricing San Salvador P. Kerevel 1/ General Features: 3 National Audits Directorates  Direction des Vérifications Nationales et Internationales ( DVNI) : large companies Tax Audits. Group approach  Direction Nationale des Vérifications des Situations Fiscales Personnelles (DNVSF) : physical person ’s Tax Audits  Direction Nationale des Enquêtes Fiscales ( DNEF) : investigating and gathering datas relevant for Tax Audits, VAT Caroussel Frauds

8. 8 Transfert Pricing San Salvador P. Kerevel 1/ General Features: 3 others National Directorates  Direction des Grandes Entreprises ( DGE) : Tax Management of Large Companies and groups. Receive all declarations and payments. (Basic Tax Audits from the office, or light on-site investigation).  35.000 companies: IT procedures to declare and to pay all taxes  Direction for Non French Residents (DRESG): Tax Returns from Non-Resident Taxpayers  National Tax School / Training Center (ENI): Educating and Training Tax inspectors and Auditors

9. 9 Transfert Pricing San Salvador P. Kerevel CDIRecetteTr é sor CDI RecTr é s CDI RecTr é s After Parent Sub 1Sub2 DGE Before Sub 1Sub 2 Parent Large Companies : DGE Unique Tax Management Partner One contact point competent for all tax questions concerning all big companies or companies in a group Corporate Payment income return VAT CP & BT

10. 10 Transfert Pricing San Salvador P. Kerevel 2/ DVNI: Large Companies audits 220 auditors  audit all taxes ( corporate incomes, VAT, International sujects and TP, ….)  split in 27 teams specialised by business activities 42 IT auditors: support on data audits 15 experts: transfert pricing, financial subjects a team approach to be on the most important subjects Back office: 200 persons

11. 11 Transfert Pricing San Salvador P. Kerevel BanksTransports Pharmaceutical Industry Cars Luxury Chemicals Heavy Industry Building Foods 2/ DVNI: Large Companies audits Teams Specialised By Business Field:

12. 12 Transfert Pricing San Salvador P. Kerevel 2/ DVNI: Large Companies Audits  An approach based upon :  professionalism of the auditing teams  a selection of audits focused on a group approach and analysis risk  a relevant methodology  a compliance approach ( targets on timing, Tax payer's rights and obligations during the audit)

13. 13 Transfert Pricing San Salvador P. Kerevel 2/ DVNI: Large Companies audits International operations: selection of the audits  central administration: the strategics targets ( new target tax heaven for ex.)  DVNI head office: the DVNI strategic’s targets  each team auditors manager elaborate the program of audits for 2 years  each team program mention if an IT auditors or international expert will support the auditor  the manager of the experts team centralise all the program propositions and make a global choise: on which cases will experts will work and when?  Project submit for approbation to the DVNI head office. Presentation, dialogue, …..  Decision director  audits can start

14. 14 Transfert Pricing San Salvador P. Kerevel 2/ DVNI: Large Companies audits International operations: selection of the audits  knowledge of Business Sectors  Risk-Analysis 1- some criteria from central administration 2- DVNI criteria: a permanent reflection, a permanent work shop, brain storming - French companies profit negativ and in a group wich make profit on a long period - Cost contribution Arrangement, royalties, management fees - companies wich have susdiaries in countries wth specific rules or low taxes - companies wich operate in profitable sectors: the split of the profit have to be audit - distributor with low benefit, producers - companies wich have new objects - A national data base, a private data base - other information, from DGE, DNEF, Interregional and Local Offices - legal operations and potential tax consequences : changes in legal form or activity, events pertaining to company or group structures (merger, scissions)

15. 15 Transfert Pricing San Salvador P. Kerevel 2/ DVNI: Large Companies audits Connections between international and financial approachs  producers becoming tollers  distributors becoming agent or commissionners or distributors with limited risks  the evaluation of the intangible assets transfered ( brand, know ledge, customers, ….)  armth length rates or spread  Stock options ( or hybrid instruments) in an international group. Who have to support the costs?

16. 16 Transfert Pricing San Salvador P. Kerevel 2/ DVNI: Large Companies audits Transfert pricing: a permanent dialogue with the companies  not an exact science  a fonctional analysies could be complicated  in France: 3 main times during the audit: - on site in the company: dialogue with the auditor - a writing procedure: proposition of our adjustements ( include demonstration of transfert pricing tranfert ( if possible demonstration of optimisation), companies answer, auditor ’s answer to the companies; - possibility to the company to be receive by the team manager and by the DVNI head office: exchanges, deals possible - a National Commission - MAPs