Intercompany invoicing and recharges for French subsidiaries

Management fees: a share of head office costs for finance, HR, legal or management.

Cost recharges: software, insurance, travel or staff costs paid by one entity on behalf of another.

Royalties: payment for the use of a brand, a technology or a method.

Group financing: loans or current accounts between the parent and the subsidiary.

A written agreement. Each flow should be based on an agreement that describes the service, the allocation key and the price. Without it, the French entity struggles to justify the expense.

A real service. The subsidiary must be able to show what it received: reports, emails, deliverables, time spent. An invoice alone is not proof.

An arm's length price. The price should be close to what independent companies would agree. Large groups prepare formal transfer pricing documentation; smaller entities still need to be able to explain how the price was set.

Invoices issued on time. Recharges invoiced in one block at year end, or after the accounts are closed, create cut-off and VAT problems.

Services invoiced by a foreign group company to the French subsidiary are generally subject to the reverse charge: the French entity accounts for French VAT on its own return. See our page on French VAT for foreign companies.

Some payments made abroad, such as certain royalties, may be subject to French withholding tax. Tax treaties often reduce or remove it. This point needs to be checked before the first payment.

When the subsidiary is financed by its parent through a current account, the interest it pays is deductible only up to a reference rate published each quarter, unless the company can show that a higher rate is arm's length. Other limits apply to companies with significant debt.

At each closing, the amounts recorded by the subsidiary and by the group company must match. Differences usually come from exchange rates, invoices recorded in different periods or VAT. We reconcile intercompany balances before the group reporting deadline, not after.

Transfer pricing policies for large groups, permanent establishment questions and tax treaty analysis call for a specialised tax adviser, with whom we work when needed. This page is a general guide, not tax advice for your situation.