Source: French to English Tester Published on: 2026-05-11
Source: The Conversation – France (in French)– By Benjamin Bournel, Associate Professor in Management Sciences (specializing in accounting), University of Poitiers
While TotalEnergies recorded more than 19 billion dollars in profits in 2023, its French subsidiaries show much more modest results. This paradox is the result of a mechanism little known to the general public, but central to the taxation of multinational corporations: internal transfer pricing. Understanding this system also means understanding why states struggle to tax large companies in proportion to their actual power. This is a question that the debates around a possible tax on “excess profits” revive.
Author’s noteNote: this article presents corporate structures and general accounting mechanisms. It does not aim in any way to establish that TotalEnergies commits tax irregularities.
Imagine a company managed from France, which extracts oil in Africa, then refines it in France and distributes it throughout Europe. One might expect this company to pay a significant portion of its taxes in France, where a large part of its activity takes place. Yet the reality is not always so, and it is not (always) illegal.
The mechanism at fault is called theinternal transfer price, ortransfer pricing. It refers to the prices at which the different subsidiaries of the same group invoice each other for goods, services, or assets. Although it appears technical, this system is actually at the heart of a major political and economic issue: who, within the group, pays the tax? How much does each of its entities pay? And where is it “chosen” to pay them?
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Constellation of companies
A multinational group like TotalEnergies is not a single company. It is a constellation of several hundred subsidiaries, operating as entirely separate entities, spread across dozens of countries, which constantly exchange with each other. These exchanges are inevitable: the crude oil extracted by one subsidiary must then be sold to another that refines it, the technologies developed by one will be used by others, and all this is made possible through financing flowing from one entity to another.
However, each time two subsidiaries of the same group bill each other for something, a price must be set. And this price — the transfer price — has a direct consequence on the localization of the group’s profits: if one subsidiary sells very expensively to another, it enriches itself in accounting terms at the other’s expense. And, profit means corporate taxes. Therefore, setting transfer prices is, in part, choosing in which country the group will pay its taxes.
In theory, this choice is regulated.The international rules established by the OECDrequire that these prices comply with the so-called “full competition” principle: the subsidiaries of a group must invoice each other as they would on the market, or based on the prices charged on the market by other independent companies. In practice, applying this principle is very complex.
From Angola to Normandy via Switzerland
Let’s take a concrete example: a barrel of crude oil is extracted by a TotalEnergies subsidiary in Angola. It must then be sold to the refining subsidiary, for example the one in Normandy. However, between the two, financial flows pass through a trading company headquartered in Geneva.
Why Geneva? Switzerland applies particularly favorable taxation to international trading companies. The trading subsidiary therefore buys crude oil at a low price from the extraction subsidiary and sells it at a higher price to the French refining subsidiary. The commercial margin – sometimes substantial – is thus captured in Switzerland, where it will be lightly taxed, rather than in France or Angola.
For the French subsidiary, it buys its raw material at a high price. Its production costs are thus higher, its margin is compressed and therefore shows a modest, even zero result, and pays little corporate tax in France.
The case of intangible assets
This pattern is not unique to the oil market. It is found in all sectors where multinationals operate: digital technology (with rare earths or components), pharmaceuticals (with patents on medicines), and even large-scale retail (with brands and stores or purchasing centers).
If transfer prices on physical goods are already difficult to control, the problem is even more significant with intangible assets, whether patents, trademarks, software, data, algorithms… These assets do not have an observable market price. Multinational companies therefore have full latitude to locate these assets in subsidiaries situated in low-tax countries – Ireland, Luxembourg, the Netherlands, etc. – and charge royalties to all other group subsidiaries. Each royalty paid is a deductible expense for the subsidiary that pays it (thus reducing taxable profit), and income for the subsidiary that receives it (taxed less).
Billions in lost earnings
Economist Gabriel Zucman, professor at the Paris School of Economics, recently estimated that40% of the profits of global multinationals are artificially shifted to low-tax countries, representing several billion in lost revenue for the states.
Faced with these practices, States do not remain inactive. In France, the tax administration can check the internal transfer prices of companies and reclassify them if it considers that they do not comply with the arm’s length principle. But this control encounters a reality pointed out by the Court of Auditors in itsreport on the tax audit of large companiesA: the tax administration faces structural difficulties, notably a lack of human resources, to cope with the increasing sophistication of tax optimization.
At the international level, two major initiatives should be noted. TheBEPS project(Base Erosion and Profit Shifting) of the OECD, launched in 2013, has produced a series of recommendations aimed at better regulating transfer pricing and requiring multinationals to declare their profits by country: the Country-by-Country Reporting. These declarations, country by country, now mandatory in the European Union, allow administrations to better identify suspicious discrepancies between the countries where profits are declared and those where the economic activity actually takes place.
One solution: the global tax?
More recently, the agreement on a global minimum tax of 15% on multinational profits, concluded in 2021 and gradually implemented within the EU since 2024, represents a significant advance. By setting a universal tax floor, it mechanically reduces the incentive to shift profits to countries with advantageous tax regimes.
Finally, it is important to specify that it would be inaccurate to present TotalEnergies—and more generally, all multinational companies using this practice—as illegal businesses resorting to tax evasion. In the vast majority of cases, these practices are legal, governed by rules that companies scrupulously follow. The problem lies more with the rules themselves, which are insufficient, incomplete, and often open to interpretation.
Internal transfer prices are not an anomaly of the system: they are a logical product of it. As long as states set different tax rates and multinationals operate in multiple jurisdictions, the temptation to shift profits will exist.
Benjamin Bournel does not work for, advise, own shares in, receive funds from any organization that could benefit from this article, and has declared no other affiliation than his research institution.
–ref. TotalEnergies does not “make” money in France: the role of internal transfer prices –https://theconversation.com/totalenergies-does-not-make-money-in-france-the-role-of-internal-transfer-prices-282105