Assimilation to a French SARL: a structural approach
The Court reaffirmed the methodology derived from the Artémis case law. This requires a structured, multi-step analysis:
- Identify the legal and operational characteristics of the foreign entity.
- Determine the closest equivalent under French company law.
- Apply the tax regime applicable to the French entity to which the foreign company is assimilated
In the Artémis jurisprudence, the Conseil d’État held that the following factors are not relevant for the purposes of classifying a foreign entity:
- The tax regime applicable in its jurisdiction of incorporation.
- The civil or commercial nature of its corporate objects.
- Whether the entity operates on a profit or non-profit basis.
- Structural differences, such as the absence of equivalent classes of shares.
Automatic exposure to French corporation tax
Once assimilated to a SARL, the entity falls within the scope of French corporation tax under Article 206 of the French Tax Code (CGI), unless a specific election applies. For foreign entities, such elections are generally unavailable in practice.
In the case at hand, a UK private limited company holding residential properties in the south of France was therefore treated as subject to French corporation tax, notwithstanding the non-profit nature of its constitutional objects.
Gratuitous use and “acte anormal de gestion”
The central issue concerned the rent-free use of the properties by shareholders. The company’s constitutional documents expressly permitted such use.
However, the Court confirmed a fundamental principle: compliance with corporate objects does not equate to acting in the company’s best financial interests.
By failing to charge rent, the company was considered to have waived income that an arm’s-length operator would have required. This constituted an “acte anormal de gestion” (abnormal management act), justifying the reintegration of a notional market rent into the taxable base.
The absence of any compensating advantage or economic justification was decisive. The tax reassessment was therefore upheld.
Practical implications for international structures
This decision does not create a doctrinal shift but confirms a strict and coherent application of existing principles. Its practical impact is nevertheless significant for foreign holding structures:
- Gratuitous occupation is not tax neutral: foreign corporate ownership does not prevent the imputation of deemed rental income.
- Formalisation is critical: occupation arrangements must be documented and supported by market-consistent rent levels.
- Substance over form: internal constitutional provisions cannot override French tax principles.
- Broader tax exposure: adjustments may affect not only corporation tax but also the valuation of assets for French real estate wealth tax (IFI).
The Combined Property Home Ltd decision reinforces a consistent message in French tax jurisprudence: foreign entities holding French assets are assessed through a French legal and fiscal lens. Where the structure departs from arm’s-length behaviour, the tax authorities retain broad powers to reconstruct taxable income.
For internationally mobile clients and advisors, this underscores the need for proactive structuring, robust documentation and periodic review of occupation arrangements involving French real estate.
For more information, please contact consulting@rosemont.mc
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