Your group wired 300,000 euros from London, New York or Dubai to fund your French subsidiary. The money arrived as a shareholder advance, booked in Paris as a compte courant d’associé, the shareholder current account that records sums a shareholder leaves at the company’s disposal on top of its share capital. No share capital increase, no notary, no INPI filing: the cash was available in days. Months later, two problems surface at once. The French management tells the parent the cash cannot be repaid right now, or the new local director questions an old undocumented advance. And the SIE (Service des impôts des entreprises, the French business tax office) disallows the interest, adds back the charge, and sometimes applies withholding tax on the interest paid abroad. The parent that rescued its subsidiary discovers that French law treats the advance, the interest and the repayment as three separate legal battles, each with its own documents, ceilings and deadlines. This article explains how a foreign parent documents a cash advance to its French SAS (société par actions simplifiée, the flexible joint-stock company most foreign founders choose) or SARL (société à responsabilité limitée, the closed limited liability company), how it keeps the interest deductible, and how it recovers the money when the subsidiary will not or cannot pay. Every French acronym is explained on first use.
French civil law starts from the loan. The statute states that “Le prêt de consommation est un contrat par lequel l’une des parties livre à l’autre une certaine quantité de choses qui se consomment par l’usage, à la charge par cette dernière de lui en rendre autant de même espèce et qualité” (Article 1892 of the Civil Code), a loan for consumption where the borrower must return as much of the same kind and quality. The companion rule adds that “L’emprunteur est tenu de rendre les choses prêtées, en même quantité et qualité, et au terme convenu” (Article 1902 of the Civil Code), repayment in the same quantity and quality at the agreed term. Money is the classic consumable thing, so a parent’s cash advance is a loan unless the parties validly agreed otherwise, for example a contribution to capital or a gift, which require their own formalities. Tax law then sets the price of the deduction. Interest paid to a shareholder on sums left at the company’s disposal is deductible only “dans la limite de ceux calculés à un taux égal à la moyenne annuelle des taux effectifs moyens pratiqués par les établissements de crédit et les sociétés de financement pour des prêts à taux variable aux entreprises, d’une durée initiale supérieure à deux ans”, within the limit of interest computed at a rate equal to the annual average of the average effective rates charged by banks for floating-rate business loans of more than two years, and “Cette déduction est subordonnée à la condition que le capital ait été entièrement libéré”, the deduction requires fully paid-up share capital (Article 39-1-3° of the General Tax Code (Code général des impôts, CGI)). Where the lender is a related company, a second ceiling applies to related-party debt (Article 212, I of the General Tax Code), and interest paid to a lender in a low-tax jurisdiction is deductible only with proof of real, normal operations (Article 238 A of the General Tax Code). For the general setting of a French subsidiary, our pillar guide on setting up a company in France as a foreign founder: bank account, Kbis, VAT and first hire, our explainer on French corporate tax for foreign owners and our guide on unpaid share capital and calls for funds complete this analysis, because unpaid capital kills the interest deduction before any rate debate begins.
I. Why French law treats your parent’s cash advance as repayable on demand, and why the tax office attacks the interest
A. The French subsidiary will not repay our parent’s advance: can the lender demand the money back now?
Yes, in principle immediately, and that is what surprises most foreign groups. Under French case law, a shareholder current account with no agreed term and no blocking clause is repayable on demand: the lender sends a mise en demeure, the formal demand letter served by a bailiff or sent by registered letter requiring payment, and then sues for payment before the commercial court. The Paris Court of Appeal confirmed this rule in April 2026 in a dispute where associates had advanced funds to finance a project and then sought repayment: the first judges had granted repayment because “ni dans les statuts, ni lors de la souscription du capital social, il a été stipulé un blocage des comptes courants”, neither the articles nor the capital subscription provided any blocking of the current accounts, and the court confirmed the judgment in full, ordering the company to bear the appeal costs (CA Paris, Pôle 5, Chambre 8, 14 April 2026, No. 24/01215). The company had argued that repayment could be refused or scheduled over a reasonable period decided by majority vote, but the resolution increasing the associates’ commitments had not been adopted unanimously and could not override the lender’s right. For a foreign parent, the lesson is direct: if the 2022 or 2024 advance was wired without a written term, the parent can demand repayment today, and the subsidiary’s management cannot hide behind cash-flow convenience or a majority vote of the French shareholders to force a delay.
Three defences regularly raised by French subsidiaries fail when the file is empty, and each has a precise counter. First, the subsidiary argues that the advance was really a hidden capital contribution or a gift supporting the group, hence not repayable. Courts reject this unless the subsidiary produces a capital-increase deed, a waiver letter or accounts treating the sum as equity: a wire labelled advance, booked in account 455 (associés-comptes courants, the French chart-of-accounts entry for shareholder advances) and sometimes bearing interest, is a loan. Second, the subsidiary invokes a group cash-pooling arrangement to claim the money moved under a treasury agreement with no repayment date. Here the commercial courts draw a sharp line between instruments, as shown in a May 2025 ruling where the court held that current-account agreements concluded for more than one year “ne constituent pas des avenants à la convention de trésorerie, ou de cash pooling, conclue en 2020, laquelle n’était pas un contrat de prêt”, were not amendments to the 2020 cash-pooling treasury agreement, which itself was not a loan contract, so the interest on the current accounts kept running under its own terms (CA, Chambre commerciale, 13 May 2025, No. 24/06303, Duroc). A treasury agreement that sets no duration and no repayment terms does not convert a documented shareholder loan into permanent funds, and it does not protect the subsidiary against a repayment claim. Third, the subsidiary pleads insolvency: once a sauvegarde, redressement or liquidation judgment opens, individual enforcement is stayed and the parent must declare its claim to the mandataire judiciaire (the court-appointed insolvency representative) within the statutory deadline. The Duroc ruling admitted the parent’s interest claim of 1,191,875 euros in the collective proceedings precisely because the 2022 agreements documented duration and interest, while the older treasury agreement did not. An undocumented advance declared late in a liquidation is treated as a doubtful unsecured claim and often ends with cents on the euro, whereas a documented loan with interest and term is admitted with its accrued interest.
Practical recovery follows a ladder the parent should start before relations break down. First, gather the payment proof: SWIFT messages, bank statements showing the credit to the French company’s account, the accounting entries in account 455, board minutes or shareholder decisions acknowledging the advance, and any emails setting the purpose, duration and rate. Second, send the mise en demeure giving a short deadline, referencing the amount, the account and the absence of any blocking clause, and stating that court action will follow. Third, file an assignation, the writ summoning the company before the tribunal de commerce (the commercial court), seeking the principal, contractual or legal interest from the demand date, and a penalty clause if one was agreed. Before suing, check the Kbis (the official registration certificate issued by the greffe, the commercial court clerk’s office, proving who may bind the company) to sue the correct legal entity at its current siège social (registered office), and check BODACC (Bulletin officiel des annonces civiles et commerciales, the official gazette) for any published insolvency or transfer affecting the debtor. If the company is already in collective proceedings, declare the claim immediately with the loan agreement attached rather than pursuing individual enforcement that the stay would void. Throughout, keep the claim consistent with the group’s tax filings: the amount claimed in court must match the balance in the French accounts, the transfer-pricing documentation and the foreign parent’s receivables ledger, because the gap between a court claim and a tax file destroys credibility on both fronts. Our guide on unfreezing a French bank account explains the parallel proof banks demand when the same advance triggers a KYC freeze.
B. The tax office disallows the interest and adds withholding: what ceilings and proof apply to a foreign lender?
The interest battle has three layers, and the SIE examines them in order. Layer one is the shareholder-loan ceiling of Article 39-1-3°, which caps deductible interest at the published average bank rate and, crucially, requires fully paid capital. A French subsidiary whose 10,000 euros of capital were never fully wired cannot deduct one euro of interest on the parent’s 500,000 euro advance, whatever the rate. Theentreprise must therefore prove liberation intégrale, full payment of the capital, with the bank certificate of deposit and the RCS (Registre du commerce et des sociétés, the company register kept by the greffe) entries, before discussing rates. Layer two is the related-party ceiling of Article 212, I, which further limits interest on sums left at the company’s disposal by an associate or related enterprise, and layer three is the transfer-pricing add-back where the rate exceeds arm’s length conditions. In practice the auditor compares the 6 or 8 percent charged by a Dubai or US parent with the 3 to 4 percent average bank rate published for the period, disallows the excess, and treats an interest-free advance in the opposite direction as a potential abnormal advantage granted to the borrower. Groups that set the rate by reference to the published average, document the parent’s own refinancing cost, and apply the same rate consistently across periods survive this comparison; groups that charge round-number rates with no source do not. The BOFiP (Bulletin officiel des finances publiques, the tax administration’s official commentary) publishes the applicable average rates, and the official return guidance on impots.gouv.fr restates the paid-capital condition every year.
The cross-border layer decides whether withholding tax is added on top of the disallowance. Interest paid by a French company to a foreign parent can trigger a French levy at source unless an exemption applies, and the European exemption is narrowly drawn: “La retenue à la source prévue au 1 de l’article 119 bis ainsi que le prélèvement prévu au III de l’article 125 A ne sont pas applicables aux intérêts”, the withholding tax and the levy are not applicable to interest, “payés par une société anonyme, une société par actions simplifiée”, paid by a French corporation or SAS, only where the lender meets the directive’s association, holding and beneficial-ownership conditions (Article 119 quater of the General Tax Code). A letterbox intermediary, a lender outside the European Union without an equivalent treaty route, or a parent unable to prove it is the effective beneficiary loses the exemption, and the French subsidiary, as paying agent, is liable for the unwithheld tax plus penalties. Where the lender sits in a low-tax jurisdiction, the administration goes further and demands proof that the loan itself is real and normal: sums paid to privileged-regime persons “ne sont admis comme charges déductibles pour l’établissement de l’impôt que si le débiteur apporte la preuve que les dépenses correspondent à des opérations réelles et qu’elles ne présentent pas un caractère anormal ou exagéré”, deductible only with proof of real operations of normal character (Article 238 A of the General Tax Code). The file must therefore prove the lender’s substance, the use of the funds in France, and a rate a bank would have granted. Our explainer on intercompany invoices and VAT covers the parallel indirect-tax trap: interest on a genuine loan is outside VAT scope, but a fee relabelled as interest, or interest on a fictitious advance, is recharacterized with corporate tax, withholding and penalty consequences together.
Two frequent errors multiply the damage and both are easy to prevent. The first is the interest-free advance from the parent combined with interest-bearing borrowing by the subsidiary from its bank: the group pays 5 percent outside and charges 0 percent inside, and the auditor reads the gap as a subsidy to French profit stripping or, in reverse, as an advantage granted by the French company when it lends interest-free to the foreign parent. Price every direction of funding, even symbolically, with a written rate. The second is the confusion between dividends and interest at repayment: when the subsidiary finally repays, any amount above principal paid without a documented rate is treated as a distribution, with dividend withholding and no deduction. Keep three separate decisions with three separate papers: the shareholder resolution approving the accounts and any dividend, the loan agreement governing principal and interest, and the bank proof of each transfer labelled accordingly. Where the advance must become permanent, convert it properly through a formal capital increase by set-off (compensation de créance), with a commissaire aux comptes (statutory auditor) certificate of the receivable and an INPI filing, rather than letting an old repayable advance rot in account 455 until the auditor recharacterizes it. The official company formalities portal run by the INPI (Institut national de la propriété industrielle, through the Guichet unique single window) and the company-life pages on service-public.fr describe the filings that make the conversion opposable to third parties.
II. How to paper, price and recover the advance without losing the deduction
A. We are wiring the money next month: what agreement, rate and entries protect the parent?
Draft the advance as a real loan before the wire, in English with a French translation, signed by persons with authority verified on the Kbis. The agreement needs eight clauses: the amount and currency with the exchange-rate rule for repayments, the purpose of the funds, the duration or the on-demand character with a notice period, the interest rate with its source (published average, parent refinancing cost plus margin, or bank quote), the payment dates for interest and principal, the events of default and acceleration, the governing law and jurisdiction, and the subordination clause if any. An on-demand advance is lawful, but stating a 30 or 60 day notice period after demand avoids the argument that immediate suit was abusive, while a fixed term of more than one year, as in the Duroc 2022 agreements, secures post-opening interest if insolvency intervenes. Decide consciously between a shareholder current-account advance and a group treasury cash-pooling agreement: the courts treat them as different instruments, since the treasury agreement “n’était pas un contrat de prêt”, was not a loan contract, while the documented current-account agreements carried their own duration and interest (CA, Chambre commerciale, 13 May 2025, No. 24/06303, Duroc). If the group runs cash pooling, sign both the master treasury agreement and a specific drawdown notice for the French subsidiary stating amount, rate and term, so the advance does not dissolve into undated pooled balances that prove nothing.
Price the rate with a one-page note kept with the agreement: the published average rate for the quarter, the parent’s bank margin evidence, and the arm’s length justification if the rate exceeds the average. Verify that the French capital is fully paid before booking any interest, and keep the deposit certificate permanently in the file. Book the advance in account 455 with the parent’s name, accrue interest monthly with the calculation attached, withhold at source only where no exemption is documented, and declare the interest consistently in the French corporate return, the parent’s income, and the transfer-pricing appendix. For a euro-zone parent the entries are straightforward; for a dollar or sterling advance, fix in writing who bears the exchange risk and book conversion differences separately, because an undocumented forex gain distributed at repayment looks like a hidden dividend. File the French liasse fiscale (the annual tax return bundle) with interest figures identical to the ledger, and reconcile the parent’s receivable every quarter with signed intercompany balance confirmations. When the advance exceeds the subsidiary’s equity by a wide multiple over several years, add a thin-capitalisation memo applying the Article 212 ratios, or reduce the exposure by converting part of the advance into capital through set-off subscription. A file where the agreement, the rate note, the ledger, the tax return and the transfer-pricing appendix all show the same numbers is rarely adjusted; a file where the wire says advance, the accounts say equity and the return deducts 8 percent is adjusted on all three taxes at once.
Governance completes the protection. Have the French board or the président of the SAS acknowledge the advance and its terms in writing, verify that the signatory’s powers cover borrowing, and, in a SARL where the lender is also the gérant (manager) or a majority holder, follow the regulated-agreements procedure so a minority associate cannot later annul the interest. Keep the original wire records, because auditors and banks reconstruct five-year histories: the TRACFIN (Traitement du renseignement et action contre les circuits financiers clandestins, the anti-money-laundering unit) declaration logic and bank KYC reviews treat large undocumented cross-border wires as suspicious, which is why the same advance can trigger both a tax adjustment and an account freeze. Brief the French finance team to answer who lent, how much, at what rate and when it is due without calling the parent, and store the file in France in French or bilingual form. If the subsidiary already shows half-capital losses, coordinate the advance with the recapitalization duties rather than masking the losses with evergreen shareholder loans, a situation our guide on subsidiaries that lost half their capital addresses. Finally, calendar the advance like any corporate deadline: interest payment dates, term maturity, claim limitation periods, and the annual review of the rate against the published average, because an agreement signed in 2022 at 2 percent and still applied unchanged in 2026 invites the auditor to rewrite the price for the later years.
B. The subsidiary cannot or will not pay: how do we enforce, declare the claim and contest the tax?
When repayment stalls, move fast and on two tracks at once. On the civil track, the mise en demeure starts interest running and proves good faith before the court; the assignation before the tribunal de commerce follows within weeks, not quarters, because delay suggests the advance was never truly repayable. Claim the principal, the contractual interest to the payment date, and capitalisation of accrued interest where a full year has run, a mechanism French courts grant on request. If the debtor raises the blocking defence, answer with the paper trail: no blocking clause in the articles, no unanimous resolution increasing commitments, and the April 2026 Paris ruling confirming that “ni dans les statuts, ni lors de la souscription du capital social, il a été stipulé un blocage des comptes courants”, with the judgment confirmed on appeal and costs imposed on the company (CA Paris, Pôle 5, Chambre 8, 14 April 2026, No. 24/01215). Where the subsidiary is already subject to collective proceedings, declare the principal and the interest separately with the agreements attached, citing the Duroc admission of 1,191,875 euros of interest as the model of a documented claim, and monitor the vérification du passif (the court-supervised claim verification) to contest any rejection within the deadline stated in the registrar’s letter. Never accept an informal standstill that suspends limitation without a written acknowledgement of the debt: an unwritten patience agreement is how repayable advances quietly become time-barred.
On the tax track, the dispute follows the standard reassessment ladder with strict time limits. The administration must send “une proposition de rectification qui doit être motivée de manière à lui permettre de formuler ses observations ou de faire connaître son acceptation”, a reasoned proposal enabling observations or acceptance (Article L57 of the Tax Procedure Book (Livre des procédures fiscales, LPF)), and the reply period, thirty days extendable to sixty on timely request, is the cheapest moment to kill the adjustment. Answer each layer separately: paid-up capital with the deposit certificate, rate within the Article 39-1-3° average with the published table, related-party ratios under Article 212 with the computation, withholding exemption under Article 119 quater with the beneficial-ownership and association evidence, and, for low-tax lenders, the reality file under Article 238 A. If disagreement persists, the taxpayer can require referral to the advisory commission, since “Lorsque le désaccord persiste sur les rectifications notifiées, l’administration, si le contribuable le demande, soumet le litige à l’avis” of the competent commission (Article L59 of the Tax Procedure Book). After assessment, file the formal claim before the deadline on the notice, request sursis de paiement (the statutory stay of collection) with guarantees where the amount is large, and take the case to the tribunal administratif (the administrative court) of the registered office if the claim fails, with the CAA (cour administrative d’appel, the administrative court of appeal) above it. Plead the civil and tax positions consistently: the loan the parent enforces in Paris cannot be presented in Montreuil as a non-repayable contribution, and the interest claimed in court must equal the interest deducted in the return.
Close the file by choosing the end state deliberately. If the subsidiary has recovered, repay principal plus documented interest by labelled wires and close account 455 with a final reconciliation signed by both sides. If the advance must stay, convert it into capital by set-off with the auditor’s certificate and the INPI filing, which restores equity, ends the interest debate and avoids the half-capital procedure. If the subsidiary is finished, use the advance strategically in the liquidation: a documented parent claim admitted to the liabilities can fund a controlled wind-down, whereas an undocumented advance disappears. In every scenario, keep the whole chain, agreement, rate note, ledger, returns, transfer-pricing appendix, demands and judgment, for the French retention period, because a 2026 advance will be audited in 2028 or 2029 when memories have faded and only paper remains. Foreign parents that lend on paper recover their money with interest; foreign parents that wire on trust litigate for years over whether the money was a loan at all.
Conclusion
A shareholder advance from a foreign parent is the fastest way to fund a French subsidiary and the fastest way to manufacture two disputes, one over repayment and one over interest, when it travels without papers. French courts order repayment of undocumented current accounts because no blocking clause exists, and they enforce documented ones with their interest, as the 2026 Paris and 2025 Duroc rulings show from opposite directions. The tax office disallows interest above the published average, without fully paid capital, outside the related-party ratios, and adds withholding where the European exemption is not proven. The answer is a one-day discipline at the time of the wire: a signed agreement with amount, term, rate and source, a rate note tied to the published average, books and returns showing identical figures, and a calendar for interest, maturity and review. Built that way, the parent’s cash earns deductible interest and returns on demand; wired informally, it becomes an unrepayable subsidy that the subsidiary will not repay and the auditor will tax. If the money has already moved without papers, reconstruct the file now, send the demand before positions harden, and have French counsel test the rate and the exemption before the SIE tests them for you.
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Telephone consultation within 48 hours with a lawyer of the firm. Call +33 6 46 60 58 22 (Maître Reda Kohen) for an initial assessment of your shareholder loan file, interest deduction or repayment deadline. You can also reach us through the contact page of kohenavocats.fr. We assist foreign groups with French subsidiaries in Paris and throughout France.