Your company in Delaware, London, Dubai or Singapore owns a French subsidiary, and every month the foreign parent sends the French company an invoice labelled management fees, technical assistance or brand royalties. The French subsidiary deducts these invoices from its taxable profit, so the French corporate tax bill shrinks while cash flows back to the parent. This arrangement is perfectly lawful, and it is also one of the most audited transactions in France. The French tax office knows that a line on an invoice can hide a disguised profit transfer, and it has a dedicated legal weapon for exactly this situation. If you live abroad and run the French company from a distance, you will not be there when the tax inspector walks in, so the file must defend itself without you. This guide explains, in order, how to make the fees deductible, how to price them at arm’s length, how to invoice them with the correct French VAT treatment, and how to answer a tax audit and challenge a reassessment from abroad, with the exact articles and court decisions that govern your file.
I. Make the Foreign Parent’s Management Fees Deductible in France
French tax law starts from a simple principle and adds a trap for intra-group invoices. The principle is that a company deducts all its genuine operating expenses. The trap is that when the supplier sits abroad and belongs to the same group, the tax office may treat part of the invoice as profit secretly moved out of France and add it back to your taxable result, with penalties. Two questions therefore decide everything: did the parent really do something for the French company, and was the price normal. Fail either test and the deduction falls.
A. How to prove from abroad that the foreign parent really worked for the French company
The starting point is the general deduction rule. Article 39, paragraph 1 of the General Tax Code (code général des impôts, the CGI, France’s main tax statute) provides that net profit is computed after deducting all charges, including, notably: “Les frais généraux de toute nature, les dépenses de personnel et de main-d’oeuvre, le loyer des immeubles dont l’entreprise est locataire.” General expenses of every kind are therefore deductible in principle, and an invoice for genuine management, IT, accounting, legal or commercial support from the parent falls squarely into that basket. But the same article immediately adds the condition that kills hollow invoices: “Toutefois les rémunérations ne sont admises en déduction des résultats que dans la mesure où elles correspondent à un travail effectif et ne sont pas excessives eu égard à l’importance du service rendu.” Fees are deductible only to the extent that they correspond to work actually performed and are not excessive in light of the importance of the service rendered. A monthly flat fee with no description, no time spent and no deliverable fails this test on its face.
The courts apply this test under the name of abnormal management act, or acte anormal de gestion: an expense that no prudent business owner would incur in the sole interest of the company is removed from deductible charges. A recent decision shows exactly how judges reason when a French company pays, or refuses to charge, amounts inside its group. In a ruling of 20 February 2025, case number 23LY02104, the Lyon administrative court of appeal recalled the rule in these terms: “En vertu des dispositions combinées des articles 38 et 209 du code général des impôts, le bénéfice imposable à l’impôt sur les sociétés est celui qui provient des opérations de toute nature faites par l’entreprise, à l’exception de celles qui, en raison de leur objet ou de leurs modalités, sont étrangères à une gestion normale.” Taxable profit comes from all transactions of the business except those which, by their purpose or their terms, fall outside normal management. The court then stated the burden of proof: “S’il appartient à l’administration d’apporter la preuve des faits sur lesquels elle se fonde pour estimer que les avantages octroyés par une entreprise à un tiers constituent un acte anormal de gestion, elle est réputée apporter cette preuve dès lors que cette entreprise n’est pas en mesure de justifier qu’elle a bénéficié en retour de contreparties.” The tax office is deemed to prove an abnormal act as soon as the company cannot show what it received in return. In that case the French company had borne a 340,845 euro commission paid to its parent without recharging it to the sister companies that actually benefited, and the court confirmed the add-back because no counterparty benefit was demonstrated and the interest of the group alone was not enough.
For a foreign founder, the practical lesson is that every management-fee invoice must be backed by a paper trail proving reality: a written intra-group services agreement signed before the services start, describing each service line by line, monthly or quarterly activity reports, timesheets or consultant logs, emails showing instructions given and received, travel records when the parent’s staff come to France, and evidence that the French subsidiary actually used the deliverables in its own business. Duplicate charges are the classic failure: if the French company already employs a local accountant, a full-time parent invoice for accounting supervision looks like paying twice for the same job, and the inspector will ask what the parent added. Shareholder activities are the second classic failure: the costs of owning shares, supervising the investment, organising board meetings and producing consolidated accounts serve the parent as shareholder, not the subsidiary as client, and France does not let the subsidiary deduct them. Your agreement should therefore separate shareholder supervision, which stays with the parent, from operational services actually consumed by the French company, and the pricing should follow that split.
A special warning applies when the parent sits in a low-tax jurisdiction. Article 238 A of the General Tax Code targets payments made to persons established in a foreign state with a privileged tax regime, and it provides that such service fees “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.” The French subsidiary must then affirmatively prove that the operations are real and neither abnormal nor exaggerated. If your group routes services through an entity in a jurisdiction France treats as privileged or non-cooperative, expect the inspector to invoke this article first and prepare the proof file accordingly, because the burden is heavier there than in an ordinary intra-group case.
B. How to set a transfer price the French tax office accepts
Proving that the work was real is only half the battle. The price must also be the price that independent companies would have agreed, the arm’s length price, or prix de pleine concurrence. The legal weapon is Article 57 of the General Tax Code, which states: “Pour l’établissement de l’impôt sur le revenu dû par les entreprises qui sont sous la dépendance ou qui possèdent le contrôle d’entreprises situées hors de France, les bénéfices indirectement transférés à ces dernières, soit par voie de majoration ou de diminution des prix d’achat ou de vente, soit par tout autre moyen, sont incorporés aux résultats accusés par les comptabilités.” Profits indirectly transferred abroad through inflated purchase prices or any other means are added back to the French company’s declared results. An excessive management fee is treated exactly like an inflated purchase price: the excess over the normal price is deemed profit moved to the parent and taxed in France as if it had never left.
The Conseil d’État, France’s supreme administrative court, has explained how this presumption works in practice. In a leading transfer-pricing decision of 6 June 2018, case number 409645, concerning a French distributor wholly owned by an American group, the court held: “lorsqu’elle constate que les prix facturés à une entreprise établie en France par une entreprise étrangère qui lui est liée sont supérieurs à ceux pratiqués, soit par cette entreprise avec d’autres clients dépourvus de liens de dépendance avec elle, soit par des entreprises similaires exploitées normalement avec des clients dépourvus de liens de dépendance, sans que cet écart ne s’explique par la situation différente de ces clients, l’administration doit être regardée comme établissant l’existence d’un avantage qu’elle est en droit de réintégrer dans les résultats de l’entreprise établie en France, sauf pour celle-ci à justifier que cet avantage a eu pour elle des contreparties aux moins équivalentes.” When the tax office shows that the related foreign supplier charges the French company more than it charges independent customers, or more than comparable independent companies charge each other, without any difference in situation explaining the gap, the existence of an advantage is established and the company can only escape by proving counterparty benefits of at least equivalent value. The same decision confirms that Article 57 applies to corporate income tax through Article 209 of the same code, so every French subsidiary paying its foreign parent falls inside this regime.
In concrete terms, you should choose a pricing method before the invoices start and write it down. The French administration’s published transfer-pricing guide, available on impots.gouv.fr, the official website of the French tax administration, describes the documentation companies must hold, including the transfer-pricing file required by Article L. 13 AA of the Tax Procedure Code (livre des procédures fiscales, the LPF, the statute governing audits and disputes) and the country-by-country report for multinational groups with consolidated turnover of at least 750 million euros. Even below the formal documentation thresholds, a short transfer-pricing memorandum in your file changes the balance of power: it shows the method chosen, the comparable companies or cost base used, and why the margin is normal. The commonly accepted methods are the comparable uncontrolled price, where you benchmark the parent’s hourly rates against independent providers in the same market, and the cost-plus method, where the parent’s internal cost of providing the service is increased by a modest arm’s length mark-up. What the administration rejects are circular methods, such as guaranteeing the foreign supplier a fixed margin while the French distributor bears all the commercial risk, which is precisely the cost-plus construction the Conseil d’État struck down in the 2018 General Electric case. Keep the benchmark study, update it every two to three years, and make sure the invoices match the method: if the memorandum says cost plus 8 percent, the invoices should show the cost base and the mark-up, not a round number that appears from nowhere.
Many foreign founders hesitate between funding the French company with management fees and funding it with a shareholder loan, the compte courant d’associé, meaning the current-account advance a shareholder leaves at the disposal of the company. The two tools obey different tax ceilings. Loan interest paid to a related foreign lender is deductible only within strict limits set by Article 212 of the General Tax Code, which opens with this rule: “Les intérêts afférents aux sommes laissées ou mises à disposition d’une entreprise par une entreprise qui est son associée ou par une entreprise liée, directement ou indirectement, au sens du 12 de l’article 39, sont déductibles”. Interest on sums left or made available to a company by its shareholder or a related company is deductible, but only within the rate and thin-capitalisation caps that follow in that article. Management fees have no statutory rate cap, but they carry the heavier proof burden of real services and normal price described above. In practice, groups often combine both: a documented loan for cash needs at a lawful interest rate, plus service fees strictly limited to services actually rendered and benchmarked. Do not disguise a profit repatriation as either one, because the inspector recharacterises the excess in both cases.
II. Invoice Correctly, Handle French VAT, Then Win the Audit From Abroad
A deductible fee can still cost you money if the invoice is irregular or the VAT is mishandled. French commercial law requires a proper invoice for every transaction, the VAT on cross-border services follows a reverse-charge mechanism that surprises many foreign groups, and the audit itself obeys a procedure with strict deadlines you can use even from another continent. This second part walks through each step.
A. How to invoice the French subsidiary and self-assess French VAT on foreign-billed services
Every service must be invoiced, including services between companies of the same group. Article L. 441-9 of the Commercial Code (code de commerce, the statute governing business transactions) states the rule bluntly: “Tout achat de produits ou toute prestation de service pour une activité professionnelle fait l’objet d’une facturation.” The seller must issue the invoice as soon as the service is performed and each party keeps a copy. An intra-group memo, a cost allocation note or a year-end lump-sum adjustment without an invoice does not satisfy this requirement, and the absence of invoices is the first thing an inspector notes when challenging the reality of the services. Your parent’s invoices should therefore carry the names and addresses of both companies, the date of the service, a precise description of each service line, quantities and unit prices excluding VAT, the applicable VAT treatment, and the intra-Community VAT numbers of both parties when both sit inside the European Union. Generic wording such as management fees with no detail, or a single annual invoice issued in December covering twelve months of unspecified assistance, undermines both deductibility and credibility.
The VAT treatment then depends on where the parent is established. When a foreign taxable person supplies services to a French taxable customer, France generally does not ask the foreign supplier to charge French VAT. Instead, the French subsidiary self-assesses the tax itself. Article 283 of the General Tax Code provides: “lorsqu’une livraison de biens ou une prestation de services mentionnée à l’ article 259 A est effectuée par un assujetti établi hors de France, la taxe est acquittée par l’acquéreur, le destinataire ou le preneur qui agit en tant qu’assujetti et qui dispose d’un numéro d’identification à la taxe sur la valeur ajoutée en France.” The French customer, acting as a taxable person with a French VAT identification number, pays the tax, and the amount is shown on the return mentioned in Article 287. For services covered by Article 259, paragraph 1, supplied by a provider not established in France, the same article adds that the tax must be paid by the customer. This mechanism is called autoliquidation, or reverse charge: the subsidiary declares the French VAT due on the foreign invoice and simultaneously deducts it on the same VAT return, the CA3, to the extent its own activity gives a right to deduct, so the operation is often cash-neutral but never declaration-neutral.
The official business guidance on service-public.fr, the French government’s public service website, confirms the invoicing consequence in English: where the seller has no French VAT number, it must bill excluding tax and the French customer self-assesses, and the invoice must carry the reverse-charge wording. In practice, the parent’s invoice should therefore show the net amount with the words autoliquidation or reverse charge, no French VAT charged, and the French subsidiary reports the purchase on its CA3 return in both the collected-VAT and deductible-VAT boxes. Three errors recur in foreign-owned files. First, the subsidiary forgets to declare the reverse charge at all, which draws an automatic VAT reassessment even though the net cash effect would have been zero. Second, the parent charges its local VAT, for example British, American or Emirati tax logic applied by mistake, on top of the fee, and the French company wrongly tries to recover foreign tax on a French return instead of using the reverse charge. Third, when the French subsidiary itself benefits from the small-business VAT exemption, the franchise en base, it cannot deduct the self-assessed VAT, so the reverse charge becomes a real cost that must be priced into the fee from the start. Ask your French accountant each quarter for written confirmation that the foreign invoices were processed in autoliquidation on the CA3, because this is the single most frequent adjustment in files like yours.
B. How to answer a transfer-pricing audit and challenge the reassessment without living in France
A transfer-pricing challenge almost always arrives inside a vérification de comptabilité, the on-site audit of your accounts, which the tax office opens for a defined period and defined taxes. One protection matters immediately: Article L. 51 of the Tax Procedure Code provides: “Lorsque la vérification de comptabilité ou l’examen de comptabilité, pour une période déterminée, au regard d’un impôt ou d’une taxe ou d’un groupe d’impôts ou de taxes, est achevé, l’administration ne peut procéder à une vérification de comptabilité ou à un examen de comptabilité de ces mêmes écritures au regard des mêmes impôts ou taxes et pour la même période.” Once an audit of given entries for given taxes and a given period is finished, the administration cannot audit the same entries again for the same taxes and period. Keep every audit notice and closure letter, because a second attempt on already-audited years can be stopped with this article.
During the audit, the inspector who suspects a transfer of profits can demand targeted explanations. Article L. 13 B of the Tax Procedure Code states: “Lorsque, au cours d’une vérification de comptabilité ou d’un examen de comptabilité, l’administration a réuni des éléments faisant présumer qu’une entreprise, autre que celles mentionnées au I de l’article L. 13 AA, a opéré un transfert indirect de bénéfices, au sens des dispositions de l’ article 57 du code général des impôts, elle peut demander à cette entreprise des informations et documents précisant : 1° La nature des relations entrant dans les prévisions de l’article 57 du code général des impôts, entre cette entreprise et une ou plusieurs entreprises exploitées hors de France ou sociétés ou groupements établis hors de France ; 2° La méthode de détermination des prix des opérations de nature industrielle, commerciale ou financière qu’elle effectue avec des entreprises, sociétés ou groupements visés au 1° et les éléments qui la justifient ainsi que, le cas échéant, les contreparties consenties” The company must then describe the nature of its relations with the foreign related entities and the pricing method used. You do not need to be in Paris to answer: your French lawyer and accountant reply in French within the deadline, sending the services agreement, the benchmark study, the invoices and the proof of payment. Late, vague or English-only answers with no translation waste the one procedural moment when a well-documented file can still stop the reassessment before it is issued.
If the inspector maintains the adjustment, the administration must send a reasoned correction notice. Article L. 57 of the Tax Procedure Code requires: “L’administration adresse au contribuable une proposition de rectification qui doit être motivée de manière à lui permettre de formuler ses observations ou de faire connaître son acceptation.” The notice must be reasoned so that you can reply or accept, and on your request made before the expiry of the period mentioned in Article L. 11, that period is extended by thirty days. Use that reply period fully: contest the comparables, show the counterparty benefits the subsidiary received, and demonstrate the method with figures, because everything you write becomes evidence before the courts. If the adjustment is confirmed, you may appeal to the higher administrative reviewer, the interlocuteur départemental, then file a formal claim, the réclamation, and finally bring the case before the administrative court, the tribunal administratif, and on appeal before the cour administrative d’appel, exactly as the companies in the Lyon and Conseil d’État cases above did. Deadlines run in months, not years, so instruct your counsel from abroad the day the correction notice arrives, sign powers of attorney electronically, and never let a French-language registered letter sit unopened at the company’s seat: appoint a person in France who forwards every official letter the same day.
Conclusion
Management fees from a foreign parent are deductible in France when three conditions meet: the services are real and documented, the price matches what independent companies would pay, and the invoice and VAT treatment are correct. The file that survives is built before the audit, not during it: a precise services agreement, activity reports and timesheets proving effective work, a short benchmark study supporting the price, compliant invoices mentioning reverse charge, and CA3 returns showing the self-assessed VAT. With that file, a vérification de comptabilité ends in a negotiation between professionals; without it, Article 57 adds the fees back to your profit, penalties follow, and you defend the case from abroad with empty hands. If your parent already invoices your French subsidiary, have the file reviewed now, while corrections are still cheap. If the invoices have not started, put the agreement and the pricing method in place first, because the first year’s structure decides how the next five years will be taxed.
Need a quick opinion on your case
For a first review of your management-fee file, our firm offers an initial phone consultation for 80 EUR incl. VAT within 48 hours with an attorney of the firm. Call +33 6 46 60 58 22 or write via our contact page. We assist foreign groups with French subsidiaries from Paris and across Île-de-France, entirely in English, from the services agreement to the audit reply.