You live in London, New York or Dubai. You own a French subsidiary, usually a SAS (soci\u00e9t\u00e9 par actions simplifi\u00e9e, the flexible French joint-stock company), controlled by your foreign holding company. Every quarter, the parent sends an invoice for management fees: strategic supervision, finance support, human resources help, IT systems, brand use. Your French accountant books the invoices as deductible charges and the French subsidiary pays them by bank transfer. Then a letter arrives from the French tax office: a v\u00e9rification de comptabilit\u00e9 (full on-site audit of your accounts) is opened, the auditor questions the management fees, and a few months later you receive a proposition de rectification (formal notice of reassessment) that adds the fees back to taxable profit, charges additional corporation tax, late interest and penalties, and sometimes adds a deemed dividend withholding tax. This article explains, entirely from official French sources, why this happens, what proof the French courts require, and how you can challenge the reassessment from abroad without flying to Paris for every deadline.<\/p>\n
French acronyms used in this article are explained at first use. CGI means Code g\u00e9n\u00e9ral des imp\u00f4ts (French Tax Code). LPF means Livre des proc\u00e9dures fiscales (Tax Procedure Code). IS means imp\u00f4t sur les soci\u00e9t\u00e9s (French corporation tax). TA means tribunal administratif (administrative court of first instance). CAA means cour administrative d’appel (administrative court of appeal). CE means Conseil d’\u00c9tat (France’s supreme administrative court). OECD means Organisation for Economic Co-operation and Development. Kbis means the official company identity extract issued by the greffe (registry of the commercial court). INPI means Institut national de la propri\u00e9t\u00e9 industrielle (French intellectual property office, which also runs the company registration desk known as Guichet unique). URSSAF means the social security collection agency, which is not involved here but is mentioned so readers do not confuse a tax audit with a social audit. BODACC means Bulletin officiel des annonces civiles et commerciales (official gazette for company life events).<\/p>\n
If you are still choosing between a French subsidiary, a branch (succursale) and a foreign company operating without a French entity, read first our guide on how a foreign founder chooses between a SAS, a SARL and a branch to do business in France<\/a>, which explains why most foreign groups prefer a SAS subsidiary and how that choice creates the transfer-pricing exposure described below. If your problem is wider than management fees, our annual compliance overview on the legal calendar of your French company that you can manage from abroad<\/a> and our corporate tax guide for foreign-owned companies complement this piece.<\/p>\n Article 57 of the CGI is the central weapon. It provides: “Pour l’\u00e9tablissement de l’imp\u00f4t sur le revenu d\u00fb par les entreprises qui sont sous la d\u00e9pendance ou qui poss\u00e8dent le contr\u00f4le d’entreprises situ\u00e9es hors de France, les b\u00e9n\u00e9fices indirectement transf\u00e9r\u00e9s \u00e0 ces derni\u00e8res, soit par voie de majoration ou de diminution des prix d’achat ou de vente, soit par tout autre moyen, sont incorpor\u00e9s aux r\u00e9sultats accus\u00e9s par les comptabilit\u00e9s.” In English: for companies dependent on or controlling foreign companies, profits indirectly transferred abroad, whether by increasing or decreasing purchase or sale prices or by any other means, are added back to the declared accounting results. The provision applies to corporation tax through Article 209 CGI<\/a>, and the full text is available at Article 57 CGI<\/a>.<\/p>\n Two points make this provision dangerous for management fees. First, dependence is almost automatically met inside a group: your French SAS is controlled by its foreign parent, so the first condition is satisfied without discussion. Second, the phrase “par tout autre moyen” (by any other means) covers service fees, royalties, interest on intra-group loans and cost recharges, not only goods. A management fee that the auditor considers excessive or unjustified is therefore treated exactly like an overpriced purchase from the parent.<\/p>\n Once dependence and a suspicious practice are shown, the Conseil d’\u00c9tat recognises a presumption. In the Ferragamo France case the Court held that these provisions institute, once dependence and a practice within Article 57 are established, “une pr\u00e9somption de transfert indirect de b\u00e9n\u00e9fices qui ne peut utilement \u00eatre combattue par l’entreprise imposable en France que si celle-ci apporte la preuve que les avantages qu’elle a consentis ont \u00e9t\u00e9 justifi\u00e9s par l’obtention de contreparties.” In English: a presumption of indirect profit transfer that the French taxable company can only rebut by proving that the advantages it granted were justified by obtaining consideration in return. The decision is Conseil d’\u00c9tat, 9th and 10th chambers combined, 23 November 2020, No. 425577, available at CE 23 November 2020 No. 425577 Ferragamo France<\/a>. The same case adds that “Peut constituer une telle pratique l’insuffisante r\u00e9mun\u00e9ration per\u00e7ue par une entreprise \u00e9tablie en France qui expose des charges contribuant au d\u00e9veloppement de la valeur d’une marque appartenant \u00e0 sa soci\u00e9t\u00e9 m\u00e8re \u00e9tablie hors de France.” In other words, bearing costs that increase the value of the foreign parent’s brand without sufficient compensation can itself be treated as an Article 57 practice.<\/p>\n The SKF Holding France case states the comparison method even more directly. The Conseil d’\u00c9tat, 8th and 3rd chambers combined, 4 October 2021, No. 443133, holds that when prices charged or invoiced between related French and foreign companies are lower or higher than those of similar independent companies, “l’administration doit \u00eatre regard\u00e9e comme \u00e9tablissant l’existence d’un avantage qu’elle est en droit de r\u00e9int\u00e9grer dans les r\u00e9sultats de l’entreprise fran\u00e7aise, sauf pour celle-ci \u00e0 justifier que cet avantage a eu pour elle des contreparties au moins \u00e9quivalentes.” In English: the administration is regarded as establishing an advantage it may add back to the French company’s results, unless the company proves it received at least equivalent consideration. The full decision is at CE 4 October 2021 No. 443133 SKF Holding France<\/a>.<\/p>\n The Property Investment Holding France case applies the same logic specifically to holding-company fees. The Conseil d’\u00c9tat, 8th and 3rd chambers combined, 25 June 2018, No. 407232, holds that where prices paid by a French company to its related foreign company exceed those charged between independent parties, without the difference being explained by the different situation of the suppliers, “l’administration doit \u00eatre regard\u00e9e comme \u00e9tablissant l’existence d’un avantage qu’elle est en droit de r\u00e9int\u00e9grer dans les r\u00e9sultats de l’entreprise \u00e9tablie en France, sauf pour celle-ci \u00e0 justifier que cet avantage a eu pour elle des contreparties au moins \u00e9quivalentes.” The decision is at CE 25 June 2018 No. 407232 Property Investment Holding France<\/a>. In that case the administration had challenged the deductibility of fees paid by the French property holding company to its Dutch parent on the ground that the services were not useful to the French company, and the Court confirmed the analytical framework.<\/p>\n Practical consequence: the auditor does not need to prove that you intended to evade tax. Showing control plus an abnormal price or an unsubstantiated service is enough to shift the burden to you. From that moment, it is your French subsidiary that must prove reality, usefulness and normal pricing, from abroad, with documents.<\/p>\n The deduction itself is governed by Article 39 CGI<\/a>, which states “Le b\u00e9n\u00e9fice net est \u00e9tabli sous d\u00e9duction de toutes charges” (net profit is determined after deducting all charges), but only genuine charges incurred in the interest of the business. General expenses, personnel costs and rents are deductible in principle, yet remuneration and fees are admitted “dans la mesure o\u00f9” (only to the extent that) they correspond to real work and are not excessive. A management fee without a real service, or with a price no independent company would accept, fails this test and is added back to IS taxable profit under Articles 39, 57 and 209 combined.<\/p>\n The reassessment rarely stops at corporation tax. When the administration treats the disallowed fee as money made available to the foreign parent without consideration, it can reclassify it as a deemed distributed dividend under Article 109 CGI<\/a>, which states “Sont consid\u00e9r\u00e9s comme revenus distribu\u00e9s : 1\u00b0 Tous les b\u00e9n\u00e9fices ou produits qui ne sont pas mis en r\u00e9serve ou incorpor\u00e9s au capital” (amounts not placed in reserves or added to capital are treated as distributed income). That reclassification can trigger dividend withholding tax under Article 119 bis CGI<\/a> at the rate set by Article 187 CGI<\/a>, unless a tax treaty reduces or eliminates it and the parent proves beneficial ownership and substance. Interest paid to a parent in a low-tax jurisdiction faces the additional filter of Article 238 A CGI<\/a> on payments to privileged tax regimes. This is why a single management-fee reassessment can produce three layers: extra IS, withholding tax, and penalties plus late interest.<\/p>\n French administrative courts apply a triple test to intra-group services, even though the three questions overlap: were the services actually rendered, were they in the French subsidiary’s own interest rather than only the group’s, and was the price one that independent companies would have agreed?<\/p>\n Reality comes first. The auditor will ask for the contract, the detailed invoices, time sheets, travel records, emails showing requests and delivery, reports, board presentations, and evidence that French staff actually used the parent’s work. A one-line quarterly invoice labelled “management fees” with no description almost always triggers a full challenge. In the Property Investment Holding France litigation, the administration argued that the services billed by the Dutch parent were not useful to the French company, which shows how the debate starts: if the French company cannot describe what it received month by month, the fee looks like a disguised profit transfer. Keep every engagement letter, statement of work, and acceptance email. If the parent’s chief financial officer flies to Paris to negotiate a bank loan for the French SAS, keep the boarding passes, the meeting minutes and the loan offer that followed.<\/p>\n Own interest comes second. Even a real service is rejected if it was rendered in the sole interest of the parent or of the group as shareholder. Classic examples are group strategy meetings that only concern the parent’s portfolio, listing costs, or controls the parent imposes to monitor its investment. The French subsidiary must show a concrete benefit: higher sales, lower costs, access to know-how it lacked, or time saved for its own team. Duplicate services are a frequent ground for reassessment: if your French SAS already employs a full-time finance director and a marketing team, paying the parent again for finance and marketing without explaining the split of tasks suggests duplication. Document who does what, with organisation charts on both sides and a written allocation of responsibilities.<\/p>\n Normal price comes third. The price must be what independent parties would agree under comparable circumstances, using an OECD-recognised method: comparable uncontrolled price, cost-plus, transactional net margin, or profit split, depending on the service. For routine support, cost plus a modest margin is common; for high-value strategy or proprietary technology, a higher price may be justified but needs benchmarking. The SKF decision shows the method: the administration compared the French company’s prices and margins with those of similar independent companies and treated the gap as an advantage to add back unless equivalent consideration was proven. The Ferragamo decision shows the mirror image: unusually high French costs (highly qualified sales staff, prestigious shop leases) that increased the Italian parent’s brand value without full compensation through the gross margin were treated as an advantage granted to Italy. In both directions, comparison with independent companies is decisive.<\/p>\n Documentation is not optional in practice. During an audit the administration can issue a formal information request under Article L13 B LPF<\/a>. That article provides that requests must be precise and indicate the country, the company and the amounts concerned, and that “Ce d\u00e9lai, qui ne peut \u00eatre inf\u00e9rieur \u00e0 deux mois, peut \u00eatre prorog\u00e9 sur demande motiv\u00e9e sans pouvoir exc\u00e9der au total une dur\u00e9e de trois mois.” In English: the reply period cannot be less than two months and can be extended on reasoned request up to three months total. If the reply is incomplete, the administration sends a formal demand to complete within thirty days, warning of sanctions. For large companies, the full transfer-pricing documentation can also be required, and Article 57 itself warns that where documentation is missing or partial, the administration assesses the relevant taxable bases from the information available to it, following the adversarial procedure of Articles L57 to L61 LPF. In plain terms, silence lets the auditor estimate, and the estimate is rarely generous.<\/p>\n Small and mid-size foreign groups often believe documentation duties only concern multinationals with hundreds of millions in turnover. The threshold for the heaviest automatic documentation is high, but Article L13 B requests can target any company where the auditor presumes an indirect transfer, whatever its size. A French SAS with two million euros in turnover that pays eight hundred thousand euros in management fees to its sole foreign shareholder will attract the same questions as a larger group. Prepare a light but serious file from day one: group chart, intercompany agreement with pricing formula, annual description of services rendered with dates and names, cost base and margin calculation, and two or three independent comparables or quotes.<\/p>\nI. Why the French Tax Office Attacks Management Fees Billed by Your Foreign Parent<\/h2>\n
A. How Article 57 CGI Turns Your Intra-Group Invoices Into Presumed Profit Shifting<\/h3>\n
B. What Your French Subsidiary Must Prove: Real Services, Own Interest and a Normal Price<\/h3>\n