French tax authority revises social contributions policy

The French tax authority has issued thousands of tax corrections to directors of SASU (Société par Actions Simplifiée à Associé Unique) companies, focusing on income tax regime adjustments. These corrections aim to apply social contributions on property income to company profits, which has created legal uncertainty and debate.

Legal basis for tax corrections

The tax administration's position relies on Article 239 bis AB of the General Tax Code, which allows certain companies to opt for income tax for five years. Under this regime, profits are taxed directly in the hands of the company's sole associate, at the progressive income tax scale, regardless of whether they are distributed.

Shift in administrative stance

Until 2025, the tax administration claimed it could not recover social contributions on profits from professional activities. However, the URSSAF, the French social security agency, considered these profits as property income, leading to a legal ambiguity. This allowed some entrepreneurs to avoid both URSSAF and tax administration contributions on their profits.

New interpretation of social contributions

The tax administration now demands social contributions on property income for the last three fiscal years, citing Article L. 136-6, I, f of the Social Security Code. This article subjects income from categories like BIC (business income), BNC (non-commercial income), or BA (agricultural income) to property income contributions, unless they fall under the activity income contribution rules.

Legal challenges to the new policy

Legal experts have raised concerns about the administration's approach. One issue is the lack of clear distinction between professional income and property income. The Bofip (BOI-IS-CHAMP-20-20-20-20, §§ 250 and 260) explicitly states that activity income contributions apply to professional activities, but the administration has previously dismissed this guidance as too vague.

Distinguishing income types is critical

Another challenge is that the mere failure to pay social contributions should not automatically trigger property income contributions. Legal precedent suggests that the legal regime to which income is subject must be determined, not just the payment status or declarative treatment.

SASU president's dual status

The status of a SASU president as an assimilated employee does not necessarily exclude independent activity. While they are subject to the general social security regime for their remunerated role, they may still carry out independent work under a different social regime. Legal experts argue that this distinction must be evaluated carefully.

Legal recourse for affected taxpayers

If a taxpayer receives a correction proposal from the tax administration, they must prepare a defense. The process starts with the tax administration, where the taxpayer can present factual and legal arguments. If the corrections are upheld, the taxpayer may need to file a complaint or seek a court review to challenge the imposed taxes.