In more detail

In this case, the beneficiaries of the scheme were three partners of the French company CGSA. Two of them were also executives, whose business was the management of investment funds marketed in France and internationally. CGSA held 99.99% of a Luxembourg-based company (CGL) and 53% of another French company (CDIF), which itself held 100% of another Luxembourg company (CDIL, later became CIL). The Luxembourg company CGL, which was remunerated by CGSA for organising the fund distribution network, paid fees to the Luxembourg companies CDIL/CIL for fund promotion services. These fees were then paid back to the French parent company as dividends, benefiting from a quasi-tax exemption under the parent-subsidiary regime. Finally, CDIF redistributed these sums to its partners, either directly or through their holding companies, who were also executives and employees of the French company.

The French tax authorities, whose position was upheld by the tax court and the tax court of appeal, pointed out the artificial nature of this scheme. Its sole aim was to shield the sums from taxation as salary income by disguising them as dividends to benefit from the parent-subsidiary regime.

The Tax Supreme Court, in dismissing the three appeals filed by the taxpayers and upholding the artificiality and abuse of law, noted in particular that the CDIL/CIL companies, which had been entrusted with the task of commercial promotion of the fund, were not in a position to carry out this task given their limited material and human resources, and emphasised the excessive nature of the remuneration received for this task. It also pointed out that this activity was inherently linked to the functions of the salaried portfolio managers and corporate officers of CGSA, who moreover carried it out directly before the creation of the disputed interposed companies. It should be noted that the French tax authorities did not challenge the economic substance of the interposed structures, nor the reality of the financial flows between these different entities. Thus, while the interposition of companies is not inherently questionable, it remains necessary to ensure that the functions of the corporate officers are genuinely distinct from those of the interposed companies, that their actual existence is established, and that the resources allocated to these companies and the missions assigned to them are adequate.

Finally, in this decision, the Tax Supreme Court rejected an audacious argument claiming that the purpose of the disputed scheme was not purely tax-driven, as it also allowed for a reduction in social charges related to these salary incomes. In doing so, the French Tax Supreme Court confirmed its position that this argument does not deprive the contentious scheme of its exclusively tax-related purpose within the meaning of Article L. 64 of the French Tax Procedure Code.