Analyses & Studies

Managers of French companies : mind the French tax residence trap

Section 3 of the Finance bill for 2020 provides that managers of companies set up in France the consolidated turnover of which exceeds € 250 million (in a first draft, threshold was set at €1 billion) are deemed to be French tax domiciled as of 2019.

“Managers” means in particular the Chairman of the Board of Directors, the Chief Executive Officer, the Deputy Chief Executive Officer and other managers under a similar assignment.

The explanatory notes under Section 3 mention that the significance and the place where the activity is performed are to be disregarded.

This provision would have no impact whenever a tax treaty is applicable, which should be generally so as France has signed more than 130 income tax treaties. However, residents of a country without a tax treaty with France might find out that they are French tax residents.

In addition, most tax treaties apply to the sole income tax. Only a few tax treaties apply to gift and/or inheritance tax. As a result, managers would not be French tax domiciled for income tax purposes but would end up being so for gift/estate tax purposes (as no tax treaty would apply).

The conclusion is quite peculiar as it seems like a bad idea to die as you head a French company…

Last but not least, the bill does not consider the everyday situation of persons in charge in both French and foreign companies, or who do not get any compensation for their duties performed in France.

According to the French Chamber of representatives’ Committee on Finance, some 1500 people would fall within the scope of Section 3. As most of them are already French tax residents under one of the other French domestic residence criteria, no more than a meagre extra tax revenue would follow while the image of France would certainly be damaged.

Authors: Dimitar Hadjiveltchev, Partner & Rosemary Billard-Moalic, Lawyer, at CMS Francis Lefebvre