Entrepreneur Tax adjustments: the Council of State limits the “abnormal act of management”

Tax adjustments: the Council of State limits the “abnormal act of management”





It is the lethal weapon of the taxman and the nightmare of the entrepreneur: the abnormal act of management. This concept allows the administration to impose corporate tax (IS) adjustments on the grounds that a company has reduced its tax base in defiance of any economic rationality. This tool in the hands of Bercy is at the heart of an important decision made by the Council of State on March 11.

The highest administrative court ruled against the tax authorities who had invoked this concept to redress the company Alone & Coholding company of the Breton entrepreneur Gilles Bobee. The tax authorities targeted the profit-sharing mechanism set up in the subsidiary Soréal Ilou, which manufactures sauces for restaurants (Planet Sushi, Brioche Dorée, Quick, etc.). The company had granted the commercial director a promise, valid for five years, to sell securities, up to 6% of the capital of Soréal Ilou, at the final price of 1 euro per share. However, when he exercised his right to purchase, in 2011, he was able to immediately resell his shares at a price of 3.838 euros (according to the assessment made by a contribution auditor) to another subsidiary of Alone & Co. .

Abnormal act of management

It was this operation that made the Bercy agents raise eyebrows. They considered that the price set at the time of the sale agreement was “abnormally low” and that it was a “liberality” granted to the senior executive. The administration therefore reinstated in the profits of the company Alone & Co the acquisition gain made by the commercial director, which resulted in a tax adjustment. Neither the administrative court of Rennes nor the administrative court of appeal of Nantes found fault with it.

But the Council of State ruled that there was no abnormal act of management because the company did not act against its interest. For him, the incentive mechanism was indeed an instrument of motivation of the sales manager, on which depends the performance of the company (which the trial judges did not admit). As for the sale price of 1 euro, it was certainly much lower than the resale price of 2011, but it had been fixed by contract in 2009 and the holding company could therefore not help but stick to it.

The high court affirms that the arguments of the tax authorities on the fact that the commercial director was not salaried nor subjected to obligations of duration of presence in the company or minimum duration of detention of the titles are not valid. No more than the reasoning consisting in saying that the increase in turnover between 2009 and 2011 – which conditioned the appreciation of the securities – was foreseeable. The state Council recognizes on the contrary the uncertain nature of the activity.

“In this case, we were confronted with a maximalist application by Bercy of the notion of abnormal act of management, which is a vector of yield from tax audits”, castigates Maud Bondiguel, lawyer for Alone & Co. “The company has held firm and continued its legal action, but how many SMEs, entrepreneurs admit defeat and are recovered? »

“Management packages”

“This decision is a game-changer because it brings legal certainty for companies which must create incentive tools for their leaders to allow the development of the activity”, continues Guillaume Hannotin, who defended the company before the Council of State. “It also comes at a time when there are difficulties in recruiting. »

Until now, profit-sharing mechanisms – also known as “management packages” in the world of investment funds – had mainly given rise to tax disputes related to managers and not to companies. The Council of State in particular created a small shock wave, on July 13, 2021, in requalizing the capital gains from the sale of securities in salaries (subject to the progressive scale of income tax). An amendment aimed at correcting this decision was even tabled (and rejected) in the finance bill for 2022. The Finance Committee of the National Assembly recognized the need to set up a working group.

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