Lavish expenses 2026: Article 39-4 of the French Tax Code

Quick answer. Article 39-4 of the French General Tax Code (CGI) excludes four categories of expenses from a company's taxable result: hunting, fishing, pleasure residences and pleasure vessels, plus the portion of passenger-car depreciation exceeding the 2026 ceilings (€30,000, €20,300, €18,300 or €9,900 depending on CO2 emissions). Even when paid by the company with a valid invoice, these expenses are systematically reinstated into the taxable profit and may be reclassified as deemed dividends in the manager's hands.

Article 39-4 of the CGI remained unchanged in 2026, but its ecosystem has tightened. The two annual taxes on the allocation of passenger vehicles for economic purposes (the former TVS, split since 2022 into a CO2 tax and an atmospheric pollutants tax) saw their CO2 schedule strengthened on 1 January 2025, and the ecological malus was raised by the 2026 Finance Act. Since 1 January 2026, five-seat-or-more pick-up trucks registered in category N1G with body type BA fall into the "passenger vehicle" tax category: they are now subject to the depreciation caps and to the former-TVS annual taxes. Finally, the French tax authority has intensified targeted audits on accounts 605, 606 and 613 in service-sector SMEs and hospitality businesses.

In practice, a manager who tries to escape the caps by registering a family SUV as a light commercial vehicle now faces a mechanical risk of multi-year reinstatement. At Hayot Expertise, we see these situations recurring at every year-end close, particularly for consulting firms and asset-holding companies where the border between business asset and personal-use asset remains porous. The key tax measures of the 2026 Finance Act for SMEs confirm the direction of travel: expense deduction must be justified by a direct and exclusive link to the business.

A lavish ("somptuaire") expense is a real charge, borne by the business, the deduction of which is prohibited by law because it is presumed not to be incurred in the direct interest of the operation. The presumption is irrebuttable for assets listed in Article 39-4 of the CGI, except where the asset constitutes a working tool necessary for the activity (boat rental company, professional fishing school, commercial hunting estate). The official tax doctrine BOI-BIC-CHG-30 sets out the scope for both income-tax businesses subject to industrial and commercial profits (BIC) and corporate-income-tax companies.

Three notions are often confused. A lavish expense is, by nature, excluded from the taxable result and the VAT is not recoverable. A benefit in kind, by contrast, is a deductible expense for the company but taxable for the employee or manager who benefits from it. Finally, misuse of corporate assets is a criminal qualification sanctioning the use of company assets for personal purposes contrary to the corporate interest — a single fact can trigger all three qualifications. To distinguish the social and tax treatment of a company car, see our dossier on the company car and benefit in kind 2026.

Non-professional hunting and fishing#

Article 39-4 covers all expenses linked to the practice of non-professional hunting and fishing: estate rental, gamekeeper's salary, weapons and ammunition, club membership, pleasure-fishing boat. The BOFiP doctrine recalls that the quality of the guest (client, prospect, supplier) is irrelevant: the nature of the leisure activity alone excludes deduction. Only companies whose corporate purpose is the commercial organisation of safaris, paid hunts or client fishing trips may deduct these costs as working tools.

Yachts and pleasure vessels#

All expenses related to sailing or motor pleasure boating are covered: purchase price, depreciation, rental, fuel, harbour fees, maintenance, crew, insurance. Putting a company logo on the hull or claiming an advertising purpose never reverses the presumption. The only exception covers companies whose main business is rental, nautical teaching or transport.

Pleasure or amenity residences#

Targeted are villas, chalets, prestige apartments and second homes used for leisure, including occasional accommodation of the manager or guests. Deduction remains possible if the residence is exclusively used for collective employee housing (social residence, works council holiday camp), if it is the effective registered office, or if it forms part of a hotel activity. A company claiming to host foreign clients in its Provence villa must produce a concrete bundle of evidence: visit calendar, ancillary services invoices, meeting minutes.

Passenger vehicles above the caps#

By far the most frequently reassessed category. All passenger vehicles acquired by the company (purchase, finance lease, long-term lease over three months) see their depreciation capped according to the CO2 thresholds below. The portion of depreciation exceeding the cap is a lavish expense to be reinstated every year, throughout the depreciation period (typically five years).

For vehicles whose emissions are measured under the WLTP standard (registrations from March 2020 onwards), these thresholds apply directly. The cap is VAT-inclusive, as input VAT is not recoverable on passenger vehicles.

Step-by-step method for the reinstatement#

1. Identify the VAT-inclusive purchase price and the applicable cap based on CO2 emissions.
2. Compute the annual accounting depreciation on the actual price (typically 20% per year on a five-year straight-line basis).
3. Apply the formula: non-deductible depreciation = accounting depreciation × (purchase price − cap) / purchase price.
4. Report the amount as an extra-accounting reinstatement on form 2058-A (corporate-tax companies) or 2033-B (individual-income BIC).
5. Repeat each year until full depreciation, then upon disposal (the capital gain is neutralised for the reinstated portion).

Reinstating a lavish expense is not just about losing a deduction. Three sanctions add up.

• Corporate income tax or personal income tax. The expense is added back to the taxable result and taxed at the applicable rate (15% up to €42,500 of profit, then 25% beyond for eligible SMEs, 25% otherwise). For a €10,000 expense in an SME at the standard rate, the immediate surcharge is €2,500.
• Non-recoverable VAT. The VAT charged on a lavish expense can never be deducted. If wrongly recovered, the tax authority will demand repayment with late-payment interest (0.20% per month) and surcharges of 10% (good faith) to 40% (wilful misconduct).
• Deemed distributed income. For a company subject to corporate tax, a lavish expense incurred for the personal benefit of the manager is recharacterised as a deemed distribution under Article 111 c or 111 e of the CGI. The recipient is then subject to the 30% flat tax (or progressive scale by option), without the 40% allowance reserved for formal dividends. See our analysis on the flat tax and dividend distribution strategies.

Combined, these three layers usually push the final bill to between 1.3 and 1.6 times the initial spend, not counting the criminal risk of misuse of corporate assets (five years' imprisonment and a €375,000 fine, Article L242-6 of the Commercial Code for SAs and SASs).

Electric and plug-in hybrid vehicles#

The 100% electric vehicle benefits from the most favourable cap (€30,000 incl. VAT) and a full exemption from both former-TVS annual taxes (CO2 tax and atmospheric pollutants tax). The plug-in hybrid below 50 g/km CO2 retains the €20,300 cap and a partial exemption. Note: a battery purchased separately (not included in the vehicle) is depreciated independently without cap, which can significantly increase the deductible portion.

Long-term lease and finance lease#

Long-term lease and finance lease do not remove the cap: the lessor must communicate annually to the lessee the portion of the rent corresponding to non-deductible depreciation. The lessee must report this amount as an extra-accounting reinstatement. Failing to request it exposes the lessee to a full reinstatement of the rent.

Five-seat pick-up trucks registered from 2026#

Since 1 January 2026, double-cab pick-up trucks registered in category N1G with body type BA are treated as passenger vehicles when they offer five or more seats. Consequence: depreciation cap applies, former-TVS annual taxes due, input VAT non-recoverable. Vehicles registered before 2026 keep their commercial-vehicle regime until disposal.

Vehicles older than six years and mixed fleets#

For a second-hand passenger vehicle, the cap is assessed by reference to the initial registration date, not the date of acquisition by the company. Mixed fleets (commercial vehicles and passenger cars) must allocate depreciation analytically to avoid a global flat-rate reinstatement upon audit.

Residences in asset-holding companies#

A patrimonial holding company holding a real-estate asset qualified as a pleasure residence faces the reclassification of all charges (property tax, loan interest, maintenance, condominium fees) as lavish expenses. An IS-electing SCI holding a villa rented to the holding does not neutralise the risk if the villa is in fact used privately by the manager.

• Recording a passenger vehicle in a "transport equipment" account without isolating the non-deductible portion: accounting depreciation is correct but the tax reinstatement is forgotten.
• Believing that the cap disappears for a long-term-leased vehicle: false, the underlying theoretical depreciation is reinstated.
• Recovering VAT on yacht maintenance because the company has a commercial activity: non-deductibility attaches to the asset, not to the company's activity.
• Confusing lavish expense (never deductible) with benefit in kind (deductible if taxed to the recipient). A manager using a company car privately generates a benefit in kind to be reported in payroll, which is itself deductible — but the excess-depreciation portion remains lavish and must be reinstated on top.
• Assuming that the guest's quality (client, supplier, prospect) is enough to deduct hunting or yachting costs: settled case law since 1995 dismisses this argument.

A Paris-based consulting firm manager recently came to us after receiving a proposed tax reassessment covering two financial years. He had registered a double-cab pick-up as an N1 commercial vehicle, convinced he could escape the caps. The tax authority, applying the new 2026 doctrine, reclassified the vehicle as a passenger car and reinstated €31,500 of excess depreciation, plus €9,200 of VAT, plus a retroactive CO2 tax. The total reassessment exceeded €50,000 for what had been pitched as a "tax-optimised" purchase.

Our conviction is straightforward: the grey area around the "disguised commercial vehicle" is closing. The 2025-2026 audits target three cases in priority — five-seat pick-up trucks, luxury SUVs registered as commercial vehicles, prestige cars held through a patrimonial holding. For 90% of SME owners, the safest answer is to clearly separate uses: an electric or hybrid vehicle for the business role (favourable cap, low or no tax, reduced benefit in kind), and a personal vehicle acquired outside the company for private use. To run the numbers, see our approach in the SME tax memo and the net-take-home computation via SASU social contributions and remuneration trade-offs.

On residences, we systematically advise our clients against holding a personal-use real-estate asset inside the operating company. An IS-electing SCI holding a secondary residence effectively leased to a third party at market price remains defensible; a family SCI claiming to rent the villa to the manager at a symbolic rent does not survive any audit.

Hayot Expertise advice. Before any personal investment under the cover of the company (yacht, residence, prestige vehicle), ask your accountant to model three scenarios: own-name purchase financed by dividend, lease in the company's name, direct purchase by the company. In 8 cases out of 10, the first option wins once net tax and social-charges cost is computed. Add to the agenda of your next year-end close a review of accounts 605 (non-stocked purchases), 606 (other purchases) and 625 (travel and missions) to detect any lavish charges recorded by habit.

• Article 39-4 of the CGI excludes four categories of expenses from the taxable result: hunting, fishing, pleasure residences, pleasure vessels, plus the excess portion of passenger-car depreciation.
• The 2026 caps are €30,000, €20,300, €18,300 or €9,900 incl. VAT depending on CO2 emissions; they also apply to long-term lease and finance lease.
• Input VAT on these expenses is never recoverable; the reinstatement is performed extra-accountingly on the tax bundle.
• A lavish expense for the manager's personal benefit can be recharacterised as deemed distributed income (Article 111 c and 111 e of the CGI), with a 30% flat tax and no 40% allowance.
• Since 2026, five-seat-or-more pick-up trucks registered N1G fall into the passenger vehicle category and into the scope of Article 39-4.
• When in doubt, have accounts 605, 606, 613 and 625 audited by your accountant before year-end close to limit surprises on audit.