Management fees in France: deductibility, agreement and tax security

Updated April 2026 - Management fees are a standard tool for structuring French groups. They allow a holding company to centralise support functions and recharge costs to the operating subsidiaries that genuinely benefit from them. But their tax deductibility is subject to strict conditions under French law. An undocumented fee arrangement can lead to tax reassessment, penalties, and in serious cases, reclassification as a hidden distribution subject to withholding tax.

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Management fees are amounts invoiced by a holding company (or any parent entity) to its subsidiaries for services rendered. They typically cover:

• ▸strategic management and general oversight of the group
• ▸centralised support functions: accounting, legal, HR, IT
• ▸sector-specific or technical expertise made available to subsidiaries
• ▸treasury and group financial management
• ▸pooled purchasing and contract negotiation

The dual objective is to centralise competencies for operational efficiency and to recharge costs to the entities that genuinely benefit from them.

The economic rationale is straightforward. A holding company employs executives, advisors, or specialised teams who dedicate part of their time to subsidiaries. Without management fees, these costs remain trapped in the holding company and cannot be deducted at the subsidiary level where they actually benefit operations.

Management fees also enable group tax efficiency by shifting deductible charges to the operating entities that have taxable income. This is not inherently abusive — it is the normal logic of group organisation. The boundary is that such efficiency cannot occur outside market conditions and without genuine services.

French tax case law, grounded in Article 39-1 of the CGI, has established three cumulative conditions for management fees to be deductible from a subsidiary's taxable income.

Test 1: reality of the service

The service must actually exist. An invoice for management fees without an identifiable service is treated as an abnormal act of management (acte anormal de gestion). Tax authorities systematically verify the existence of deliverables, meeting minutes, reports, and documented exchanges. A vague service description such as "strategic assistance" with no specific content fails this test.

Test 2: arm's-length pricing

The amount of the management fees must be consistent with what an independent third party would pay for the same services. This is the transfer pricing standard. A fee set at 10% of the subsidiary's revenue without demonstrating a link between that rate and the services provided will be challenged.

Test 3: benefit to the subsidiary

The subsidiary must have a genuine benefit from receiving the services. If the services primarily benefit the holding company or other group entities, deductibility at the subsidiary level will be denied. This test prevents group-level costs from being artificially pushed down to a profitable subsidiary.

When any one of the three tests fails, the French tax authority may reclassify the management fees as an abnormal act of management and add them back to the subsidiary's taxable income.

The consequences are severe:

• ▸additional corporate income tax on the reassessed amount
• ▸40% penalty for deliberate non-compliance if the fictitious nature is established
• ▸risk of reclassification as a hidden distribution (Article 109-1 2° CGI), subject to 30% withholding tax if the recipient is non-resident
• ▸VAT impact: if fees were VAT-subject and the underlying service is challenged, VAT already recovered by the subsidiary may be clawed back

For groups with consolidated revenues exceeding €400 million, transfer pricing documentation is mandatory under Article 223 quinquies B of the CGI. It must be available from the first day of a tax audit.

For smaller groups, formal documentation is not legally required but is the best defence in an audit. It should include:

• ▸a description of services rendered and their value to each entity
• ▸the pricing method chosen (cost-plus, revenue percentage, etc.) and its justification
• ▸market comparables
• ▸the historical trend of fees and its explanation

The management fee agreement is the contractual document governing the relationship between the holding company and its subsidiaries. It is not legally mandated in all cases, but its absence is a major risk factor.

A well-drafted agreement must cover:

1. ▸Identification of parties: the holding company and the relevant subsidiary or subsidiaries
2. ▸Exact scope of services: detailed list of services, description of deliverables, and expected outputs
3. ▸Fee calculation method: fixed monthly amount, percentage of revenue, cost-plus with margin, or an allocation key
4. ▸Invoicing terms: frequency, payment terms, currency
5. ▸Duration and termination: initial term, notice period, termination events
6. ▸Reporting obligations: meeting cadence, deliverables, monitoring reports
7. ▸Revision clause: conditions for adjusting the fee level

A generic one-page agreement is insufficient. Tax authorities expect a precise document that is consistent with observed practice.

Management fees are in principle subject to VAT at the standard rate of 20%. The holding company invoicing the fees must itself be VAT-registered — which is not automatic for all holding structures.

• ▸An active holding company (animatrice de groupe) that genuinely manages its subsidiaries is VAT-registered and can charge VAT on management fees.
• ▸A purely passive holding company that only holds shares is not VAT-registered. It cannot charge VAT on fees or recover VAT on its own purchases.

The subsidiary recovers input VAT on management fees if it is itself VAT-registered. The characterisation of the holding (active vs passive) is therefore a standalone tax issue that conditions the entire fee structure.

Tax inspectors pay particular attention to management fees in the following situations:

• ▸fees disproportionately high relative to identifiable services
• ▸absent or excessively vague agreement
• ▸invoices lacking any description of services actually performed
• ▸holding company with no employees invoicing management services
• ▸fees paid to a foreign holding (transfer pricing and withholding tax exposure)
• ▸subsidiary in financial difficulty continuing to pay fees to the holding

Hayot Expertise insight: a defensible management fee arrangement is built before the first invoice. Define the service precisely, choose a justifiable pricing method, draft a serious agreement, and retain evidence of delivery. We regularly assist groups in securing their intra-group service arrangements, particularly during pre-acquisition audits and restructuring transactions.

Management fees are a legitimate tool for group organisation, but their tax deductibility in France rests on strict conditions. In 2026, securing this arrangement requires genuine substance in services, arm's-length pricing, a detailed agreement, and robust supporting documentation. The financial exposure from a reassessment can be substantial, particularly for holding companies charging fees to multiple subsidiaries.

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(Official sources: Article 39 CGI, BOFiP BIC-CHG-10, SME transfer pricing guide, available on impots.gouv.fr and Legifrance)

Are management fees always deductible for the subsidiary?

Only if all three conditions are met: reality of the service, arm's-length pricing, and genuine benefit to the subsidiary. Without a written agreement or identifiable service, the tax authority can add the fees back to the subsidiary's taxable income and apply a 40% penalty for deliberate non-compliance.

Is a management fee agreement required between the holding and the subsidiary?

Strongly recommended, even where not legally mandated. A written agreement with a precise description of services, fee calculation method, and invoicing conditions is the primary safeguard in a tax audit. An absent or vague agreement is the first red flag for tax inspectors.

Must the holding company charge VAT on management fees?

Yes in principle — management services are subject to VAT at 20%. The holding must be VAT-registered to charge it. The subsidiary recovers input VAT if it is itself VAT-registered. The key exception is a purely passive holding (non-animatrice), which is not VAT-registered and can neither charge VAT on fees nor recover VAT on its own expenses.

What is the risk if management fees are charged without a real service?

Risk of reclassification as an abnormal act of management, reassessment of the subsidiary's taxable income, and 40% penalties for deliberate non-compliance. If fees are paid to a non-resident recipient without a genuine service, they may be reclassified as a hidden distribution subject to 30% withholding tax under Article 119 bis of the CGI.