Tax planning in France: the legal path to a lower tax bill

Updated 2026-05-25 — Tax optimisation is one of the most misunderstood terms in French business finance. The boundary between what is permitted, what is risky, and what is illegal exists — and it can be drawn precisely. At Hayot Expertise, we position our clients firmly within the legal framework: no aggressive schemes, no artificial structures, but a rigorous reading of available provisions applied at the right moment and with the right documentation.

In 2026, the fiscal landscape has shifted: the flat tax (prélèvement forfaitaire unique, PFU) has risen to 31.4%, the income tax scale has been revalued by 0.9%, and the previously irrevocable choice between the PFU and the progressive scale has been made reversible. Each of these changes creates legitimate decision windows — provided you know how to use them without crossing the line.

Direct answer: Legal tax optimisation means organising your affairs using provisions that exist in statute, in order to reduce your tax burden. It is distinct from tax fraud (deliberate concealment) and tax evasion (évasion fiscale — artificial transfer of income or capital to low-tax territories) because the underlying transactions are real, economically coherent, and properly documented. The French Constitutional Council recognises the taxpayer's right to choose the least-taxed path among lawful options.

This is the central question. Many directors hesitate to discuss tax planning for fear of being associated with something illegal. The distinction is clear.

The distinguishing criterion is not the size of the tax saving achieved — it is the reality and coherence of the transaction. A holding company (société holding) that receives dividends from a subsidiary under the parent-subsidiary regime (régime mère-fille) is acting entirely lawfully — provided the holding genuinely manages its subsidiaries and has real economic substance. The same holding, created solely to channel profits upwards without any genuine activity, is a direct target for the abuse-of-law provisions.

Article L. 64 of the Livre des procédures fiscales (LPF) is the French tax administration's primary instrument for challenging arrangements it considers abusive. It targets two distinct situations:

1. Fictitious transactions: arrangements that correspond to no economic reality — a company that exists only on paper, a simulated contract, a service that is never performed.
2. Transactions motivated exclusively by tax: real transactions, but whose sole motivation is to obtain a tax advantage contrary to the intent of the legislator.

The procedure: when the administration invokes Article L. 64, it refers the file to the Comité de l'abus de droit fiscal (the abuse-of-law committee), then issues a reassessment notice. If the abuse of law is upheld, the surcharges are severe:

• 80% if the administration establishes that the taxpayer initiated the arrangement or is its principal beneficiary;
• 40% in other cases covered by Article 1729 CGI.

Article L. 64 A LPF (the so-called "mini-abuse of law"), introduced by the 2020 Finance Act, extends these provisions to arrangements whose motivation is primarily fiscal (rather than exclusively so). This is a significant shift: it is no longer necessary that tax be the only objective — it is sufficient that it be the predominant one. This provision is being applied with increasing frequency.

What the tax administration examines in an audit#

Without being exhaustive, the classic red flags that appear in audit files include:

• A holding company with no employees, no registered premises, no documented governance meetings
• Inter-company financial flows with no formalised service agreements
• Transfer pricing between related entities that does not reflect arm's-length conditions
• Cash pooling arrangements between group companies with no defined interest rate or repayment schedule
• A Dutreil pact (pacte Dutreil) where the retention commitments have not been monitored or respected

Securing a tax strategy rests on three pillars: substance, coherence, and documentation.

Pillar 1: Economic substance#

Every entity and every transaction must have a reason to exist independently of the tax advantage. A holding company must genuinely direct its subsidiaries. An SCI (société civile immobilière — a French real estate holding company) must actually manage real property with real tenants and genuine leases. A professional operating company must genuinely carry on the declared activity.

Pillar 2: Overall coherence#

A tax arrangement must not be inconsistent with the broader situation of the business and its owners. For example, a large dividend paid up to a holding company to finance a subsidiary's expansion is coherent. The same dividend used to finance personal consumption with no connection to the business activity is considerably less so.

Pillar 3: Documentation#

This is frequently where everything is decided. In an audit, the burden of proof falls on the taxpayer to demonstrate the reality and justification of the transactions. The key documents to prepare and retain in advance include:

• Assembly minutes (procès-verbaux d'assemblée) recording strategic decisions
• Inter-company service agreements with market-rate conditions substantiated
• Shareholder loan agreements (conventions de compte courant d'associé) with defined interest rates and repayment terms
• Valuation reports in the event of a share contribution or business transfer
• Correspondence with the bank, investors, and clients in the context of a restructuring

The rescrit fiscal procedure, provided for under Articles L. 80 A and L. 80 B of the LPF, allows any taxpayer to submit a precise description of a planned transaction to the tax administration and obtain a formal ruling on its tax treatment.

The principle: once the administration has taken a position in its response, it cannot change that position in a subsequent audit covering the same facts — provided the actual transaction matches the description submitted.

The timeline: the administration has 3 months (or 6 months for certain specific rulings) to respond. For some expressly specified procedures, silence constitutes tacit agreement.

Situations that justify a ruling request:

• Group restructurings (business transfers, mergers, demergers)
• Setting up tax consolidation (intégration fiscale)
• Share contribution and reinvestment transactions (apport-cession) with deferred taxation
• The VAT treatment of a new activity
• Cross-border arrangements with French tax implications
• Application of the Dutreil regime where there is uncertainty about the qualifying nature of the activity

Our view: the rescrit is significantly underused by SMEs, often perceived as a formality reserved for large groups. This is a mistake. For an SME considering a restructuring involving €500,000 or €1 million of assets, obtaining a written position from the administration before committing is a first-rate form of insurance.

Worked example: the impact of corporate structure on corporation tax (IS)#

Consider an SME with €200,000 of net profit before corporation tax. The reduced IS rate of 15% applies up to €42,500 of taxable profit (rate in force in 2026, to be verified against applicable legislation). Beyond that threshold, the standard rate of 25% applies.

• Without any planning: IS = 15% × €42,500 + 25% × €157,500 = €6,375 + €39,375 = €45,750
• With a holding structure and tax consolidation absorbing a loss-making subsidiary: if a subsidiary brings forward €40,000 of tax losses, the consolidated taxable profit falls to €160,000, representing a potential IS saving of the order of €10,000 (simplified calculation, subject to specific conditions to be reviewed with your adviser).

This is not a promise of savings — it is an illustration of the order of magnitude that a well-considered structure can represent, to be weighed against the cost of appropriate accounting and tax advisory support.

A director of an operational SARL (services sector) wished to prepare a family succession while reinvesting part of the profits in business real estate. Without any restructuring, a direct sale of the SARL's shares would have generated a taxable capital gain (plus-value), reduced only by the applicable holding-period relief.

The structured approach implemented comprised:

1. Creation of a family holding company with a share contribution under the deferred taxation regime of Article 150-0 B ter CGI
2. Implementation of a Dutreil pact with a collective retention commitment over the holding's shares
3. Gift of bare ownership (nue-propriété) to the children with retention of usufruct by the parents, reducing the taxable base using the statutory actuarial scale for usufruct

Each step was supported by full legal and accounting documentation, and the overall scheme was submitted for a partial rescrit fiscal confirming eligibility for the Article 150-0 B ter regime. This type of approach — documented, sequenced, and formally validated — is what distinguishes a solid tax strategy from a fragile arrangement.

One of the most frequent pitfalls in files we examine is documentation assembled after the fact — often when an audit notice has already been received. The administration attaches little evidential weight to documents produced during a verification if the dates, signatures, and internal inconsistencies betray their late constitution. The practical rule is simple: anything that does not exist before the transaction carries no probative value at the time of an audit.

Assembling solid documentation before engaging in a transaction — not after receiving an audit notice — is the first rule of tax security.

Since the 2026 Finance Act, the choice between the PFU (31.4%) and the progressive income tax (IR) scale is no longer irrevocable. The taxpayer may revise this choice retrospectively within a three-year reclaim window. This is a significant development.

When is the progressive scale preferable to the PFU?

• If your marginal tax rate (tranche marginale d'imposition, TMI) is 0% or 11%: the progressive scale option, combined with the 40% dividend allowance, is generally more advantageous
• If you have significant losses or deductible charges that reduce your overall taxable income
• If you are approaching retirement and investment income is your principal source of revenue

When is the PFU preferable?

• If your TMI is 30% or above
• If you receive mixed investment income (dividends + capital gains + interest) and prefer simplified management
• If you anticipate a future increase in marginal rates

The flexibility introduced in 2026 makes it possible to model both options on your tax return and choose retrospectively — but this simulation must be carried out rigorously, taking into account the full tax picture of the household.

Three points are currently drawing our attention across client files:

1. The rise of the mini-abuse-of-law provision (L. 64 A LPF): since its introduction, the administration has been invoking it with increasing regularity. An arrangement whose primary motivation is fiscal advantage — even without any fictitious element — can be challenged. The boundary with legitimate planning is narrow and frequently turns on the quality of the file.

2. Transfer pricing between related companies: in SME groups, inter-company flows (recharge of head-office costs, cash pooling arrangements, management fee agreements) are attracting growing scrutiny during audits. Pricing documentation must demonstrate arm's-length conditions and be supported by comparable market data.

3. Share contribution with deferred taxation under Article 150-0 B ter: the administration pays close attention to whether the sale proceeds are genuinely reinvested within 24 months of the contribution. Any partial or delayed reinvestment can trigger the deferred tax charge.

• The PFU now stands at 31.4%: revisit every existing salary/dividend split accordingly
• The removal of the irrevocability of the PFU/progressive scale choice creates an annual simulation opportunity
• Article L. 64 A LPF (mini-abuse of law) broadens the administration's powers: any arrangement with a primarily fiscal motivation is exposed
• Dutreil retention commitments must be monitored annually: an inadvertent breach triggers recovery of the exempted duties with interest
• The rescrit fiscal remains little used by SMEs, even though it provides genuine legal security for complex transactions

YMYL disclaimer: Updated 2026-05-25. This article provides general information on the principles of legal tax optimisation. Any strategy must be validated by personalised professional advice taking into account your specific situation, documents, and current law. Abuse of tax law (Article L. 64 LPF) carries surcharges of 40% to 80%, and may give rise to criminal sanctions under Article 1741 CGI. This article does not replace a formal professional engagement.

For further reading, see our related articles: Tax optimisation levers for businesses, The 2026 tax reference guide, Business transfer and valuation, VAT, IS and advance payment calendar 2026, and How to plan your wealth effectively.