France’s highest administrative court, the Conseil d’État, ruled on February 18, 2026, that a subsidiary company’s transfer of its main asset to its parent company, offset by a subsequent tax-exempt dividend under the parent-subsidiary tax regime, does not constitute tax abuse. The ruling centers on the restructuring of a corporate group and the economic rationale behind the transaction.
The case involved Société A., a European company established in Belgium, founded in October 2010 by two individuals. In December 2010, these founders contributed 98.7% of the shares of Société B., also a Belgian European company, to Société A. A year later, in December 2011, Société B. Sold almost all of its shares in Société C. To Société A. For approximately €38 million, receiving a vendor credit in return. This transfer represented the bulk of Société B.’s assets.
Subsequently, in March 2012, Société B. Distributed a dividend of roughly €39 million to the French branch of Société A. This dividend was initially treated as tax-exempt under France’s parent-subsidiary regime (the “RMF”). Société A. Then recorded a provision of €39 million to account for the depreciation of its shares in Société B. and reported deficits totaling €30 million.
Following a tax audit, the French tax authorities challenged the application of the RMF to the dividend distribution, arguing it constituted tax abuse under Article L. 64 of the French Tax Code (LPF). The authorities sought to re-integrate the tax-exempt portion of the dividend into the French branch’s taxable income for the 2012 fiscal year. The tax administration alleged that the overall operation had resulted in a corporate tax saving of €12 million.
Lower courts initially sided with Société A., but the Paris Court of Appeal ultimately reversed those decisions. The Court of Appeal determined that the dividend distribution benefited from the RMF improperly, finding that the economic and financial benefits derived from the group’s reorganization were negligible. The court found that Société A. Had not demonstrated any measures taken to develop its subsidiary, Société B., or justified the rationale behind Société B.’s divestment of its primary asset, Société C.
The Conseil d’État, in its ruling, reaffirmed established jurisprudence regarding the RMF, citing previous decisions (including CE 17 July 2013 n° 356523, 360706 and 352989). The court emphasized that the intent of the RMF, since its inception, has been to prevent the cascading of taxes on profits flowing from subsidiaries to parent companies and back to shareholders, thereby encouraging parent companies to invest in the economic development of their subsidiaries. The court stated that acquiring companies that have ceased their original activities and liquidated their assets, solely to recover cash through tax-exempt dividends, without taking steps to revitalize or develop those businesses, runs counter to this objective.
The Conseil d’État noted that the restructuring of the informal group of companies owned by the two individuals was decided on October 21, 2010, with the goal of creating a structured group centered around Société A., which would function as a holding company. The plan included establishing capital ties between the group’s companies and streamlining their operations by specializing them by business line. Crucially, the plan anticipated that Société B.’s activities would be refocused on property management and that its stake in Société C. Would be sold to Société A.
Following the sale of its stake in Société C., Société B. Continued its property management business, maintaining approximately €11 million in fixed assets between 2012 and 2018 and generating significant profits, with the exception of its 2016 fiscal year.
The Conseil d’État overturned the Paris Court of Appeal’s decision, finding that the tax authorities had failed to prove that the operation was motivated solely by a tax avoidance purpose. The court focused on the subjective condition for establishing tax abuse – that the operation was driven by an exclusively fiscal motive – distinct from the objective condition of seeking a benefit from a literal application of the law that contradicts its intent. The Conseil d’État concluded that the transaction was part of a broader group restructuring, and that “this economic and organizational motive was sufficient to prevent the operation from being regarded as having been inspired solely by a fiscal purpose.”
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