Compensation of a Executive Through His or Her Holding Company: No Automatic Presumption of Abnormal Management Action on the Part of the Company
The Council of State’s ruling of February 12, 2026, in the Kerac case (No. 500842), reaffirms a previous but recent legal precedent regarding indirect compensation for executives.
In this ruling, the case was fairly typical.
A president and two chief executive officers of SAS are no longer paid directly by the company in which they serve. Alternatively, the company enters into service agreements with their company/holding company (which has no employees). Under the terms of these agreements, the company pays their firm a fee equal to their previous compensation.
In practice, therefore, executives received their compensation through their holding company for performing duties and services related to their corporate office. These service agreements therefore overlapped with their executive duties.
In this case, should the tax deductibility of the fees paid by the Company be automatically disallowed on the grounds of an abnormal business decision?
The Position of the Council of State
The Council of State specifies that entering into such agreements does not constitute an improper act of management if the following conditions are met:
- The corporate bodies clearly intended to compensate the executive indirectly by paying fees to his company
- This compensation is not without its trade-offs.
Pursuant to this rule, the Council of State overturned the Administrative Court of Appeals’ ruling in favor of the taxpayer, finding that the court had failed to examine whether the company’s competent governing bodies had intended to compensate the executives indirectly.
Review of Previous Case Law
This decision by the Council of State follows the approach set forth in the 2023 Collectivision ruling (Council of State, 9th–10th Chambers, October 4, 2023, No. 466887), which, for the first time, established the possibility for a company executive to receive compensation indirectly in the form of management fees rather than directly in the form of salary-like compensation.
It marks a significant departure from previous case law, both:
- Administrative and tax case law that systematically denied a profitable company the deduction for outsourced services that were not distinct from the duties normally incumbent upon its executive (CAA Nancy, Oct. 9, 2003, No. 98NC02182; CAA Paris, Nov. 6, 2019, No. 18PA02628)
- Case law has held that management fee agreements may be invalidated when they overlap with the normal duties of executives (Cass. com. Oct. 23, 2012, No. 11-23.376; Cass. com. Sept. 14, 2010, No. 09-16.084)
What are the practical implications?
Prior to these recent court decisions, executives who wished to receive their compensation through their holding company were required to appoint the holding company as an executive; however, this arrangement was only possible if the holding company was appointed as president of an SAS (since the positions of manager of an SARL or chief executive officer of an SAS are reserved for individuals).
These court rulings allow executives to continue in their roles while receiving their compensation through their personal holding company, which may be advantageous if the executive wishes to take advantage of incentive plans (BSPCE, bonus shares, stock options, etc.).
Points to Watch For
This compensation structure is possible but is subject to certain restrictions:
✔️ Explicit corporate resolution (Board of Directors / Annual General Meeting)
✔️ A formal agreement that may be subject to the procedure for regulated agreements
✔️ Identified services
✔️ Amount consistent with the services provided
In summary
These court rulings appear to pave the way for new compensation structures, but caution is warranted when implementing them. We can assist executives in ensuring the tax compliance of these types of arrangements.
