Financing the purchase of a villa on the French Riviera through Caribbean companies requires thorough documentation

Some taxpayers had formed a real estate investment company (SCI) that enabled them to purchase a villa in Saint-Raphaël in 2012. The SCI opted to be subject to corporate income tax effective January 1, 2014.

administration conducted a tax audit for that fiscal year and found“that a sum of €765,825.33 had been credited to the current account of its partners […] as retained earnings in the opening balance sheet for fiscal year 2014.” Believing that this liability was not justified,administration reinstated it and thus increased the company’s taxable income.

The taxpayers defended themselves by stating that this amount was intended to cover the interest on a loan used to purchase the villa and the day-to-day operating expenses of the company. In particular, they substantiated these expenses with bank transfers made by a company based in the Bahamas and another based in Belize.

The Administrative Court of Appeal will, however, rule that even though there is no doubt that the transfers took place, the taxpayers have not demonstrated that the transfers made by the companies were made“as advances or loans”by the taxpayers.

The taxpayers further argued that they and the foreign companies“shared a common interest, such that the payments made by the two companies should be regarded as having actually been made by [the taxpayers], the beneficial owners of those companies, since the husband had signed the wire transfer orders.” The Court, however, held that these facts did not, in any event, establish that the taxpayers had granted loans to the SCI that would justify the debt recorded as a liability on the latter’s balance sheet.

CAA Marseille, May 26, 2025, No. 23MA02481

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