Taxation of Severance Pay: A Case Study

An employee who had been terminated argued that the severance pay received under a settlement agreement was not taxable because it had been received in connection with a termination without just cause.

Following a tax audit,administration issued him a tax assessment, which he challenged all the way to the Administrative Court of Appeals.

The Court notes that the employee had brought the matter before the labor court, which ruled that the dismissal was based on a valid and serious cause.

Following this judgment, a settlement was reached between the employee and the former employer, which provided for the payment of compensation "in exchange, in particular, for the employee's agreement to withdraw the appeal filed against the labor court's judgment." The settlement also stipulated that the merits of the employee's claims were not acknowledged.

The Court therefore finds that this settlement does not establish that the dismissal was without real and serious cause and that the severance pay could not, therefore, be exempted.

The court then upheld the tax reassessment of the severance pay.

CAA Marseille, Nov. 6, 2025, No. 24MA01928

This monitoring service is provided by Mispelon Avocat, a law firm specializing in tax audits and tax litigation. You can stay updated by subscribing to the newsletter via this link.