Non-deductibility of a settlement agreement: a case study

A taxpayer, who is a certified public accountant and auditor, signed a memorandum of understanding to restructure the ownership interests in several companies held jointly with another certified public accountant.

The agreement provided that the latter and the taxpayer would divide the shares between them so that each would obtain, in particular, virtually the entire share capital of two different companies. It included, in particular, a revenue guarantee, a guarantee of the renewal of management mandates, and a guarantee covering assets and liabilities.

However, a dispute subsequently arose in which the taxpayer was accused of failing to fulfill his contractual obligations. A settlement agreement was then reached, under which the taxpayer agreed to pay a sum as compensation for the damages suffered in exchange for the withdrawal of the legal proceedings.

The taxpayer then deducted this amount from his total income, arguing that it was a payment made in connection with a guarantee obligation. Following a tax audit,administration this deduction.

The Administrative Court of Appeal, to which the case was referred, first noted that, contrary to the taxpayer’s contention, the payment made by the taxpayer was not made in his capacity as a guarantor for a company. The Court further noted that no contractual guarantee obligation was provided for, that the settlement agreement pertained to the taxpayer in his personal capacity, and that the purpose of the payment was to compensate for damages.

She therefore argues that the amount paid was not related to a guarantee obligation, was not tax-deductible, and the Court thus upholds the tax assessment.

CAA Marseille, Jan. 29, 2026, No. 24MA02480

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