When a wealth management firm faces a tax reassessment for being too generous

A wealth management firm was subject to a tax audit during whichadministration examined the expenses it had deducted. They focused in particular on gifts given to agents responsible for prospecting and signing“subscription commitment agreements with individuals,”as well as to third parties.

administration determined that a portion of the expenses related to these gifts that had been deducted for tax purposes was justified, but denied the deduction for a number of gifts.

The company challenged the tax assessment all the way up to the Administrative Court of Appeals.

The tax authority initially determined that the submission of tables identifying the recipients of the gifts and the circumstances under which they were given was not sufficient to justify the deductibility of the expense.

The Court nevertheless finds that the company has demonstrated the deductibility of a trip provided to an agent who had met sales targets. It holds thatadministration cannot deny this deduction on the grounds that these details were not included in the annual payroll report or, more generally, due to non-compliance with social security reporting requirements.

With regard to gifts given to customers, the company argued that gift cards had been offered as part of a referral program. The Court, however, ruled that there was no evidence to support the existence of such a program and that the increase in revenue and the number of customers during the period in which the cards were offered was insufficient to prove the company’s interest.

Nor is there any compelling evidence to support the tax deductibility of gifts given to third parties or the company’s sponsorship expenses.

The Court nevertheless ruled thatadministration couldadministration justify applying the penalties for willful misconduct with respect to these expenses on the grounds that the executives received hidden benefits, that the company“was not consistently able to provide conclusive supporting documentation,”or that“the improperly deducted expenses represented a significant portion of the profits earned, in the range of 18% and 12% for each of the twofiscalyears in question.” The Court further noted that“the repeated nature of these deductions over the two fiscal years”was not sufficient to demonstrate an intent to evade tax.

CAA Douai, July 3, 2025, No. 24DA01896

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