No taxation of non-compete compensation for non-residents

A taxpayer, who was a French tax resident at the time, had entered into a mutual termination agreement with his employer, as well as a memorandum providing for compensation under a non-compete clause.

Shortly after signing this agreement, the taxpayer had transferred his tax residence to Morocco.

Following a tax audit,administration that this non-compete indemnity should, pursuant to Article 164 B of the General Tax Code, be taxed in France as wages and salaries. This article provides that "income derived from professional activities, whether salaried or not, carried out in France is considered income from French sources."

The dispute was brought before the Administrative Court of Appeals, which first noted that while a non-compete indemnity is indeed of a salary-like nature, it does not constitute "compensation received for activities performed prior to the termination of employment."

The Court considers that this constitutes "compensation in exchange for an obligation not to work for a competitor of the former employer for a specified period following the termination of the employment contract."

It therefore considers that Article 164 B does not apply since the compensation does not constitute remuneration for work. Consequently, a taxpayer who received the compensation while he was a tax resident in Morocco could not be taxed on it in France under Article 164 B.

The tax assessment is therefore rescinded.

CAA Paris, Dec. 19, 2025, No. 24PA01120

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