When a company wrongfully pays for its manager's housing
A company located near Montpellier had deducted from its taxable income the rent for an apartment in the Paris area paid by its co-manager.
The company underwent a tax audit, following whichadministration that these expenses were not incurred in the company’s best interest. The co-manager was then taxed on these amounts as deemed distributed income.
The reassessment was challenged all the way to the Administrative Court of Appeals.
The co-manager argued that his sales development work required him to be in Paris frequently and that, for that reason, he needed a place to stay there.
The Court will, however, note that:
The lease for the apartment is in the name of the manager as well as his partner;
the company's sales and marketing expenses were outsourced;
"Although the co-manager claims to have had numerous business meetings in Paris or in locations that would have required travel from a Parisian train station or airport, the Court finds that the investigation—and in particular his calendar and work notes—provides no evidence that these meetings actually took place in person or that they were conducted on behalf of Closing Tools, a single-member limited liability company."
The Court therefore found thatadministration that the residence had been used solely for the private purposes of the co-manager and his partner, and it upheld the tax assessment.
The co-manager also argued that the expenses for maintaining two residences had been "inappropriately" included in the total amount of his reported income.
The Court will, however, find that the sole statement from his accountant—"drafted for the purposes of this case more than six years after the events in dispute"—does not constitute sufficient evidence of the error alleged by the petitioner.
It also dismisses the motion on this point.
CAA Toulouse, Oct. 2, 2025, No. 24TL00561
This legal watch provided by Mispelon Avocat, a law firm specializing in French tax audit and French tax litigation. You can stay legal watch subscribing to the newsletter via this link.