Capital Reduction and Abuse of Rights: A Setback foradministration

In 2011 and 2013, the company increased its capital by capitalizing its reserves. In 2015, the company carried out capital reductions by repurchasing shares from a taxpayer.

He then reported a capital gain toadministration , who also granted him an enhanced deduction.

Subsequently,administration determined that the transaction constituted an abuse of rights intended to take advantage of the capital gains tax regime—which was more favorable in this particular case—rather than the tax regime for distributed income.

The Administrative Court of Appeals, to which the case was referred, then noted that:

• The capital increases took place before the law of December 29, 2014, which amended the tax regime applicable to the repurchase of shares, came into effect.

• The company's revenue had fallen sharply between 2013 and 2015.

It will then conclude that the capital reduction was in the company’s best economic interest because:

• This made it possible to align the company's capital with its actual operations and to "limit its exposure to social risks vis-à-vis creditors."

• "The provisions of Article L. 225-207 of the Commercial Code […], provide that companies may decide to reduce their capital—without being motivated by losses—by repurchasing their securities and subsequently canceling them, which falls within their discretion."

The Court therefore finds that the transactions were not carried out for purely tax-related purposes and overturns the assessment.

CAA Toulouse, Feb. 12, 2026, No. 24TL00941

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