The amount paid in recognition of a person’s “benefactor status” when a business is established is not tax-deductible

A company had entered into a contract with a limited liability company (SARL) to appoint it as a commercial agent. On the same day the contract was signed, the SARL agreed to pay to an individual—who was neither a director, a partner, nor an employee of the SARL—any compensation the SARL might receive in the event of a termination of its relationship with the other party to the contract.

Such a breach occurred in 2015, and a commitment was made to pay the LLC compensation for the breach of that contract. The LLC, however, passed this compensation on to the individual who subsequently became its sole owner.

However, the company did not record this revenue, and following an audit,administration issued a tax assessment against the company for this amount.

The company defended itself by arguing that even if it had not recognized the revenue, it would in any case have been entitled to deduct the expense corresponding to the payment of the compensation to the individual. The individual had, in fact, brought in a client base when the contract between the LLC and the other company was signed.

The Administrative Court of Appeals, however, ruled that the commitment made to the individual did not provide for any consideration, such as the transfer of a client base. Furthermore, the commitment to pay compensation stipulated that it was intended to“take into account the beneficial role played by the individual in the creation and development of his business.”

The Court also notes that the settlement agreement providing for the payment of compensation to the LLC following the termination of the commercial agency contract did not mention the existence of such a transfer of clientele either.

The Court therefore finds that the expense was not deductible and that the tax assessment against the company is therefore justified.

CAA Marseille, May 22, 2025, No. 23MA02509

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