Taxation of business leaders: beware of compliance with conditions and abuse of rights.

The taxation applicable to business leaders is a sensitive area, regularly monitored by the tax administration. Poorly anticipated or non-compliant management can lead to severe consequences: tax adjustments, loss of favorable regimes, or even reclassification for abuse of rights. Recent decisions made in May 2025 highlight the importance of constant rigor in tax governance.

In this article, we analyze four key decisions that shed light on the main pitfalls to avoid and the best practices to adopt to secure your strategy.

Exemption for Retirement: Compensation Must Be "Normal"

Article 150-0 D ter of the General Tax Code offers a significant tax advantage to SME leaders retiring, under certain conditions. One of these is the receipt of a normal compensation, in accordance with Article 885 O bis of the CGI.

A Precise Jurisprudence

In the case CE, May 7, 2025, No. 491635, a leader declared an average salary of €1,282 per month, which was significantly lower than the five highest compensations in his company. This compensation was deemed abnormally low, failing to meet the requirements of the exemption regime.

Key Takeaway: The exemption will only apply if the compensation reflects the actual performance and economic standards of the company.

Best Practices:

Ensure a compensation level aligned with the functions performed.
Anticipate the transmission strategy several years before retirement to avoid any tax blockage.

Fictitious Dismissal: Beware of Reclassification for Abuse of Rights

A formal departure from the company is not enough: any contract termination must correspond to a legal reality.

An Example of Sanctioned Fraud

In a ruling from May 7, 2025 (TA Rennes, No. 2300027), a dismissed leader remained active in the company, continuing to make decisions and retaining his shares until their sale to relatives... at a symbolic price. The administration reclassified the termination as fictitious, highlighting a strategy of abusive optimization.

Points of Vigilance:

Prove the effective nature of the termination: absence of hierarchical link, cessation of operational functions, justification of the sale at market price.
Prepare comprehensive documentation of the transition to avoid qualification of abuse of rights by the tax authorities (Article L. 64 of the LPF).

Benefits in Kind: Income to Declare

Car, clothing, travel… benefits received by a leader in the course of their duties can be reclassified as taxable income if not justified.

Tax Reclassification: Beware of Negligence

In the case of May 13, 2025 (CAA Versailles, No. 23VE00310), a leader had incurred numerous personal expenses through his company without recording them as additional compensation. The tax authorities left no doubt: these expenses constitute distributed income.

What You Need to Know:

Benefits in kind must be accounted for as such in annual financial statements.
The burden of proof of their professional nature lies with the leader.

Practical Advice: Maintain precise accounting of expenses, with supporting documents, to anticipate any disputes.

Compensation for Occupational Illness: A Favorable Exemption Case

In the event of retroactive recognition of an occupational illness, the exemption provided by Article 81-8° of the CGI may apply.

A Significant Decision

In the ruling CE, May 15, 2025, No. 496687, a former employee contested the taxation of benefits received during a sick leave, reclassified retroactively as an occupational illness. The Council of State ruled in her favor: the exemption applies even in the case of late recognition of the pathology.

Tax Implication:

If the pathology is recognized as occupational, the benefits received may be exempt from tax, even retroactively.
Adhering to the administrative procedure in the case of reclassification is essential.

Preventing Tax Risks Through Rigorous Management

These decisions from May 2025 alert us to the necessity of applying strict discipline in the tax treatment of elements affecting the life of the leader. Whether at the time of transfer, retirement, or regarding the benefits received, everything must be planned, declared, and documented to prevent the administration from seeing an abuse of rights.

Best Practices to Adopt:

Anticipate sensitive operations, particularly the transfer of shares or retirement.

Justify with economically tangible elements each fiscal or asset movement.

Update declarations and maintain transparent accounting, especially for benefits in kind.

Surround yourself with experienced advisors, particularly to secure asset arrangements.

Conclusion: Securing Strategic Choices

The taxation of business leaders requires rigor and foresight. A mistake or an oversight can be enough to jeopardize years of preparation and expose the leader to a tax adjustment.

Need support to optimize your leadership taxation in compliance with the latest jurisprudence? Contact PRAX Avocats for a personalized diagnosis.

📅 Reference Date of Decisions: May 15, 2025 — a deadline to remember in current strategic reflection.