2024 Report of the Tax Abuse Committee: Three Decisions Under the Microscope

The Tax Abuse Committee (CADF) recently published its 2024 report, highlighting several key decisions in wealth taxation. This document emphasizes the ongoing tensions between tax optimization and abuse of rights, a major issue for businesses and individuals involved in complex wealth arrangements.

Throughout the 25 cases examined this year, one constant emerges: the tax administration, supported by the Committee, remains vigilant against schemes lacking economic justification. An analysis of three significant decisions helps to better understand the boundary between legitimate tax strategy and abusive arrangements.

Temporary Usufruct of SCI Shares: A Scheme Under Surveillance

A Contested Arrangement

Temporary usufruct is a technique frequently used in wealth management. In the case examined, taxpayers had created real estate civil companies (SCI), transferred the temporary usufruct of the shares to a corporation subject to corporate tax that they controlled, and organized the financing of acquisitions through this structure. The goal: to minimize their taxation by housing rental income in a loss-making company.

The Committee's Reaction

The CADF deemed this arrangement artificial:

The bare owners did not assume their share of the financing.
The usufructuary company bore the charges alone without apparent economic logic.
The sole purpose seemed to be tax optimization.

Consequently, the administration was entitled to neutralize this dismemberment and tax the income as if the usufruct had not been transferred.

Key Takeaway

The use of temporary usufruct is not systematically abusive. A scheme can be validated if:

The usufructuary company genuinely uses the real estate for its activity.
The acquisition of the usufruct is economically justified and financed independently.

A cautious and well-documented approach can thus avoid the risk of requalification.

Donation Before Transfer: The Importance of Clear Structuring

A Mechanism Under Close Watch

Donation before transfer is a wealth strategy regularly implemented to optimize the transmission of shares and limit capital gains taxation. However, this technique can be requalified as abuse of rights if deemed fictitious or motivated solely by a tax objective.

In a case analyzed by the CADF, a taxpayer had donated the bare ownership of his shares to his children before the company repurchased the shares. The sale price was immediately attributed to the former owner through a quasi-usufruct agreement signed after the sale.

The Committee's Analysis

The CADF considered this donation fictitious because:

The donor never truly relinquished the shares: he immediately received their cash value.
The donation deed contained neither a reinvestment clause nor a stipulation to ensure a genuine wealth transfer.
The maneuver aimed solely to evade capital gains tax.

The administration thus requalified the operation, applying a tax increase of 80%.

Securing a Donation Before Transfer

To avoid any risk of litigation, it is essential to respect the fundamentals of civil law:

The donation must be effective and precede the transfer clearly.
The usufruct of the sale price must be planned from the outset and properly framed.
Any subsequent reappropriation of funds by the donor must be avoided.

The Council of State has already clarified that the simple succession of donation-transfer is not abusive if it is legally founded and documented.

Capital Reduction and Liquidation: When Optimization Remains Legal

A Contested Operation

In another case, a sole partner reduced the capital of her company through a share buyback followed by a liquidation a year later. This arrangement allowed her to apply the capital gains tax regime rather than the liquidation surplus regime.

The tax administration attempted to requalify these flows as hidden distributions, taxable as dividends.

The Committee's Position

The CADF found no abuse of rights, emphasizing that:

The capital reduction and liquidation were distinct and economically justified operations.
No fictitiousness was proven, contrary to the tax authority's claims.
The favorable impact of the 2014 reform on such operations had been legally anticipated.

A Key Lesson

This decision underscores a fundamental principle: minimizing tax is not prohibited, as long as the actions taken do not undermine the purpose of the legal texts. Practitioners must ensure that their operations are structured coherently and in line with the legislator's intent.

Conclusion: A Delicate Balance Between Optimization and Abuse

The 2024 report of the Tax Abuse Committee highlights the importance of rigorous structuring of wealth operations. Three main lessons emerge:

Temporary usufruct is legitimate if based on a real economic logic.

Donation before transfer must ensure a genuine wealth transfer to avoid any suspicion of fictitiousness.

Capital reduction followed by liquidation can be valid if justified by economic needs.

These decisions remind us that the boundary between optimization and abuse is subtle. To secure their strategies, taxpayers and their advisors must anticipate the points of vigilance raised by the committee and favor a cautious and documented approach.