Tax residence and foreign holding companies: a concerning tightening of case law

An increased vigilance context for holdings owned by French residents

For several years, the French tax administration has intensified its controls on foreign holding companies owned by French tax residents. The stated objective: to locate in France the "effective place of management" of these companies when their "substance" abroad is deemed insufficient.

This trend has found a new illustration with a ruling issued on January 8, 2026, by the Administrative Court of Appeal of Versailles (n° 23VE00165). In this case, a Luxembourg holding owned by a French family had its tax residence requalified in France, despite seemingly complying with international practices. The issue goes beyond the specific case: it sends a strong signal to all similar structures, often used to hold subsidiaries, manage patents, or centralize dividends.

The specific case: questioning a structure that was compliant

The company in question, incorporated in Luxembourg, held shares in operational subsidiaries and patents. Its activity was exclusively passive: collecting dividends, royalties, and interest. It held its board meetings in Luxembourg and had no presence in France.

Despite this, the French tax administration considered that its decision-making center was actually located in France, based on several elements:

the absence of human and material resources in Luxembourg;
dependence on non-autonomous external service providers;
the active role of a French resident director in validating decisions;

the involvement of a French accounting firm in preparing financial documents.

The Court validated the reassessment and, notably, confirmed the 80% penalty for concealed activity, along with an extended prescription period of ten years. This position raises serious questions, as the company had indeed fulfilled its tax obligations in Luxembourg, where it was effectively taxed.

A questionable interpretation of the notion of "substance"

Traditionally, tax substance refers to the economic and decision-making reality of a company: where are strategic decisions made? Where are the technical and human resources essential to the activity located?

However, in the case of a passive holding, the activity often limits itself to holding intangible assets. Criticizing this type of company for lacking premises or full-time employees fails to recognize its very nature. A comparable French company would operate in the same way, outsourcing its administrative or accounting tasks.

The Court's reasoning seems to favor a material substance (offices, employees, logistical means), to the detriment of an immaterial substance:

the legal and patrimonial coherence of the group,
the independence of the board of directors,
the economic justification of the structure.

For many practitioners in business law and international taxation, this approach could undermine the principle of freedom of establishment within the European Union, guaranteed by community law.

What consequences for entrepreneurs and business leaders?

For entrepreneurs, start-up leaders, or family businesses structuring their group through foreign holdings, this ruling marks a turning point.

From now on, it is no longer sufficient to:

hold meetings abroad;

open a local bank account or engage local service providers.

The administration, sometimes followed by case law, seeks to verify who actually manages the company and where decisions are validated. If it deems that the effective management is in France, the requalification can lead to:

full taxation in France of the holding's income;

the loss of benefits associated with foreign tax residence (tax treaties, exemptions, etc.);

heavy penalties, which can reach 80% of the recalled rights.

How to secure the tax residence of a holding?

Without questioning the relevance of international structures, it is imperative to strengthen their legal and tax credibility. Some good practices are essential:

1. Demonstrate effective management abroad

It is essential that:

strategic decisions are actually made and documented from the country of establishment (minutes of meetings, local signatures);

foreign directors have a margin of autonomy and an active role;

key documents (accounting, agreements, reports) are kept on-site.

2. Have substance appropriate to the activity

Substance does not necessarily mean having offices or permanent staff, but rather a framework consistent with the nature of the activity:

domiciliation contract or shared office;
identified and autonomous local service providers;
economic justification for the choice of the country of establishment.

3. Clearly distinguish functions in France and abroad

If a director residing in France participates in the holding, it is advisable to limit and formalize their interventions (for example, through a mandate or non-decisional reporting).

4. Regularly check tax compliance

A periodic legal and tax audit ensures that the company maintains the criteria for its establishment abroad and anticipates any changes in case law.

The importance of tailored legal support

The case judged by the CAA of Versailles on January 8, 2026 illustrates the growing complexity of international tax law and the increasing risk of requalification for transnational structures. In a context where the notions of "substance" and "effective management" are interpreted more and more strictly, support from lawyers specialized in business law and international taxation becomes essential.

At PRAX Avocats, we assist start-ups, family groups, and entrepreneurs in building and protecting their legal and patrimonial structures. Our approach combines legal rigor, pragmatism, and understanding of the functioning of innovative companies.

In conclusion

This case law invites caution. It shows that establishing a holding abroad now requires not only a real economic justification but also a coherent administrative and decision-making organization with the claimed tax residence.

Anticipate, document, audit: three essential reflexes to protect your structure and preserve your tax advantages.

To assess the legal and tax structure of your holding or group, contact PRAX Avocats.

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Article written on January 14, 2026 – PRAX Avocats, legal advice for start-ups and innovative companies (start-up lawyer, legal advice for businesses, business law, intellectual property, labor law).