Undervalued sale of a pharmacy: what are the tax implications in the case of disguised liberalities?

The transfer of a business, particularly a pharmacy, must be conducted according to strict modalities to avoid tax requalification. A recent decision by the Administrative Court of Appeal (CAA) of Toulouse perfectly illustrates the risks associated with selling a business at a price below its actual value, especially when there is a connection between the sellers and the buyers.

In this case, the sale of a pharmacy for a price 23% below its market value was classified as an abnormal management act (AMA). The tax consequences for the parties involved were significant, including income tax (IR) and social contributions (PS) reassessments. This jurisprudence sheds light on its implications for practitioners.

Undervalued Sale and Gift: What Are We Talking About?

An Unjustified Price Gap

Selling a pharmacy at a price well below its market value naturally attracts the attention of the tax authorities. In the case judged on April 10, 2025 (CAA of Toulouse, no. 23TL01718 and 23TL01104), a pharmacy was sold 23% below its market value.

It appeared that two partners of the selling partnership (SNC) were also the sole partners of the purchasing limited liability company (SARL). This situation of dual capital ownership was sufficient to characterize a liberal intention, according to the CAA. In simple terms: it was a disguised transfer of value to benefit a structure through a reduced sale price.

The Concept of Abnormal Management Act (AMA)

The tax authorities classified the sale at a reduced price as an abnormal management act: an act that, although taken by a business, does not serve any legitimate economic or strategic interest, allowing for the requalification of the operation for tax purposes. This concept enables the administration to carry out adjustments in cases of hidden value transfers between structures controlled by the same individuals.

Assessing the Market Value of a Pharmacy: Accepted Methods

The Use of the Dual Valuation Method

To estimate the market value of the business, specifically a pharmacy, the tax services employed a cross-approach based on two methods:

Asset-based method, taking into account the revenue generated, allowing for comparison with observed market prices for similar transactions.

Profitability method, calculating the value of the business by capitalizing the gross operating surplus, adjusted according to regional market data provided notably by Interfimo.

These two methods were deemed relevant and complementary by the judges.

Why the Taxpayer's Arguments Did Not Convince

The selling company contested the use of a capitalization coefficient deemed too high in light of what it considered the pharmacy's actual profitability. However, the justifications provided did not satisfy the Court:

The evolution of revenue over several years did not demonstrate a sufficiently significant decline.
No numerical evidence was provided to support a profitability lower than the regional average.
The reform of pharmacist remuneration that occurred in 2015 was not shown to have specifically affected this pharmacy compared to other comparable establishments.

Finally, the advantageous location of the pharmacy (residential area, shopping center, proximity to healthcare professionals) reinforced the administration's position.

Tax Risks for the Partners of the Selling Company

Gift and Requalification for Income Tax

By allowing the sale of an asset at an undervalued price, the partners of the selling SNC conferred an advantage to the purchasing company — in which they were also stakeholders. This situation led to a requalification as a gift granted to the partners of the benefiting structure, with the following consequences:

Inclusion of the gift in their taxable income.

Application of income tax reassessments (IR).

Collection of social contributions (PS) on the estimated amount of the gift.

The operation, which could have been perceived as an intra-family affair or a "soft" transmission strategy, was actually subject to significant penalties.

Avoiding Pitfalls: Best Practices When Transferring a Business

Complying with the Actual Market Value

It is essential that the sale price of a business, especially in the case of an intra-group transfer or between close individuals, corresponds to its objectively estimated market value. In case of doubt, it is advisable to seek an independent valuation or consult a specialized accountant.

Rigorously Justifying Any Discount

If a discount is applied (for example, in the case of a decline in activity, ongoing litigation, or deterioration of the premises), it must be documented with factual and numerical elements. Otherwise, the administration may consider this price reduction as a gift.

Anticipating the Tax Impact of an Atypical Operation

Any operation deviating from market standards — lower price, unusual payment terms, connections between the parties — should undergo prior analysis by a tax lawyer. This precaution helps avoid subsequent requalification and its heavy consequences.

Conclusion: Caution in Managing Intra-Group Transfer Operations

This case strongly reminds us that the tax rules governing the transfer of a business, particularly a pharmacy, are strict. An unjustified undervaluation of the price, even if it seems economically understandable in a context of transmission or restructuring, can be requalified as an abnormal management act or a gift, with significant tax consequences.

Before any operation, it is therefore essential to:

Objectively assess the asset being transferred;
Verify the economic reality of the sale price;
Rigorously formalize the operation;
And above all, seek advice.

---

Are you preparing to transfer or acquire a business, particularly a pharmacy? The tax risks are real but avoidable: contact the PRAX Avocats team to secure your operation.