SASU Under Income Tax: CSG Assessment Error, a Public Policy Ground

I. An Assessment Rule Settled by the Conseil d'État

A. The Decision of 30 December 2021: The Criterion of Professional Exercise

The French Social Security Code (Code de la sécurité sociale, CSS) provides for two distinct assessment bases for the generalised social contribution (CSG). The first, covering earned and replacement income, is defined in Articles L. 136-1 to L. 136-5 and, for self-employed workers (travailleurs indépendants), covers their professional income under the conditions laid down in Article L. 136-3. The second, covering investment income (revenus du patrimoine), is defined in Article L. 136-6. Paragraph I(f) of that article includes "all income falling within the categories of industrial and commercial profits, non-commercial profits or agricultural profits", but immediately excepts income "that is subject to the earned and replacement income contribution defined in Articles L. 136-1 to L. 136-5"¹.

The whole question is what brings categorical income within the first base rather than the second. The Conseil d'État's answer, in its decision of 30 December 2021, is a single sentence at paragraph 4: "income derived from a self-employed activity is subject to the social contribution on earned income where that activity is carried on professionally, whether on an ancillary basis or not"². The criterion is therefore the professional exercise of the activity. It is assessed, paragraph 5 indicates, by reference to "the nature and the repetition over time of the services provided". It is not defeated by the ancillary character of the activity, a point the decision takes care to make twice.

What the decision does not mention is as instructive as what it states. At no point does the Conseil d'État ask whether the taxpayer was affiliated with a self-employed social security scheme, held his own registration or had paid contributions. Those circumstances, absent in the case, are treated as irrelevant. Discharge is granted although the taxpayer had never paid anything by way of earned income contribution.

Reporting in the tables of the Recueil Lebon signals that the court intended to lay down a rule, not merely decide a case. That is what distinguishes this decision from the one of 2 April 2021, delivered on agricultural profits, which already followed the same logic by distinguishing income received during the period of activity, subject to the earned income contribution, from income received after cessation, subject to the investment income contribution³. The decision of 30 December 2021 generalises that reasoning to every self-employed activity and states it as a principle.

B. Reasoning by Elimination Rejected

The reassessment notices sent to presidents of SASUs under income tax almost all rest on what may be called reasoning by elimination. The director draws no remuneration, therefore he is affiliated with no scheme in respect of his activity, therefore his profits are not subject to the earned income contribution, therefore they fall by default within the investment income contribution. Article L. 136-6(I)(f) would thus be a universal receptacle for everything on which contributions have not actually been paid elsewhere.

The decision of 30 December 2021 is incompatible with that reasoning. If the absence of affiliation and contributions sufficed to tip income into the investment base, the 2021 taxpayer, who was neither affiliated nor contributing, would have had to remain there. He was discharged. The rule is therefore that the exception in Article L. 136-6(I)(f) covers income that is "subject to" the earned income contribution, meaning income that falls within its scope by virtue of the nature of the activity producing it, and not income that has actually borne that contribution. Liability is a matter of scope, not of collection.

The Paris Administrative Court of Appeal applied this framework in a judgment of 20 October 2025 that we have analysed separately. A taxpayer carried on, independently and habitually, an activity as engineer and intermediary that he had declared to no body, to the point that the 80% surcharge for undisclosed activity was upheld. The court nevertheless held, at paragraph 18, that his income constituted professional non-commercial profits received "as a self-employed worker", falling accordingly within the earned income contribution, and it discharged the levies assessed on investment income⁴. Undisclosed income, never declared and never contributed upon, falls within the earned income base because it derives from a professional activity. One can gauge what follows for income that has been duly declared.

C. Two Mutually Exclusive Assessment Bases

A third decision completes the picture by clarifying the relationship between the two bases. The Versailles Administrative Court of Appeal, hearing on 27 May 2025 a dispute over income deemed distributed by a company subject to corporate tax to its majority shareholder-manager, held that the portion of that income which falls, by operation of law, within the scope of the levies on earned income "cannot be subjected to those assessed on investment income", and granted the corresponding discharge⁵.

The formula is general and says what matters. The two bases do not overlap and do not complement each other. What falls within the first escapes the second, without the court having to verify that the first contribution was actually collected by the competent body. The tax authorities therefore cannot claim to tax "by default" because URSSAF has not called for the earned income levies. One body's failure to collect does not open another's jurisdiction, and it does not alter the nature of the income.

These three decisions, that of the Conseil d'État and those of the Paris and Versailles courts, were delivered in different configurations: an indemnity for managing another's affairs, an undisclosed intellectual services activity, distributions to a majority manager. None concerns a SASU under income tax. All nevertheless apply the same rule, and all end in discharge. That convergence is their strength.

II. A Public Policy Ground: What It Changes Before the Court

A. Misapplication of the Scope of the Statute

Paragraph 6 of the decision of 30 December 2021 deserves careful reading. To quash the appellate judgment, the Conseil d'État does not find an ordinary error of law. It holds that the court of appeal, by relying on the provisions governing the investment income contribution when the indemnity constituted income subject to the earned income contribution, "misapplied the scope of the tax statute"². It adds that this ground "rests on undisputed facts requiring no assessment by the court of cassation", which allows it to rule on the merits without remand.

In French administrative litigation, misapplication of the scope of a statute belongs to the category of grounds that the court must raise of its own motion, without waiting for a party to invoke them. The court cannot apply to a situation a provision that does not govern it, even if the parties agree to reason within that framework. Where the tax authorities base an assessment on provisions that do not cover the income in question, the court hearing a claim for discharge must find the error, and it must do so even if the taxpayer has framed the argument poorly or has not raised it at all.

Applied to our subject, this characterisation means that subjecting self-employed professional income to the investment income contribution is not one arguable interpretation among others. It is the application of a provision to a situation it does not govern. The debate is not whether the 17.2% or 18.6% rate is excessive, nor whether URSSAF should have intervened. It is whether Article L. 136-6 of the CSS can, or cannot, serve as the legal basis for the assessment. The Conseil d'État's answer is that it cannot, as soon as the activity is carried on professionally.

B. The Paris Illustration: The Court Takes Up the Point, the Authorities Yield

The Paris Administrative Court of Appeal gave, on 17 October 2025, an exact illustration of this mechanism. A taxpayer had been taxed as non-commercial profits in respect of two undisclosed activities, including the writing of training guides, and the tax authorities had assessed social levies on investment income on that income. The taxpayer challenged his assessments on other grounds, notably limitation and penalties.

Before the hearing, the court informed the parties, under Article R. 611-7 of the Code of Administrative Justice (CJA), that its judgment might be based on a ground raised of its own motion, namely that the income from the writing activity had to be regarded as professional income within the meaning of Article L. 136-3 of the CSS, subject accordingly to the earned income contribution⁶. That article requires the presiding judge, where the decision appears likely to rest on a ground raised of the court's own motion, to inform the parties and allow them time to submit observations⁷.

The Minister's response is the most remarkable feature of the case. He did not defend the assessment. By a brief registered on 4 September 2025, he stated that he had granted relief from the investment income levies assessed on that income, in the amount of EUR 18,210. The court recorded that there was no longer any need to adjudicate to that extent⁶. In other words, faced with a public policy ground it knew to be well founded, the administration preferred to grant relief itself rather than expose itself to a reasoned judgment on the point.

Two lessons follow. The first is procedural: the appellate court does raise the assessment error of its own motion, including where the taxpayer has not invoked it, which confirms the public policy nature of the ground. The second concerns conduct: the administration knows the reach of the decision of 30 December 2021 and does not seek to fight it before the court once the court takes it up. The position it defends in reassessment notices sent to SASUs under income tax is not the position it defends before the courts of appeal.

C. Reach and Limits of the Public Policy Ground

The public policy nature of the ground carries three consequences favourable to the taxpayer. It may be invoked at any stage of the proceedings, including for the first time on appeal, without the authorities being able to object to its novelty. It must be examined by the court even if poorly framed, since the court must raise it itself. Finally, it places the administration in an uncomfortable defensive position, since it can no longer rest on the assertion of a lack of affiliation and must demonstrate that the activity is not carried on professionally.

One must nevertheless measure exactly what this ground does not do. It does not reopen time limits. The public policy nature of a ground operates within proceedings regularly commenced; it does not render admissible a claim filed out of time. Yet the claim period for social levies collected in the same manner as income tax expires, in principle, on 31 December of the second year following the year in which the tax roll was issued, and the provision specifies that a court decision does not constitute an event capable of reopening that period⁸. A taxpayer who waited for a favourable decision of principle while letting that period run would be time-barred, however strong the ground.

One must also distinguish our situation from the action based on a court decision revealing the non-conformity of a rule of law with a superior rule, which Article L. 190 of the French Tax Procedures Code (LPF) confines to a two-year period⁹. The decision of 30 December 2021 reveals no non-conformity of any provision with a superior norm. It interprets the scope of valid provisions. It therefore does not, by itself, create a new right to claim. It supplies the taxpayer who challenges within the time limits with a ground the court is bound to uphold. The difference is decisive for strategy.

III. Application to the Director of a SASU Under Income Tax

A. From Activity in One's Own Name to Activity Through a Company

The three decisions examined concern taxpayers acting in their own name or distributions by companies subject to corporate tax. None concerns the sole shareholder of a capital company that has elected for the partnership regime. Transposition requires crossing that step, and the statutory texts allow it without difficulty.

The election under Article 239 bis AB of the French Tax Code (CGI) places the SASU under the regime of Article 8 of the same code: profits are taxed personally in the name of the shareholder, for the share corresponding to his rights, in the category corresponding to the company's activity¹⁰. Article 151 nonies(I) of the same code draws the consequences of this transparency for the taxpayer who "carries on his professional activity within a company" falling under Article 8: his rights in the company are treated as assets allocated to the exercise of the profession¹¹. Tax law therefore treats the working partner of a transparent company as a professional, and his share of profit as the product of his activity.

The Social Security Code reasons in the same way. Article L. 136-3, which defines the base of the earned income contribution of self-employed workers by reference to the tax categories, expressly provides for activity carried on through a company by referring in turn to Article 8 of the CGI¹². The Cour de cassation, ruling on the texts prior to that wording, had already held that the share of profits allocated to a partner of a pass-through entity in respect of his activity constitutes self-employed professional income falling within the base of contributions and levies, "irrespective of the tax rules governing the allocation of taxable profit among partners"¹³. On this point, the two branches of the French judiciary converge.

The Conseil d'État's reasoning therefore transposes term for term. The president of a SASU under income tax who personally performs the services billed by his company carries on a self-employed activity professionally. His profits, taxed in his name in the category corresponding to that activity, are the income derived from that activity. They fall within the earned income contribution and escape, by operation of the exception in Article L. 136-6(I)(f), the investment income contribution. That the activity is carried on through a company rather than in one's own name does not change its nature, any more than the ancillary character of the activity changed it in the 2021 decision.

B. What the Tax Authorities Must Now Establish

The shift in the terrain of the debate is the most important practical consequence. As long as the administration reasoned by elimination, it sufficed to note the absence of remuneration and affiliation to conclude. Once the criterion is the professional exercise of the activity, it falls to the administration, in order to maintain the assessment, to establish that the activity is not carried on professionally by the partner.

Tax law supplies the criterion for that demonstration. Article 155(IV)(1) of the CGI provides that "professional exercise implies personal, direct and continuous participation in the performance of the acts necessary for the activity", and Article 156(I)(1 bis) applies the same criterion to identify non-professional industrial and commercial profits¹⁴. The administration would therefore have to argue that the president of the SASU, sole shareholder and sole workforce of his company, does not participate personally, continuously and directly in the acts of the activity. In the generality of files involving consultants, developers and liberal professionals working alone, that demonstration is impossible, and the administration does not attempt it: it most often concedes that the taxpayer personally carries on the activity, only to argue immediately that this circumstance is irrelevant.

Its own guidance contradicts it. Paragraph 400 of BOI-RSA-GER-10-30 describes the partner of a capital company that has elected under Article 239 bis AB as a person "carrying on an activity within such a company", whose remuneration is added back to the company profit taxed "in the income category corresponding to the company's activity"¹⁵. The administration thus acknowledges that the partner carries on the activity and that the profit is the counterpart of that activity. It cannot, without contradicting itself, argue before the court that the same profit is income from the passive holding of shares.

What the administration can no longer argue is equally clear. The absence of affiliation with a self-employed scheme, the absence of a separate registration and the absence of contributions paid are, since the decision of 30 December 2021, circumstances irrelevant to the determination of the assessment base. Invoking them does not answer the ground. We explained in our reference analysis why these criteria are extra-legal; the case law examined here adds that they are inoperative before the court.

C. What the Reassessed Director Should Do

The first rule is to raise the ground from the observations on the reassessment notice, framing it as what it is: Article L. 136-6 of the CSS cannot found the assessment of income derived from an activity carried on professionally, and the Conseil d'État characterises that error as a misapplication of the scope of the tax statute. The ground must be supported by the facts establishing professional exercise: service contracts signed by the director, correspondence evidencing his personal involvement, the absence of any other person performing the services, the nature and repetition of the services over time. These are exactly the elements the Conseil d'État relied on at paragraph 5 of its decision.

The second rule is never to let the claim period run. If the reassessment is maintained, the contentious claim must be filed before 31 December of the second year following the issue of the tax roll, together with an express request for suspension of payment under Article L. 277 of the LPF, which suspends both the enforceability of the debt and the limitation period for recovery until a final decision¹⁶. The taxpayer who challenges within the time limits retains the benefit of any favourable decision to come; the one who waits for that decision while paying and remaining silent loses it. We have set out the comparison of the two strategies on the website the firm devotes to this litigation (in French).

The third rule is to pursue the litigation to the court if the administration maintains its position after the claim. The public policy nature of the ground does not dispense with invoking it, but it guarantees that it will be examined, and the Paris example shows that the administration prefers to grant relief rather than argue against the Conseil d'État's decision. Litigation concerning the SASU under income tax has yet to produce a single administrative court judgment. The first judgment will be delivered by a court that already has the assessment rule and the duty to apply it.