SASU Under Income Tax: The French Government's Flawed Stance

I. The Ministerial Reply: Reasoning by Omission

A. The Deafening Silence on Article L. 136-3 of the CSS

The Government's reasoning proceeds in three steps. First, a SASU that has elected for the income tax regime is treated as a pass-through entity, so its profits are taxed directly in the hands of the sole shareholder as BIC, BNC or BA. Second, Article L. 136-6(I)(f) of the CSS subjects to investment income social levies all BIC, BNC and BA "with the exception of those that are subject to the earned and replacement income contribution defined in Articles L. 136-1 to L. 136-5." Third, since the unsalaried president of a SASU is not affiliated with any social security scheme, the profits they receive "do not fall within the material scope of the social contributions on earned income" and therefore "necessarily" fall within the scope of the investment income levies¹. The syllogism appears airtight. It is, however, built on a false premise, the assumption of a legislative vacuum where the law has in fact provided a specific text.

Article L. 136-3 of the CSS, which the Government does not mention once in its reply, is precisely the provision that defines the assessment base of the generalised social contribution (CSG) payable by self-employed workers. Its paragraph I(2) expressly covers professional non-commercial income (BNC) falling under Article 92 of the French Tax Code (CGI)². Its third paragraph addresses the scenario of activity carried on through a company, stipulating that the relevant amounts are "taken into account in proportion to the profit-sharing rights in the company held by such self-employed workers, within the meaning of Article 8 of the same code"³. Article L. 136-1-1(II) of the CSS, which cross-refers to Article L. 136-3, provides that "the professional income of self-employed workers, under the conditions defined by Articles L. 136-3 and L. 136-4" is subject to the earned income contribution⁴. The statutory chain of cross-references is pellucid: professional BNC earned by self-employed workers, including where the activity is carried on through a company falling under Article 8 of the CGI, is subject to the earned income contribution and is therefore excluded from the scope of Article L. 136-6.

The Government's silence on Article L. 136-3 is not inadvertent. If this provision could be distinguished on legal grounds, the Minister would have done so. If it were immaterial, he would at least have acknowledged it in order to set it aside. By failing to cite it at all, the Government reveals that it has no answer to the textual argument. This is an admission by omission, one that severely undermines the doctrinal weight of the ministerial reply. Any taxpayer facing a reassessment can now deploy a straightforward argument: the Government itself, when questioned by Parliament, was unable to explain why Article L. 136-3 should not apply.

B. The Confusion Between Social Security Affiliation and Liability to CSG

The core of the Government's reasoning rests on a conceptual conflation of two distinct legal notions: affiliation with a social security scheme and liability to the CSG (assujettissement). The Government invokes Article L. 311-2 of the CSS, which provides for the mandatory affiliation with the general social security scheme of persons receiving remuneration, and Article L. 311-3(23) of the same code, which assigns presidents of SAS companies to that general scheme⁵. From this, it concludes that in the absence of remuneration, the president of a SASU is not affiliated with any social security scheme, and that their profits therefore escape the earned income contribution regime.

Yet Article L. 136-6(I)(f) of the CSS does not exclude from its scope income whose recipient is affiliated with a social security scheme, it excludes income "that is subject to the earned and replacement income contribution." The statutory criterion is being subject to the contribution (assujettissement), that is, falling within its scope as a matter of law, rather than effective affiliation with a scheme or actual payment of contributions. The Government substitutes a factual condition, affiliation, which depends on administrative circumstances, for a legal condition, liability, which derives from the statute. In doing so, it rewrites Article L. 136-6 by grafting onto it a condition that the legislature did not impose. As we emphasised in our previous analysis, this confusion effectively deprives the exception in paragraph (f) of Article L. 136-6 of any meaning, which is manifestly contrary to the overall scheme of the legislation.

The practical consequence of this reasoning is particularly insidious. The absence of the SASU president's affiliation with the self-employed social security scheme does not result from a choice by the taxpayer: it results from an administrative gap. URSSAF (the French social security contribution collection agency) has not established any specific affiliation mechanism for shareholders of SAS companies under the income tax regime who receive profits without paying themselves a salary. The Government thus transforms a lacuna in the social security administration into a taxable event, which amounts to imposing a heavier tax burden on taxpayers by reason of a failure by the State itself. This is legally indefensible and contrary to the principle of fiscal legality enshrined in Article 34 of the French Constitution⁶.

C. An Obsolete Circular as Legal Foundation

To bolster its position, the Government invokes Circular No. 2002-004 of 30 January 2002 issued by the Organic fund (subsequently replaced by the RSI, which was itself dissolved and integrated into the general social security scheme in 2018). That circular "specified that the obligation of affiliation concerns only SAS directors who receive remuneration in that capacity, and that social contributions are assessed solely on that basis." This foundation is doubly fragile. On the one hand, the Organic fund was the pension insurance body for self-employed traders and manufacturers; it was abolished in 2006 when the RSI was created, and the RSI itself was dissolved in 2018 upon its integration into the general scheme. Invoking a circular from a body that has been defunct for twenty years to ground a contemporary tax position is an exercise in legal archaeology bordering on the absurd. On the other hand, a circular issued by a social security body has no normative force with respect to taxpayers, as the Conseil d'Etat recalled in its landmark Section decision of 18 December 2002, Mme Duvigneres⁷. Such a circular can neither restrict the scope of a statute nor create a rule governing the assessment base of a levy. The Government cannot seriously anchor a reclassification doctrine potentially affecting billions of euros on an internal instruction from a defunct fund.

Furthermore, the 2002 Organic circular deals exclusively with affiliation to the social security scheme, it says nothing whatsoever about the CSG assessment base within the meaning of Article L. 136-3 of the CSS. The Government thus compounds its analytical error by extending the scope of this circular beyond its subject matter. One may be liable to CSG on earned income under Article L. 136-3 without being affiliated to the general social security scheme under Article L. 311-3: these are two distinct legal questions, governed by different statutory provisions, pursuing different objectives, the first concerning the assessment base of a fiscal levy, the second concerning the accrual of social insurance entitlements.

II. The Judge as Bulwark Against Fiscal Arbitrariness

A. The Paris Court of Appeal: The Criterion of Independent Activity, Not Affiliation

Seven months before the ministerial reply was published, the Paris Administrative Court of Appeal (Cour administrative d'appel de Paris) delivered a judgment that squarely contradicts the Government's position. In its decision of 20 October 2025 (CAA Paris, 5th ch., No. 24PA00085)⁸, the Court was seized of a dispute concerning, inter alia, the subjection to investment income social levies of professional BNC earned by a taxpayer who carried on an engineering activity on an independent and habitual basis. The tax authorities had subjected this income to the investment income contribution under Article L. 136-6 of the CSS. The taxpayer challenged the classification.

The Court, after citing Articles L. 136-1 and L. 136-6 of the CSS at paragraph 17 of its judgment, held at paragraph 18: "It follows from the evidence that the income resulting from the engineering and intermediary activity carried on by Mr A... on an independent and habitual basis during the years at issue constitutes professional non-commercial income which must be regarded as having been received by Mr A... as a self-employed worker. Consequently, these revenues constitute earned and replacement income within the meaning of Articles L. 136-1 and L. 136-6 of the Social Security Code and the tax authorities could not subject the taxpayer to additional social contribution assessments calculated on investment income." The operative part is unambiguous: Article 4 of the judgment orders the full discharge, in principal and penalties, of the social contributions assessed on investment income.

The Court's reasoning is remarkable for its simplicity and rigour. It identifies three cumulative criteria, activity carried on independently, on a habitual basis, generating professional BNC, and deduces from them that the taxpayer "must be regarded as" a self-employed worker. No mention of affiliation with a social security scheme, of a SIREN number, of the Organic circular, or of any other administrative criterion. It is the effective nature of the activity that determines the applicable social levy regime, not the taxpayer's affiliation status. This is precisely the position we advocated in our March 2026 article, and it is the exact opposite of the Government's reasoning.

B. The Conseil d'Etat: The Nature of the Income Takes Precedence Over Social Security Status

The Paris Court of Appeal's position is a direct continuation of the Conseil d'Etat's case law. In its judgment of 2 April 2021 (CE, 3rd and 8th combined chambers, No. 428084)⁹, France's Supreme Administrative Court had already established the principle that the determining criterion for the applicable social levy regime is the effective nature of the income-generating activity and the capacity in which the taxpayer receives the income. Profits received during a period of professional activity fall within the earned income contribution; only those received after the cessation of activity, in that case, the proceeds from the sale of stock by a retired farmer, constitute investment income. The Lille Administrative Court (Tribunal administratif de Lille) confirmed this analytical framework in a judgment concerning industrial and commercial profits (BIC), distinguishing between the partner who personally carries on the professional activity, whose income retains its character as earned income, and the passive partner whose income constitutes investment income¹⁰.

This body of case law converges on a single conclusion: it is the personal, effective and habitual exercise of a professional activity that characterises income as earned income, irrespective of the legal form of the entity through which the activity is conducted and irrespective of the taxpayer's social security status. The Court of Justice of the European Union had moreover established the same principle as early as 1997, holding that self-employed status is "independent of the social security scheme to which the worker is affiliated" and that the sole relevant criterion is the absence of a relationship of subordination¹¹. This convergence between domestic and European law considerably strengthens the taxpayer's position.

C. Case Law the Executive Refuses to Acknowledge

The fact that the Government cites no case law whatsoever in its ministerial reply is in itself an admission. When a minister is questioned by a member of Parliament about the legal basis for a contested administrative position, the very least one would expect is a reference to court decisions that support it, if any exist. The silence speaks volumes: the Government has no case law to invoke because none exists. The Paris Court of Appeal's judgment, delivered seven months earlier, says the opposite of what the Government asserts. The Conseil d'Etat's 2021 decision, based on directly transposable reasoning, reaches the same conclusion. The Government knows this, and chooses not to discuss it.

This conduct raises a question of institutional good faith. A ministerial reply to a written question is not an exercise in political communication, it is an exercise in transparency by the executive before the national representation. Parliament asks a precise question: "What is the exact legal basis for this position?" The Government is expected to answer in good faith, setting out the state of the law, including when that state of the law is unfavourable to its position. By deliberately omitting the statutory provisions and case law that contradict its doctrine, the Government does not answer the question, it engages in fiscal propaganda. The matter is all the more regrettable given that Ms Bergantz's question had a third limb, to which the Government simply does not respond: whether it intends to provide legislative or doctrinal clarification. The silence on this point confirms that the executive has no intention of providing legal certainty, preferring to maintain ambiguity that allows it to continue taxing at 17.2% income that belongs, under both the statute and the case law, in the 9.7% bracket.

France remains, for the time being, a state governed by the rule of law. This means that the administrative courts, as guardians of legality, have the final word. The ministerial reply of 2 June 2026 binds neither the administrative tribunals, nor the administrative courts of appeal, nor the Conseil d'Etat. It carries no normative force and cannot be relied upon against the taxpayer¹². The Paris Court of Appeal's judgment, by contrast, forms part of the legal order. Any taxpayer facing a reassessment may invoke it to demonstrate that the tax authorities' position has already been overruled by an appellate court. The role of the courts, protecting the taxpayer against administrative arbitrariness, has never been more necessary than it is today.

III. Fiscal Instability: Poison for Entrepreneurship in France

A. Budgetary Opportunism at the Expense of Legal Certainty

To understand the Government's position, one must situate it within its budgetary context. France recorded a public deficit of 5.8% of GDP in 2024, amounting to EUR 173 billion, subsequently reduced to 5.1% of GDP in 2025, achieved, according to INSEE (the French national statistics institute), "exclusively through EUR 23 billion in tax increases"¹³. Public debt reached 115.6% of GDP at end-2025, or EUR 3,465 billion, a level exceeding the peak recorded during the Covid crisis of 2020. The Cour des comptes (Court of Auditors) warns that this trajectory is unsustainable and estimates that debt interest expenditure will surpass EUR 100 billion per year by 2029¹⁴. In this environment, every additional euro of tax revenue is a lifeline for a Treasury gasping for air. The temptation to reclassify earned income as investment income, substituting a rate of 17.2% (or 18.6% since 2026) for a rate of 9.7% whose collection moreover falls outside the DGFiP's remit, is budgetarily understandable. It is no less legally indefensible for that.

We state the matter plainly: the executive's position on social levies for SASUs under income tax is a reasoning of budgetary convenience, one that taxes first and reflects later. It rests neither on a serious analysis of the statute, Article L. 136-3 is ignored, nor on the case law, the Paris Court of Appeal and the Conseil d'Etat are passed over in silence, nor on any coherent legal logic, the confusion between affiliation and liability does not withstand scrutiny. Its purpose is to offset, through the over-taxation of sole traders structured as SASUs, the consequences of the State's own budgetary mismanagement. The taxpayer should not bear the cost of the executive's inability to control public expenditure, the highest in the eurozone at 57.2% of GDP in 2025.

B. The Entrepreneurial Exodus: The Foreseeable Consequence of Erratic Tax Policy

An entrepreneur is, by definition, someone who projects into the future. They invest today in the expectation of a return tomorrow. That projection presupposes a minimum of predictability, fiscal, legal, regulatory. France offers precisely the opposite. A SASU director who elected in good faith for the income tax regime on the basis of the statutes in force now faces a retroactive reassessment spanning three fiscal years, with late-payment interest, grounded in an interpretation that the tax authorities themselves had not previously applied. Declarative positions that had been "accepted for several years", as Ms Bergantz's question itself notes, are brutally called into question. How can an entrepreneur plan the development of their business, recruit staff, invest in equipment, when the fiscal framework within which they operate can be retroactively altered by a simple administrative reclassification?

The figures are damning. According to the IFRAP Foundation, in 2024 alone EUR 105 billion in tax bases vanished as a result of departures by high-income taxpayers, entailing an estimated revenue loss of EUR 685 million¹⁵. The departure rate among households declaring more than EUR 300,000 in annual income is four times the rate observed among taxable households overall. A January 2026 study by Rexecode estimates that between EUR 150 and 200 billion in aggregate wealth has been expatriated by departing taxpayers over the past thirty years¹⁶. The Conseil d'analyse economique (CAE, Council of Economic Analysis) has found that each one-point increase in capital taxation triggers between 90 and 900 departures from the top centile of capital income earners¹⁷. Those who leave are not passive rentiers: they are entrepreneurs, senior executives, business founders, the very people who create jobs, drive innovation and generate added value.

It is regrettable, though hardly surprising, that the executive has adopted such an overtly opportunistic stance. By taxing at 17.2%, soon 18.6%, income that the law subjects to 9.7%, the Government sends a disastrous signal to entrepreneurs: your rights are worth only what the State deigns to concede; the statute may say one thing, the administration will do another; and if you challenge it, you will wait years for a court to vindicate you. In such an environment, relocation to more stable, more predictable and more rule-of-law-respecting jurisdictions is not the caprice of a wealthy taxpayer, it is the rational decision of an entrepreneur safeguarding their livelihood. The tragedy is that France is impoverished by these departures, not merely in tax revenue, but above all in employment, innovation and economic dynamism. The Institut Montaigne makes precisely this point when it notes that France's compulsory levies amount to 48% of GDP, compared with 41% for the eurozone average, without this differential translating into any superior quality of public services¹⁸.

C. Practical Recommendations: Challenge, Document, Anticipate

Challenge systematically. The ministerial reply of 2 June 2026 does not alter the legal foundations of the challenge strategy we advocated in our March 2026 article. If anything, it reinforces them, inasmuch as it lays bare the weaknesses of the tax authorities' position: no answer on Article L. 136-3 of the CSS, confusion between affiliation and liability, reliance on an obsolete circular. When confronted with a proposed reassessment, the taxpayer must submit written observations within the thirty-day time limit, marshalling the textual argument (the articulation of Articles L. 136-6, L. 136-1-1(II) and L. 136-3 of the CSS), the case law (CAA Paris, 20 Oct. 2025, No. 24PA00085; CE, 2 Apr. 2021, No. 428084; TA Lille, No. 2009680) and a point-by-point critique of the ministerial reply itself. The hierarchical appeal provided for by Article L. 54 C of the French Tax Procedures Code (LPF) should be systematically exercised if the reassessment is maintained¹⁹.

Invoke the Paris Court of Appeal's judgment. This decision now constitutes the centrepiece of the taxpayer's defence. Admittedly, it concerns a taxpayer who carried on activity directly in their own name rather than through a SASU. The transposition, however, is immediate: the criteria applied by the Court, independent activity, carried on habitually, generating professional BNC, are identically satisfied by the sole shareholder of a SASU under income tax who personally carries on the company's activity. Article L. 136-3, paragraph 3 of the CSS expressly contemplates the case of activity conducted through a company falling under Article 8 of the CGI, which definitively neutralises any attempt to distinguish the two situations. Should the tax authorities maintain their position after observations and hierarchical appeal, litigation (preliminary contentious claim under Article L. 190 of the LPF, followed by proceedings before the administrative tribunal) is the appropriate course, with excellent prospects of success in light of the existing case law²⁰.

Secure the position proactively. Pending a definitive ruling by the Conseil d'Etat, we continue to recommend the payment of a director's salary, even a modest one, which affiliates the officer with the general social security scheme and eliminates the tax authorities' primary argument. This precautionary measure does not amount to an abandonment of the substantive challenge, it constitutes a safety net that shields the taxpayer from reassessment while the case law develops. In parallel, maintaining probative documentation of the professional and personal nature of the activity remains essential: service contracts, shareholders' meeting minutes, professional correspondence and activity reporting all constitute evidence that can be deployed in the event of an audit.