Trademark royalties between director and company: tax classification, social charges and exit strategies under French law
A business owner registers a word mark with the French Patent and Trademark Office (INPI) in his own name — the very sign under which his company has been trading for years. He then enters into a licensing agreement with that same company, which now pays him an annual royalty in return for exploiting the mark. The arrangement, appealing on its face, promises a lightly taxed supplement to the director's income through the micro-BIC regime and social charges capped at 18.6%. In practice, the tax and social pitfalls are numerous, and a poorly structured scheme can wipe out the expected benefit entirely.
Trademark licensing by a director-shareholder to his own company under French tax law raises a series of interconnected issues spanning income classification, applicable social charges, deductibility of the royalty at corporate level and capital gains treatment upon a subsequent disposal. Recent case law from the Conseil d'État (France's Supreme Administrative Court) and the administrative courts of appeal has progressively tightened the conditions under which such arrangements can be implemented without risk of reclassification, particularly where the royalty is pegged to the licensee company's performance.
We shall first examine the tax classification of the trademark, a decisive preliminary that governs the entire applicable regime (I). We shall then analyse the tax and social treatment of royalties during the exploitation phase, together with the deductibility requirements for the licensee company (II). Finally, we shall address the exit mechanisms — sale, contribution to a holding company or gift — and their respective tax consequences (III).
I. Tax classification of the trademark: a prerequisite that determines the entire framework
A. Manufacturing marks and trade marks: a distinction with far-reaching consequences
French tax law draws a fundamental distinction between two categories of trademarks. A manufacturing or service mark (marque de fabrique ou de service), within the meaning of Article 92-2-3° of the French General Tax Code (CGI), is one affixed by an industrialist to goods he manufactures himself; royalties derived from its licensing are taxed in the hands of the inventor or individual holder as non-commercial profits (BNC — bénéfices non commerciaux). A trade mark (marque commerciale), by contrast, is affixed by a trader to goods or services he has not designed or directly manufactured; royalties from its licensing or sale are in all cases classified as industrial and commercial profits (BIC — bénéfices industriels et commerciaux), regardless of the wording of the licence agreement. This distinction, originally developed by the tax authorities (BOI-BNC-SECT-30-10-30), was upheld by the Conseil d'État in its decision of 27 July 2005, No. 252847, Manoukian, which focuses on whether the mark is linked to an actual manufacturing process.
The tax consequences of this classification are substantial. BNC classification opens the door to the preferential long-term capital gains regime under Article 39 terdecies of the CGI (reserved for patents, utility certificates, plant variety rights, protected software and patentable inventions) and to certain exemptions under Articles 151 septies and 238 quindecies. BIC classification excludes these preferential regimes and subjects the licensor to a distinct tax framework whose attractiveness rests primarily on the micro-BIC regime and the non-professional characterisation of the activity. Any misclassification at the outset cascades through the entire tax chain — from ongoing royalties to the capital gain on disposal — and can expose the taxpayer to reassessments with penalties for deliberate default.
B. The director's word mark: a virtually automatic BIC classification
In the vast majority of practical configurations, a director who registers a word mark consisting of his company's trade name or sign will hold a trade mark within the fiscal meaning of the term. The mark is not attached to an industrial manufacturing process; it simply transfers the right to use the sign across the commercial or service activities carried on by the licensee company. This analysis applies to wholesale traders, retail merchants, restaurant operators, professional service providers and directors of any service-oriented business. BNC classification will only be retained in the exceptional case where the holder demonstrates his status as the inventor of a manufacturing process embodied in the word mark (CE, 15 January 1992, No. 120482, Cariel).
This BIC classification carries several structural consequences for the director-licensor. It places him outside the scope of the preferential regimes reserved for inventors and research activities. It subjects him to the progressive income tax scale, mitigated by the 50% flat-rate deduction available under the micro-BIC regime where the relevant thresholds are met. It also determines the regime applicable on any subsequent disposal: the general BIC capital gains rules under Article 39 duodecies of the CGI, rather than the preferential rates applicable to industrial property in the strict sense. We consider that this classification must be established with certainty at the registration stage, as any ambiguity weakens the entire scheme in the event of a tax audit.
C. Valuation and INPI registration: securing the foundations from the outset
Registration with the INPI is the indispensable legal prerequisite for any licensing arrangement. Only the owner of a trademark may license it, and under French law ownership is established by registration with the Institut National de la Propriété Industrielle. The protection conferred is territorial (mainland France and overseas territories) and temporal (ten years, indefinitely renewable). For businesses with a European or international reach, a supplementary filing with the EUIPO (EU trade mark) or with WIPO under the Madrid Protocol should be considered. The goods and services classes covered by the registration must precisely match those actually exploited by the licensee company; otherwise, the evidentiary basis for the economic substance of the licence agreement is undermined.
The most common scenario in practice is a registration filed after the company has already been exploiting the mark informally. While this is not in itself fatal, it exposes the arrangement to three identified risks. The first is abuse of law (abus de droit) under Article L. 64 of the Tax Procedure Code (LPF), where the tax authority demonstrates that the registration's sole purpose was to create an artificial flow of deductible royalties. The second is the "mini" abuse of law under Article L. 64 A of the LPF, introduced by the Finance Act for 2019, which lowers the evidentiary threshold by targeting schemes whose purpose is primarily — rather than exclusively — tax-driven. The third is the abnormal management act (acte anormal de gestion), through which the tax authority challenges the deductibility of the royalties on the ground that the licensee receives no genuine economic benefit. Our review of recent case law shows that the tax authority now favours the ground of disguised distributions rather than abuse of law proper, which heightens the importance of thorough documentation.
An independent valuation of the mark at the registration stage is the cornerstone of fiscal security. It serves two complementary purposes: determining the economically justified annual royalty amount and building an evidentiary file that can be opposed to the tax authority in the event of an audit. ISO 10668 (Brand Evaluation — Requirements for Monetary Brand Valuation, 2010) and ISO 20671 (Brand Evaluation — Principles and Fundamentals, 2019) provide an internationally recognised methodological framework. The relief-from-royalty method, which estimates the rate an independent third party would have agreed to pay for exploiting a comparable sign, is the most widely used approach for SMEs. This independent valuation demonstrates that the royalty is based on the intrinsic value of the mark rather than on tax convenience, thereby deflecting any allegation of an arbitrary or excessive amount.
II. Exploitation of the trademark: an attractive tax regime subject to strict conditions
A. Professional or non-professional BIC: the fixed royalty as a protective shield
The distinction between professional and non-professional BIC is the central pivot of the entire scheme. Article 155(IV) of the CGI provides that an activity is exercised on a professional basis where the taxpayer participates personally, directly and continuously in the acts necessary for the activity. In the specific field of trademark licensing, however, the administrative courts have developed a set of alternative criteria, the leading authority being the Conseil d'État's decision of 9 November 2015, No. 374744, Casino Guichard. Under this ruling, royalties from trademark licensing constitute professional income if the licensor deploys, on a regular and effective basis, material and human resources for the licensing activity, or if the licensor is entitled to participate in the licensee's operations and is remunerated, in whole or in part, by reference to those operations.
The first criterion — material and human resources — is rarely met where a director licenses a mark to his own company. The licensor typically has no dedicated staff, no specific premises and no equipment allocated to the licensing activity. The arrangement consists of entering into a licence agreement and collecting royalties, without any dedicated infrastructure. This finding suffices to rule out the first criterion in the vast majority of practical cases.
The second criterion warrants closer scrutiny. It combines two cumulative conditions: entitlement to participate in the licensee's operations and remuneration correlated with the outcome of those operations. The first condition is almost automatically satisfied where the licensor is a director and shareholder — particularly a majority or sole shareholder — of the licensee company, since he is de facto involved in management decisions. However, as the Conseil d'État emphasised in its decision of 11 January 2019, No. 405031 (Casino Guichard 2), participation in the operations is not sufficient standing alone: the licensor's remuneration — the royalties — must also be correlated, in whole or in part, with the licensee's exploitation. This correlation requirement is the critical structuring issue.
The Paris Administrative Court of Appeal's decision of 15 November 2024, No. 23PA01115, Lancaster, added a new dimension to the analysis. In that case, the owner of a trade mark received royalties calculated as 2% of the licensee company's annual turnover (excluding VAT) plus 10% of its annual net profit before corporate income tax. The court held that these royalties, received in the course of an ongoing, unsalaried activity and proportional to the licensee's results, should be regarded as professional income within the meaning of Article L. 136-3 of the Social Security Code (CSS) and subjected to the contribution on earned income. Although this decision concerns social contributions rather than income tax classification directly, the professionalism criteria under the CSS and the CGI are autonomous but convergent, so that a proportional and recurring royalty runs the risk of being classified as professional in both registers simultaneously.
Our recommendation is unambiguous: the royalty must be fixed and based on the intrinsic value of the mark. A flat annual amount, determined by reference to an independent valuation compliant with ISO 10668 and ISO 20671, and not indexed to the licensee's turnover, profit or any other performance indicator, eliminates the second professionalism criterion. With neither alternative criterion satisfied, the licensing activity falls within the non-professional BIC category. This classification is the sine qua non of the scheme's fiscal and social attractiveness.
B. Tax and social treatment of royalties: micro-BIC, social charges and the TNS risk
The micro-BIC regime is the default taxation framework for trademark licensing royalties. Where the licensor's annual turnover (excluding VAT) from the licensing activity does not exceed the threshold of EUR 83,600 applicable to services (Article 50-0 CGI, thresholds in force for the 2026–2028 period), a flat-rate deduction of 50% is applied to gross receipts. The resulting net profit is added to the taxpayer's other household income and subjected to the progressive income tax scale. This regime applies automatically in the absence of an election for the actual-cost regime (régime réel) filed before 1 February of the tax year. Above the threshold or upon election, the licensor is subject to the simplified or standard actual-cost regime, which allows deduction of actual expenses: INPI registration and renewal fees, valuation fees, legal costs related to the licence agreement. The actual-cost regime is advantageous only where real expenses exceed 50% of the royalty amount, which is seldom the case at cruising speed.
On the social charges front, the non-professional classification is decisive. Where royalties constitute non-professional BIC, they are subject to social levies on investment income (prélèvements sociaux sur les revenus du patrimoine) at an aggregate rate of 18.6%, comprising CSG at 10.6% (of which 6.8% is deductible from the following year's overall income), CRDS at 0.5% and the solidarity levy at 7.5%. These charges are assessed by the tax authorities on the basis of the income tax return and fall outside the circuit of TNS (self-employed workers') contributions collected by the URSSAF. The subsidiary health contribution under Article L. 380-2 of the CSS (formerly known as the "PUMA tax") applies to individuals who do not demonstrate sufficient earned income from other sources; a director drawing a normal salary from his company is in principle not exposed to this risk.
A reclassification as professional BIC radically transforms the economic equation. If the royalties are characterised as professional — particularly because they are proportional to the licensee's results, as in the Lancaster case — the consequences vary depending on the director's social status. A majority manager (gérant majoritaire) of an SARL, already affiliated to the TNS regime, would see his royalties added to his social contributions base, with an effective rate reaching 40% to 45%. A director of an SAS or a minority SARL manager, affiliated to the quasi-salaried regime, can in principle combine that status with micro-entrepreneur status and benefit from a flat social contribution rate of 21.20% on turnover, subject to registration with the Trade and Companies Register. In either scenario, the additional social burden absorbs a substantial — and potentially the entirety of — the fiscal advantage yielded by the licensing arrangement.
C. Deductibility for the licensee company: three cumulative conditions and demanding case law
From the licensee company's perspective, the royalties paid to the director-licensor are deductible from the corporate income tax base subject to three cumulative conditions drawn from Articles 38 and 39 of the CGI. The first is the reality of the right granted: the company must demonstrate the existence of a valid INPI title covering the goods and services classes actually exploited. The second is genuine economic benefit for the business: the mark must bring a concrete and demonstrable advantage — brand awareness, customer loyalty, competitive differentiation. The third is that the amount must not be excessive: the royalty should correspond to what the company would have agreed to pay an independent third party for a comparable right, in accordance with the arm's length principle. Once these elements are established by the company, the burden shifts to the tax authority to demonstrate, if it so claims, that the charge is non-deductible, unjustified or excessive.
Recent case law reveals the converging indicators that lead courts to deny deductibility. The administrative courts of appeal have identified several high-risk scenarios: absence of an independent valuation at the time the licence agreement was concluded, manifest disproportion between the royalty amount and the benefit derived by the company from exploiting the mark, absence of any brand development or protection strategy on the part of the licensor, and a time gap between the start of actual exploitation and the formalisation of the licence agreement. Where deductibility is denied, the amounts paid to the director are systematically reclassified as disguised distributions (avantages occultes) under Article 111(c) of the CGI, taxable as investment income and subject to social charges plus a 40% penalty for deliberate default. The denial of deductibility at corporate level also triggers, almost invariably, a refusal of the corresponding input VAT deduction.
As regards VAT, the licensing of rights over a trademark constitutes a taxable supply of services. Articles 256 and 256 A of the CGI provide that the licensing of an intangible asset carried out for consideration by a taxable person is subject to VAT at the standard rate of 20%. The licensor may, however, benefit from the small business exemption (franchise en base) under Article 293 B of the CGI if his annual turnover does not exceed EUR 37,500 for services, with an immediate triggering threshold of EUR 41,250 (2026 thresholds). In that case, invoices must bear the statement "TVA non applicable — art. 293 B du CGI". Where the thresholds are exceeded, the VAT collected by the licensor is exactly offset by the input VAT deductible by the licensee company, so that the net impact is reduced to a cash-flow timing difference of a few weeks depending on the respective filing periods. VAT is therefore fiscally neutral for all parties to the licensing arrangement.
III. Disposal and transfer of the trademark: planning the exit
A. Capital gain on disposal under the non-professional BIC regime: an aggregate rate of 31.4%
A trade mark registered in the director's name and exploited within a non-professional BIC activity constitutes a non-depreciable fixed asset. Its disposal is governed by the BIC capital gains rules under Article 39 duodecies of the CGI. Where the holding period exceeds two years — which is the case in the vast majority of licensing schemes, as the mark is typically registered several years before any contemplated sale — the gain qualifies as a long-term capital gain. It is then taxed at the flat rate of 12.8% for income tax purposes (the prélèvement forfaitaire unique, or "flat tax"), plus social levies at 18.6%, yielding an effective aggregate rate of 31.4%. The taxpayer retains the option to elect the progressive income tax scale if that proves more favourable in light of his personal circumstances.
Several points of vigilance deserve emphasis. First, trade marks fall outside the scope of Article 39 terdecies of the CGI, which reserves the preferential 10% rate for patents, utility certificates, plant variety rights, protected software and patentable inventions. The 12.8% rate is therefore the applicable standard rate, with no special regime. Second, where the mark was created by the director and registered at no cost, the acquisition price is nil, meaning that the entire sale price constitutes a taxable gain. Third, the exemptions under Article 151 septies (small enterprises) and Article 238 quindecies (transfer of a complete branch of activity) are reserved for professional activities or for the transfer of a standalone business; a mark exploited on a non-professional basis does not qualify.
The sale of the mark to the licensee company itself is a frequent scenario, particularly in the context of business transfers. The sale price must correspond to the market value of the mark, as established by an independent valuation report. A price below market value exposes the parties to reclassification as a deemed gift (libéralité) with reintegration of the shortfall into the company's taxable income. A price above market value exposes the director to reclassification of the excess as a disguised distribution under Article 111(c). The acquired mark will be recorded as a fixed asset on the company's balance sheet and may, depending on the circumstances, be amortised if its useful life is limited. The transaction also constitutes a related-party agreement (convention réglementée) subject to the approval formalities prescribed by company law.
B. Contribution to a holding company and gift: alternatives subject to constraints
Contributing the mark to a holding company can, in certain configurations, organise the ownership and exploitation of the asset within a tax-optimised framework. However, the roll-over relief mechanism under Article 151 octies of the CGI, which defers taxation of the gain arising on the contribution of business assets to a company, is reserved for professional activities. Under a non-professional BIC regime, the contribution triggers in principle an immediate charge to tax on the gain at the applicable rate of 31.4%. A prior conversion to professional BIC status could theoretically unlock the roll-over, but this transformation in fiscal status carries the risks of royalty reclassification examined in Part II, together with the associated social-charge consequences. Our analysis leads us to recommend the utmost caution in resorting to this mechanism.
A gift of the mark provides a distinct transmission route. A gratuitous transfer, including of the bare ownership (nue-propriété) alone, does not trigger a capital gains charge in the donor's hands. It is subject to gift tax (droits de mutation à titre gratuit) computed on the market value of the mark at the date of the gift, after application of the relevant allowances by reference to the degree of kinship — notably the EUR 100,000 allowance between parent and child, renewable every fifteen years. This strategy can prove worthwhile in the context of estate planning, enabling the director to transfer an intangible asset whose valuation is controlled and documented. It has the additional advantage of resetting the tax base for the donee, who acquires the mark at its market value on the date of the gift, thereby establishing a new fiscal cost basis.
C. Practical recommendations: structuring the arrangement for lasting effectiveness
Securing a trademark licensing arrangement requires a methodical, documented and forward-looking approach. The INPI registration must cover the goods and services classes precisely matching the licensee's activity. Where the filing takes place after the company has already been using the mark — the most common scenario in practice — it is essential to formalise a retrospective acknowledgement of prior use between the director and the company, to update the company's entry in the Trade and Companies Register to reflect the sign corresponding to the licensed mark, and to commission an independent valuation in accordance with ISO 10668 and ISO 20671 at the time of registration. In the most sensitive cases — a long-established mark, a high royalty, a strong community of interests between licensor and licensee — the advance ruling procedure (rescrit fiscal) under Article L. 64 B of the LPF enables the taxpayer to obtain a binding position from the tax authority, with protection against abuse-of-law proceedings.
The licence agreement must be drafted with rigour to serve as the evidentiary backbone of the arrangement. The royalty should be fixed — expressed as a flat annual amount determined by reference to the independent valuation — and not indexed to the licensee's turnover, profit or any other performance metric. This fixed structure eliminates the reclassification risk under the Casino Guichard and Lancaster case law. The agreement should set out the reciprocal obligations of the parties — a non-compete undertaking from the licensor, an exploitation obligation on the licensee, termination provisions — as well as the terms for periodic revision of the royalty on the basis of updated valuations. As a related-party agreement, the licence must be submitted for approval at the general meeting of shareholders.
Finally, ongoing monitoring is as important as the initial structuring. The royalty should be reviewed periodically in light of changes in the mark's value, supported by regular valuations. The director's remuneration from the company must not be reduced concurrently with the introduction of the royalties, lest the tax authority perceive a mere transfer of compensation devoid of economic substance. The multiplication of licensing arrangements across multiple companies by the same licensor can constitute a signal of professionalism that brings the activity closer to the first Casino Guichard criterion (material and human resources), and should be approached with caution. The licensor's bearing of the INPI registration and renewal costs — rather than the licensee company — reinforces the coherence of the scheme by demonstrating that the licensor assumes the expenses inherent in the ownership of his intangible asset.
Conclusion
Trademark licensing by a director to his own company is a wealth-structuring tool whose fiscal merit is genuine — micro-BIC regime with a 50% deduction, social charges limited to 18.6% on investment income, deductibility of the royalty at corporate level — but whose implementation demands a technical rigour that the apparent simplicity of the scheme tends to obscure. Recent case law, from the 2015 Casino Guichard ruling to the 2024 Lancaster decision, has progressively refined the reclassification criteria, imposing on proportional royalties a social and fiscal risk that is now clearly identified. The exit from the scheme — whether by sale, contribution or gift — is likewise governed by precise rules whose neglect can generate unforeseen tax charges.
Our analysis of these jurisprudential and legislative developments leads us to a firm conviction: a trademark licensing arrangement is not an off-the-shelf tax-optimisation product. It is a wealth-structuring tool which, properly calibrated — fixed royalty grounded in an independent valuation, comprehensive evidentiary documentation, ongoing monitoring — delivers a significant and entirely lawful fiscal and social advantage. Poorly structured, however, it exposes the taxpayer to a cumulation of reassessments (denial of deductibility at corporate level, reclassification as disguised distributions, 40% penalties, TNS social contributions) whose cost vastly exceeds the saving originally contemplated.
Our recommendation is clear: every trademark licensing arrangement must rest on a fixed royalty, an independent valuation compliant with ISO 10668 and ISO 20671, a formal licence agreement approved at a general meeting, and regular actuarial review. These precautions are not mere best practice; they are the condition of the fiscal and social validity of the entire scheme.
Frequently Asked Questions
Can a director register his company's trademark in his own name and collect royalties?
Yes, provided the INPI registration is filed in the director's personal name and the mark constitutes a distinctive sign genuinely created by him. The licensing arrangement takes the form of a licence agreement between the director-licensor and the licensee company, providing for the payment of a royalty in return for the right to exploit the mark. This agreement is a related-party transaction subject to approval at the shareholders' general meeting. The royalty must be supported by an independent valuation and correspond to what an arm's-length third party would have agreed to pay for a comparable right.
Are trademark royalties subject to French self-employed (TNS) social contributions?
Not necessarily. Where the royalty is fixed and the licensing activity is classified as non-professional BIC, the royalties are subject only to social levies on investment income at an aggregate rate of 18.6%, outside the TNS contributions framework. However, if the royalty is proportional to the licensee's turnover or profit, recent case law (CAA Paris, 15 November 2024, Lancaster) treats the income as professional, potentially subject to TNS contributions at an effective rate of 40% to 45% for a majority SARL manager.
What is the overall tax rate on trademark royalties for a director under the micro-BIC regime?
Under the micro-BIC regime, the director benefits from a 50% flat-rate deduction on his royalties (threshold: EUR 83,600 annual turnover for 2026). The resulting net profit is subject to progressive income tax. Social levies amount to 18.6% of the net royalties. For a taxpayer in the middle income tax brackets, the effective marginal rate (income tax plus social charges) typically ranges between 25% and 35% of gross royalties — materially lower than the combined fiscal and social burden on director's remuneration or dividends.
What are the main tax risks in a trademark licensing audit?
The principal risks are: denial of the royalty's deductibility at corporate level (if genuine consideration or a reasonable amount is not demonstrated), reclassification of the sums paid as disguised distributions under Article 111(c) of the CGI (taxable as investment income with a 40% penalty), abuse of law or "mini" abuse of law where the retroactive filing was driven exclusively or primarily by tax considerations, and reclassification as professional BIC entailing TNS social contributions. These risks are cumulative and can result in double taxation of the same cash flow.