Trademark royalties between a director and his company under French law: classification, social charges, deductibility and exit, updated for the Conseil d'État ruling of 9 October 2026
A business owner registers with the French Patent and Trademark Office (INPI), in his own name, the word mark under which his company has been trading for years. He then grants that same company a licence, in return for which it pays him an annual royalty. The arrangement promises a moderately taxed supplement to the director's income, through the micro-BIC regime and social levies on investment income rather than earned-income contributions. 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 raises a series of connected issues: classification of the income, applicable social charges, deductibility of the royalty for the licensee company, and the treatment of the gain on a sale, a contribution to a holding company or a gift. French case law is moving in two directions that must be read together. On professional status, it exposes royalties pegged to the licensee's results to reclassification as earned income. On deductibility, the Conseil d'État (France's Supreme Administrative Court) ruling of 9 October 2026 strengthens the position of a company that documents the value of what it receives, in particular by reference to market royalty rates.
We first examine the tax classification of the trademark, which governs the entire regime (I). We then analyse the tax and social treatment of royalties during the exploitation phase and their deductibility for the licensee in light of the 9 October 2026 ruling (II). Finally, we address the exit routes: sale, contribution or gift (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
The French General Tax Code (CGI) classifies as non-commercial profits (BNC, bénéfices non commerciaux) the income received by inventors from the sale or licensing of marks for goods or services, manufacturing processes or formulas (CGI, art. 92, 2, 3°). The tax authorities derive from this a fundamental distinction. A manufacturing mark (marque de fabrique) originates in an invention that contributed to the manufacture of goods. A trade mark (marque commerciale), or distribution mark, has no such link with manufacturing. Royalties from the sale or licensing of trade marks are industrial and commercial profits (BIC, bénéfices industriels et commerciaux), whatever the wording of the contract (BOI-BNC-SECT-30-10-30, § 10, 12 Sept. 2012). The Conseil d'État held that this administrative interpretation was lawful (CE, 15 Jan. 1992, No. 120482, published in the Tables).
The test applied by the courts is the link with actual manufacturing. In a case concerning a clothing brand sold by the chairman to the clothing trading company he ran, the Conseil d'État noted that the sale merely transferred the right to use the mark, covered no manufacturing process, specific model or intermediate product, and provided for no involvement of the seller in production. The mark was therefore a trade mark, which deprived the seller of the reduced rate then available to inventors (CE, 27 July 2005, No. 252847, published in the Tables).
The tax consequences are substantial. Only a manufacturing mark originating in an invention qualifies, under BNC, for the 30% flat-rate allowance for invention costs; royalties from trade marks never do (BOI-BNC-SECT-30-10-30, § 10). BIC classification places the licensor in a distinct framework whose attraction lies in the micro-BIC regime and in the non-professional characterisation of the activity. Any initial misclassification affects the whole tax chain, from current royalties to the capital gain on disposal, and may expose the taxpayer to the 40% penalty for deliberate default (CGI, art. 1729, a).
B. The non-industrial director's word mark: a virtually automatic BIC classification
In the vast majority of cases, a director who registers a word mark corresponding to his company's trading name or sign holds a trade mark for tax purposes. The sign, whether the company name, a shop sign, an acronym or the director's surname, is attached to no manufacturing process. The licence simply transfers the right to use the sign in the licensee's commercial or service activities. This applies to wholesalers, retailers, restaurant operators, providers of professional services and, more generally, any director of a service company. BNC classification requires proof that the mark originates in an invention that contributed to the manufacture of the goods, which is exceptional in practice.
BIC classification has several structural consequences. It excludes the licensor from the separate taxation regime for industrial property income, which covers only patents, utility certificates, plant variety certificates, protected software and certain industrial manufacturing processes, and not trademarks (CGI, art. 238). It subjects him to the progressive income tax scale, mitigated by the 50% flat-rate allowance of the micro-BIC regime where the threshold is met. It also governs any subsequent sale, which falls under the general business capital gains rules (CGI, art. 39 duodecies). In our view, this classification must be settled with certainty at registration stage, since any ambiguity weakens the whole arrangement in a tax audit.
C. Valuation and INPI registration: securing the foundations from the outset
Registration with the INPI is the indispensable legal prerequisite to any licence. Ownership of a mark is acquired by registration, which takes effect from the filing date for ten years, renewable indefinitely (French Intellectual Property Code, art. L. 712-1). Protection is territorial; for a business with a European or international reach, an additional filing with the EUIPO or under the Madrid system should be considered. The classes of goods and services covered must match those actually exploited by the licensee, failing which the evidence of genuine consideration under the licence is weakened.
The most common scenario is a filing made after the company has already been using the sign. This is not fatal, but it exposes the arrangement to three risks. The first is abuse of law, where the act could have had no purpose other than avoiding or reducing tax (Tax Procedure Code, LPF, art. L. 64). The second is abuse of law where tax avoidance is the main purpose (LPF, art. L. 64 A), introduced by the Finance Act for 2019 and applicable to acts carried out since 1 January 2020. The third is the abnormal management act (acte anormal de gestion), through which the tax authorities challenge the deductibility of royalties that bring no genuine benefit to the company. In practice, the authorities favour the deductibility ground, which puts evidence at the heart of the arrangement.
An independent valuation of the mark at registration is the cornerstone of tax security. It sets the economically justified royalty and builds an evidentiary record that can be relied on against the tax authorities. ISO 10668:2010 (Brand valuation: Requirements for monetary brand valuation) and ISO 20671-1:2021 (Brand evaluation, Part 1: Principles and fundamentals) provide a recognised methodological framework. The relief-from-royalty method, which estimates the rate an independent third party would have agreed to pay for a comparable sign, is the most widely used for SMEs.
Since the Conseil d'État ruling of 9 October 2026, the valuation should include a study of royalty rates agreed between independent parties. The Court held that a company may validly rely on the fact that the royalty paid is in line with market practice to establish both the existence of consideration and its value (CE, 9 Oct. 2026, No. 491730, SAS Pascal Jolivet). In that case, the company relied on a median royalty rate of 1.71% of its turnover, against a median rate of 5.9% between independent parties. We recommend that the valuation report express the fixed royalty as an equivalent percentage of the turnover generated under the sign and position it within the range of comparables. That percentage is evidence, not a pricing mechanism: the royalty must remain fixed in the contract, for the social security reasons set out below.
II. Exploitation of the trademark: an attractive regime subject to strict conditions
A. Professional or non-professional BIC: the fixed royalty as a shield
The distinction between professional and non-professional BIC is the pivot of the arrangement. An activity is carried on professionally where the taxpayer takes part personally, directly and continuously in the acts necessary for it (CGI, art. 155, IV, 1). In the field of trademark licensing, the Conseil d'État laid down, for business tax purposes, two alternative tests: licensing income derives from a professional activity if the licensor regularly and effectively deploys material and human resources for it, or if he is entitled to take part in the licensee's operations and is remunerated, wholly or partly, by reference to those operations (CE, 9 Nov. 2015, No. 374744, SA Casino Guichard-Perrachon). These rulings were given under Article 1447 of the CGI; their transposition to Article 155, IV is a matter of analysis rather than settled case law, but we expect the tax authorities to draw on them.
The first test, material and human resources, is rarely met by a director licensing a mark to his own company. The licensor usually has no dedicated staff, premises or equipment for managing the mark. The arrangement consists of signing a licence and collecting royalties.
The second test is the critical structuring issue. It combines two cumulative conditions: entitlement to take part in the licensee's operations and remuneration linked to those operations. The first is almost always met where the licensor is the majority or sole shareholder. The Conseil d'État held that holding all or nearly all of the licensees' share capital gave the licensor the right to take part in their operations, and that royalties proportional to their turnover characterised a professional activity (CE, 11 Jan. 2019, No. 405031, SA Casino Guichard-Perrachon, published in the Tables). It is therefore the second condition, indexation of the royalty on the licensee's operations, that must be neutralised.
The Paris Administrative Court of Appeal applied this logic to social contributions. The owner of the mark received from the licensee royalties equal to 2% of its annual turnover excluding VAT and 10% of its net profit before corporate income tax. The court held that, given how they were calculated and the recurrence of the activity over time, these royalties were professional income within the meaning of Article L. 136-3 of the Social Security Code, subject to the contribution on earned income (CAA Paris, 9th ch., 15 Nov. 2024, No. 23PA01115, Lancaster). The outcome deserves emphasis: it was the taxpayers who argued for that classification, and they obtained discharge of the levies on investment income. The flip side is plain: professional royalties fall within the self-employed contributions system.
The tax authorities' VAT guidance adds to this risk of convergence. It states that a trade mark is a business asset by nature, whose licensing and sale can only be a taxable economic activity, to the exclusion of private wealth management (BOI-TVA-CHAMP-10-10-30, § 220, 15 Feb. 2013). That position, specific to VAT, does not settle the social security question, but it gives an argument to anyone seeking to characterise the royalties as professional.
Our recommendation is unambiguous: the royalty must be fixed and based on the intrinsic value of the mark. A flat amount, set by an independent valuation and not indexed to turnover, profit or any other performance indicator of the licensee, neutralises the second test. With neither test met, the licensing activity falls within non-professional BIC. That classification is the condition of the scheme's tax and social attractiveness.
B. Tax and social treatment of royalties: micro-BIC, social levies and the contributions risk
The micro-BIC regime is the default framework for trademark royalties. Where turnover excluding VAT from the licensing activity does not exceed EUR 83,600 in the previous or penultimate calendar year, taxable profit equals receipts less a 50% allowance (CGI, art. 50-0, 1). That profit is added to the household's other income and taxed at the progressive scale. An election for an actual-profit regime must be made within the deadline for filing the income tax return for the year preceding the year to which it applies (CGI, art. 50-0, 4). The actual-profit regime allows deduction of real costs (filing and renewal fees, valuation fees, legal costs) and is worthwhile only where those costs exceed half of the royalties, which is rare in a steady state.
For social charges, the non-professional classification is decisive. Non-professional BIC bear the social levies on investment income, assessed on the net amount used for income tax purposes (Social Security Code, art. L. 136-6, I, f), that is, under micro-BIC, on half of receipts. The aggregate rate is 18.6%: generalised social contribution (CSG) of 10.6% for income taxable from 2026 (Social Security Code, art. L. 136-8, I, 2°), social debt repayment contribution (CRDS) of 0.5% (Ordinance No. 96-50 of 24 Jan. 1996, art. 19) and solidarity levy of 7.5% (CGI, art. 235 ter). CSG is deductible from taxable income of the year of payment up to 6.8 points (CGI, art. 154 quinquies, II). These levies are collected under income tax rules, outside the self-employed (TNS) contributions system.
The subsidiary health contribution deserves attention. Its base expressly includes non-professional BIC, but it is due only by persons whose earned income from professional activity in France falls below a regulatory threshold and who receive no pension, annuity or unemployment benefit (Social Security Code, art. L. 380-2). A director drawing a normal salary from his company is in principle not exposed; a director who replaced his entire salary with the royalty could be.
Reclassification as professional BIC changes the economics entirely. If the royalties are characterised as professional, in particular because they are indexed on the company's results as in Lancaster, they leave the investment-income levies regime for the earned-income regime of the self-employed. For a majority manager (gérant majoritaire) of an SARL, already within the TNS regime, they would in our view be added to his contributions base. In every case, the additional social cost absorbs a substantial part, or all, of the expected benefit.
C. Deductibility for the licensee: the evidentiary framework clarified by the Conseil d'État on 9 October 2026
The royalty paid to the director is a deductible overhead expense for the company (CGI, art. 39, 1, 1°). In its 9 October 2026 ruling, the Conseil d'État restated the two-stage allocation of the burden of proof. The company must first justify the amount of the expense and its deductibility in principle, by producing sufficiently precise evidence of the nature of the expense and of the existence and value of the consideration received. If it does so, it is then for the tax authorities, if they see fit, to prove that the expense is non-deductible by nature, has no consideration, has consideration of no interest to the company, or is excessively remunerated (CE, 9 Oct. 2026, No. 491730, SAS Pascal Jolivet).
This framework has a major practical consequence: the excessive nature of the royalty belongs to the second stage, where the burden lies on the tax authorities. The company does not have to prove at the outset that the amount is not excessive; it must establish the reality of the right granted (an INPI title covering the classes exploited), the benefit it derives (brand awareness, customer loyalty, differentiation) and the value of that benefit. This is where market rates, now accepted by the Conseil d'État, become central. In the case decided, the royalty paid to an individual for the use of his surname as a wine brand had been disallowed by the Administrative Court of Appeal, which dismissed the comparison with rates between independent parties as irrelevant; the Conseil d'État quashed that error of law and remitted the case.
The scope of the ruling must nonetheless be measured. It was given by a single chamber, is not published in the Lebon reports and remits the case to the Versailles Administrative Court of Appeal. Above all, the Conseil d'État did not rule on the other indicators relied on by the court and challenged in the appeal: a royalty set not at a fixed percentage but varying from year to year, the absence of any precise calculation method in the agreement, and a community of interests between the company and the family of the royalty recipient. The tax authorities may still rely on those indicators, as well as on those they commonly raise in practice: no valuation when the contract was signed, disproportion between the royalty and the benefit derived from the sign, no protection of the mark by the licensor, and a time gap between the start of use and the formal licence.
Where deduction is denied, the amounts added back may be taxed in the director-shareholder's hands as deemed distributions, in particular as concealed remuneration and benefits (avantages occultes, CGI, art. 111, c), together, where applicable, with the 40% penalty for deliberate default (CGI, art. 1729, a). The same cash flow is then taxed twice: as a royalty for the licensor and as a distribution.
For VAT purposes, the licensing of rights over a trademark is a taxable supply of services. The licensing of intangible movable property is a supply of services (CGI, art. 256, IV, 1°), and the exploitation of an intangible asset to obtain income on a continuing basis is an economic activity (CGI, art. 256 A). The standard rate of 20% applies (CGI, art. 278). The licensor benefits from the small business exemption (franchise en base) where turnover from services does not exceed EUR 37,500 in the previous calendar year and EUR 41,250 in the current year, the exemption ceasing as soon as the second threshold is exceeded (CGI, art. 293 B, I and II). These CGI provisions are repealed from 1 January 2027 and recodified in the Code of taxes on goods and services (Ordinance No. 2025-1247 of 17 Dec. 2025); references will need updating at that date.
The 9 October 2026 ruling also protects the licensee's right to deduct input VAT. VAT is deductible only where the services are used for the purposes of taxable transactions (CGI, art. 271, II, 1). Where the tax authorities challenge the deduction, following a reassessment procedure whose adjustments the taxpayer has rejected, on the ground that there is no direct link between the service and the consideration paid, the burden of proving that absence lies on them. An abnormally high price is not enough, unless the authorities show that the remuneration was paid, wholly or partly, for purposes other than the taxable transactions. The court may not simply refer back to its assessment of the consideration for corporate income tax purposes; it must examine whether the remuneration was incurred for the needs of the business (CE, 9 Oct. 2026, No. 491730, cited above). Denial of the corporate tax deduction therefore does not, by itself, entail denial of input VAT. Subject to this, VAT remains neutral for the parties: the tax charged by the licensor is deducted by the company, with only a cash-flow timing difference.
III. Sale and transfer of the trademark: planning the exit
A. Capital gain on sale under non-professional BIC: an aggregate rate of 31.4%
A trade mark held by the director and allocated to his licensing activity is a fixed asset. Its sale falls under the business capital gains regime, including where the licensor is taxed under micro-BIC (CGI, art. 50-0, 1). The gain is long-term where the mark has been held for at least two years (CGI, art. 39 duodecies), which is the case in almost every arrangement. The net long-term gain is taxed separately at 12.8% (CGI, art. 39 quindecies, I, 1), plus social levies of 18.6%, an aggregate rate of 31.4%.
Three points require vigilance. First, trademarks fall outside the separate taxation regime for industrial property income (CGI, art. 238), which covers only patents, utility certificates, plant variety certificates, protected software and certain manufacturing processes. Second, where the director created the mark and registered it at no cost, its tax basis is nil or very low, so that the gain essentially equals the sale price. Third, the small business capital gains exemption is reserved for activities carried on professionally (CGI, art. 151 septies, I): a mark exploited on a non-professional basis does not qualify.
A sale of the mark to the licensee company itself is a frequent scenario, particularly on a business transfer. The price must reflect market value, established by an independent valuation report. A price below market value exposes the parties to an adjustment based on market value; a price above it exposes the excess to taxation as a deemed distribution (CGI, art. 111, c). The acquired mark is recorded as a fixed asset of the company. The sale is also a related-party agreement (convention réglementée): in an SAS, the shareholders vote on the report covering agreements with the chairman, a director or a shareholder holding more than 10% of the voting rights, a mere entry in the register of decisions sufficing where there is a sole shareholder (Commercial Code, art. L. 227-10); in an SARL, the general meeting votes on the report, the interested shareholder or manager taking no part in the vote (Commercial Code, art. L. 223-19).
B. Contribution to a holding company and gift: alternatives subject to constraints
Contributing the mark to a holding company can organise ownership of the asset within a wealth-planning structure, but the roll-over relief is difficult to obtain. The relief under Article 151 octies of the CGI requires the contribution, to a company taxed under an actual-profit regime, of a sole proprietorship or a complete branch of activity (CGI, art. 151 octies, I). A contribution of the mark alone does not qualify and triggers immediate taxation of the gain at the aggregate rate of 31.4%. A contribution of the whole licensing activity, mark and licence agreement together, could be considered as the contribution of a sole proprietorship; that reading is unsettled and requires case-by-case analysis, possibly secured by an advance ruling.
Contrary to a widespread belief, a gift of the mark is not neutral for capital gains purposes. A gratuitous transfer of an asset allocated to the activity is in principle a taxable event under the regime of Articles 39 duodecies to 39 quindecies, as confirmed by the deferral available for gratuitous transfers of a sole proprietorship (CGI, art. 41, I). That deferral, which is elective, applies where the transfer covers the sole proprietorship; the deferred gain is permanently exempt if the activity is continued for at least five years (CGI, art. 41, II). Applied to trademark licensing, it would require the transfer of the whole activity, not of the mark alone, and its continuation by the donee; its application to a non-professional licensing activity is unsettled and again calls for case-by-case analysis.
The gift is also subject to gift tax (droits de mutation à titre gratuit) on the market value of the mark. An allowance of EUR 100,000 applies to the share of each child (CGI, art. 779, I), gifts made more than fifteen years earlier being disregarded (CGI, art. 784). This route remains valuable in estate planning, provided the cost of the capital gain is factored in or the Article 41 deferral is secured. The documented valuation of the mark then serves as the basis for both the gift tax and the capital gain.
C. Practical recommendations: structuring the arrangement for lasting effectiveness
Securing a trademark licence requires a methodical, documented and forward-looking approach. The INPI filing must cover the classes matching the licensee's activity. Where the filing is made after the company has started using the sign, the parties should formalise a deed acknowledging the company's prior use, update the company's entry in the Trade and Companies Register to show the sign corresponding to the licensed mark, and commission an independent valuation including a study of rates between independent parties. In sensitive cases (long-established mark, high royalty, strong community of interests), consulting the central tax administration before signing the contract shields the taxpayer from abuse-of-law proceedings if the administration does not reply within six months (LPF, art. L. 64 B).
The evidentiary file must be kept within the company from signature. It is the company that must first produce evidence of the nature of the expense and of the value of what it receives. The file comprises the licence agreement, the valuation report, the market comparables study expressing the royalty as an equivalent percentage of turnover, and the annual record of turnover generated under each licensed sign. It also documents the use of the sign for the needs of the business, which protects the right to deduct input VAT once the licensor is no longer exempt.
The licence agreement must serve as the evidentiary backbone. The royalty should be fixed, expressed as a flat annual amount set by reference to the valuation, and not indexed to turnover, profit or any other performance metric. The calculation clause must be precise and stable from year to year, since a varying rate and the absence of a calculation method are among the indicators the Conseil d'État left open. The agreement should set out the parties' reciprocal obligations (non-compete undertaking from the licensor, exploitation obligation on the licensee, termination terms) and provide for periodic review of the royalty based on updated valuations. It is subject to the related-party procedure applicable to the company's legal form.
Ongoing monitoring matters as much as the initial structuring. The director's salary must remain separate from the royalty and must not be reduced when the royalty is introduced, lest the authorities see a mere transfer of remuneration. Granting licences to several companies may indicate resources bringing the activity closer to the first professional test, and should be approached with caution. Finally, the licensor's bearing of filing, renewal and enforcement costs, rather than the company, shows that he assumes the costs inherent in owning his asset.
Conclusion
Licensing a trade mark by a director to his own company is a structuring tool with genuine merit: micro-BIC with a 50% allowance, social levies on investment income rather than earned-income contributions, and deductibility of the royalty for the company. Its implementation nonetheless requires a technical rigour that the apparent simplicity of the scheme tends to conceal. Case law has set two clear lines. A royalty proportional to results exposes the licensor to reclassification as professional income (Casino Guichard-Perrachon, Lancaster). A fixed royalty, documented by a valuation and by reference to market rates, now benefits from an evidentiary framework favourable to the company, for both corporate income tax and VAT (Pascal Jolivet).
Our firm view is that this arrangement is not an off-the-shelf tax product. Properly calibrated, it delivers a significant and entirely lawful tax and social advantage. Poorly structured, it exposes the taxpayer to cumulative reassessments (add-back of the royalty, taxation as deemed distributions, 40% penalty, earned-income contributions) whose cost far exceeds the saving sought. The exit must be planned with the same rigour, since a gift of the mark is not neutral for capital gains purposes.
Our recommendation is clear: a fixed royalty with a stable calculation clause, an independent valuation including a study of rates between independent parties, an evidentiary file kept within the company from signature, a contract subject to the related-party procedure, and periodic review. Any arrangement in place for several years should be reviewed in light of the 9 October 2026 ruling, starting with a market comparables study.
Frequently asked questions
Can a director register his company's trademark in his own name and collect royalties?
Yes, provided the filing is made in the name of the director as an individual, since ownership of a mark is acquired by registration. The arrangement takes the form of a licence agreement between the director and the company, providing for a royalty in return for the right to use the mark. The agreement is subject to the related-party procedure applicable to the company's legal form. The royalty must be supported by an independent valuation including a comparison with rates agreed between independent parties.
Are trademark royalties subject to French self-employed social contributions?
Not where the royalty is fixed and the licensing activity is non-professional BIC: the royalties then bear only the social levies on investment income, at an aggregate rate of 18.6%. However, a royalty proportional to the company's turnover and profit has been held to be professional income subject to the contribution on earned income (CAA Paris, 15 Nov. 2024, No. 23PA01115, Lancaster). Such a classification brings the royalties within the self-employed contributions system, whose cost absorbs a large part of the expected benefit.
What is the overall tax and social cost of trademark royalties under the micro-BIC regime?
Under micro-BIC, royalties benefit from a 50% allowance, up to annual turnover of EUR 83,600. Income tax and the 18.6% social levies are assessed on the remaining half. Depending on the taxpayer's marginal rate, the overall burden therefore ranges from about 15% to 32% of gross royalties, before the effect of deductible CSG. Combined with the deductibility of the royalty for the company, this burden remains lower than that on a director's salary or a dividend distribution.
Is a trademark royalty in line with market rates deductible for the company?
Consistency with market practice is now admissible evidence of the existence and value of the consideration (CE, 9 Oct. 2026, No. 491730, SAS Pascal Jolivet). The company must produce precise evidence of the nature of the expense and the value of the consideration; it is then for the tax authorities to prove the absence of consideration, its lack of interest or excessive remuneration. The ruling is not published in the Lebon reports and does not address a varying rate or the absence of a precise calculation method. A fixed and stable calculation clause therefore remains essential.
What are the main tax risks in an audit of a trademark licence?
The main risks are the add-back of the royalty to the company's taxable profit, taxation of the amounts paid as deemed distributions in the form of concealed benefits, the 40% penalty for deliberate default and reclassification as professional income subject to earned-income contributions. Abuse of law may be invoked where a retroactive filing is exclusively or mainly tax-driven. However, denial of the corporate tax deduction does not automatically entail denial of input VAT: the authorities must prove the absence of a direct link with taxable transactions, and a high price is not enough.