Limited liability makes a US LLC a corporation for French tax purposes, whatever its classification by the IRS. What the Conseil d'État actually held.
French tax residents who own an interest in a US Limited Liability Company (LLC) are routinely told that the entity is "transparent". In the United States it usually is: absent an election, a domestic LLC with two or more members is classified as a partnership, and a single-member LLC is disregarded as an entity separate from its owner (Treas. Reg. § 301.7701-3(b)(1)). It is tempting to assume that France follows suit. That assumption is a methodological error which the Conseil d'État, France's supreme administrative court, has already censured, and which its Carmejane LLC decision of November 12, 2025 now makes very difficult to sustain.
The stakes are high. If the LLC is treated as a partnership-type entity under Article 8 of the French Tax Code (Code général des impôts, CGI), its French-resident member is taxed directly on a share of its profits. If it is treated as a corporation liable to French corporate income tax (impôt sur les sociétés, IS), the member is taxed only on distributions, while the LLC itself may become liable to French corporate tax. Where the LLC owns real estate in France made available rent-free to its members or their relatives, the classification also determines whether a notional rent is taxed. The question is therefore twofold: what test do French tax courts apply to classify a US LLC, and what role does Carmejane assign to the limited liability of its members?
We first explain that classifying an LLC is a matter of French domestic law, on which US tax treatment has no bearing (I). We then analyse what Carmejane actually decides, on the basis of the text of the decision (II). Finally, we set out the practical consequences for French-resident LLC members (III).
I. How do French courts classify a US LLC? A domestic-law exercise unaffected by US tax treatment
A. A two-step test laid down in Artémis
The governing principle. Since Artémis (CE, Nov. 24, 2014, No. 363556, reported in the Recueil Lebon), a tax court dealing with a transaction that involves a foreign-law company must first identify, "au regard de l'ensemble des caractéristiques de cette société et du droit qui en régit la constitution et le fonctionnement" [having regard to all the characteristics of that company and to the law governing its formation and operation], the type of French company to which the foreign company is comparable, and only then determine the applicable regime under French tax law (para. 4). That holding has been restated, in identical or near-identical terms, in every subsequent decision on the subject: a Spanish SRL (CE, Feb. 2, 2015, No. 370385), a Nevada LLC (CE, June 27, 2016, No. 386842), a Delaware corporation (CE, Apr. 2, 2021, No. 427880), a Swiss company (CE, July 22, 2022, No. 444942), US partnerships (CE, Feb. 28, 2025, No. 491788), an English private limited company (CE, July 25, 2025, No. 489925), the California LLC in Carmejane (CE, Nov. 12, 2025, No. 502894), another English company (CE, Apr. 8, 2026, No. 499815) and Luxembourg SARLs (CE, July 6, 2026, No. 501276).
Domestic classification comes before the treaty. The court first applies domestic tax law to determine whether the tax was validly assessed and on what basis; only then does it compare that classification with the treaty to decide whether the treaty overrides domestic law (CE, No. 491788, para. 4). In that case, the Conseil d'État treated as superfluous the treaty reasoning of a lower court where the assessment rested on the wrong domestic basis (para. 9). Artémis had already held that Article 7(4) of the France-US tax treaty of August 31, 1994 allocates taxing rights but does not mean that income received by a partnership must be treated as received directly by its partners for French domestic purposes (para. 8). It follows that the treaty clause on income derived through a fiscally transparent entity, in Article 4(3) as quoted by the Conseil d'État (CE, No. 491788, para. 3), does not bind the court when classifying the LLC under domestic law.
B. The LLC's US tax status is irrelevant
The 2016 reversal. In Emerald Shores LLC, the Marseille Administrative Court of Appeal had found that, under US law and absent an election, LLCs are taxed as partnerships, and concluded that the company could not be liable to French corporate tax by reason of its legal form. The Conseil d'État held that, by relying "sur le régime fiscal applicable aux Etats-Unis aux limited liability companies" [on the tax regime applicable to limited liability companies in the United States] and failing to draw the consequences of its own findings on their legal regime, the court had erred in law (CE, June 27, 2016, No. 386842, para. 4). The lesson is unambiguous: classification turns on the entity's legal features, not on its tax treatment in the state of formation.
Foreign tax transparency and legal personality are irrelevant. Artémis had already held that a court does not err in law by disregarding the fact that a Delaware general partnership is transparent for Delaware tax purposes (para. 5). In the same case, the partnership had separate legal personality and was nevertheless treated as a partnership-type entity under Article 8 CGI. Neither US tax transparency nor legal personality is therefore a classification criterion. In practice, whether or not an entity classification election (the "check-the-box" election on IRS Form 8832) has been filed is of no significance to a French court. The only election that matters under French law is one made in France: the Conseil d'État refers to an election "en faveur de l'assujettissement en France à l'impôt sur les sociétés" [to be subject to corporate tax in France] (CE, No. 370385, para. 3).
C. Before 2025: hesitant and often misread appellate case law
Feelware. The Douai Administrative Court of Appeal treated as a partnership a Massachusetts LLC formed by two individuals in equal shares, with no share capital and no activity in the United States (CAA Douai, May 12, 2011, No. 09DA01666). The decisive ground was that the taxpayers merely relied on Massachusetts LLC law without establishing that the company actually had the characteristics of an LLC. The court then added, in a passage introduced by "d'ailleurs" [moreover], that "au sens des stipulations de la convention bilatérale franco-américaine du 31 août 1994 et pour l'application des articles 4 et 7 de cette convention" [within the meaning of the France-US treaty of August 31, 1994 and for the purposes of its Articles 4 and 7], LLCs fall among partnerships and similar transparent entities and are treated as partnerships under Article 8 CGI, unless they show that they elected corporate tax treatment in the United States. That superfluous ground, which reasons from US tax status and the treaty, is inconsistent with the test set out above and can no longer support a transparency position.
Emerald Shores on remand. On remand after the 2016 reversal, the Marseille court held that LLCs "constituent une catégorie hybride de sociétés" [are a hybrid category of companies], that their formation formalities differ from those of French corporations, that they enjoy wider management latitude, and that "la seule circonstance que la responsabilité des associés soit limitée à proportion de leur participation ne suffit pas, par suite, à les assimiler à des sociétés à responsabilité limitée françaises" [the mere fact that the members' liability is limited in proportion to their interest is therefore not sufficient to treat them as French limited liability companies] (CAA Marseille, Feb. 2, 2017, No. 16MA02619, para. 4). It ruled to the same effect for later years (CAA Marseille, Apr. 6, 2021, No. 20MA00725, para. 6). In both cases, however, the LLC was held liable to corporate tax because making the villa available rent-free to its majority member was a profit-making operation under Article 206(1) CGI. These decisions were never protective precedents for taxpayers.
The profit-making route narrows. In the first round of the Carmejane litigation, the Conseil d'État held that a company making real estate available free of charge to its member's parents as their main residence "ne saurait caractériser, par elle-même, une activité lucrative" [cannot, in itself, amount to a profit-making activity] (CE, Nov. 13, 2023, No. 465852, para. 4). In our view, that ruling considerably narrowed the approach taken by the Marseille court in Emerald Shores. Once corporate tax could no longer easily rest on the profit-making nature of the activity, the question of legal form became decisive. That is the question Carmejane resolves.
II. What does the Carmejane LLC decision actually hold?
A. The facts and a four-stage procedural history
The facts. Carmejane LLC is a limited liability company with its registered office in California, governed by an operating agreement dated July 8, 2001 and established under California law. It was formed by two individuals holding 50.5% and 49.5% of its interests respectively. It owns real estate in the Vaucluse département, made available rent-free to the parents of one member, who lived there as their main residence, together with a house that the parents allocated to their employee. The French tax authorities assessed the company to corporate tax for 2011 and 2012 on the rent it had forgone, the waiver being, as was not disputed, inconsistent with normal management. The assessments were made on an ex officio basis because the company had obstructed the tax audit (LPF, Art. L. 74); the penalty under Article 1732 CGI was withdrawn during the proceedings.
The procedural history. The Nîmes Administrative Tribunal dismissed the company's claim (judgment of October 4, 2019). The Marseille Administrative Court of Appeal dismissed its appeal, holding both that the LLC could not be treated as a French corporation and that it carried on a profit-making operation (CAA Marseille, Mar. 17, 2022, No. 19MA05309). The Conseil d'État set that judgment aside on the profit-making issue alone, noting that the finding on corporate form rested on "motifs non contestés en cassation" [grounds not challenged on appeal] (CE, Nov. 13, 2023, No. 465852, para. 4). On remand, the court discharged the assessments, holding again that the LLC was not comparable to a French corporation, since the mere limitation of the members' liability was "ne suffisant pas" [not sufficient] to treat it as a SARL, and that it carried on no profit-making activity (CAA Marseille, Jan. 30, 2025, No. 23MA02689, paras. 6 and 8). On a second appeal, the Conseil d'État set that judgment aside and decided the case on the merits (CE, 8th and 3rd chambers combined, Nov. 12, 2025, No. 502894, reported in the Tables). The operative part of the decision refers to a judgment "of July 30, 2025"; this is a clerical error, as the judgment under appeal, identified in the recitals and the reasoning, is that of January 30, 2025.
The LLC's US tax status. The 2022 judgment notes that the company filed "déclarations n° 1065 souscrites aux Etats-Unis" [Form 1065 returns filed in the United States] (CAA Marseille, No. 19MA05309, para. 14). Form 1065 being the US return of partnership income, everything indicates that the LLC was classified as a partnership in the United States, which is the default classification for a two-member entity. The Conseil d'État, which refers only to the company's US tax returns (para. 16), gave that status no weight in the classification. For French-resident LLC members, this is the most concrete lesson of the decision.
B. The error of law: limited liability is not an ancillary criterion
The ground for reversal. The Conseil d'État held that the court of appeal erred in law "en regardant comme accessoire, pour déterminer à quelle forme de société de droit français une entité étrangère est assimilable aux fins d'identifier le régime fiscal devant être appliqué à ses bénéfices, le critère de la limitation de la responsabilité financière des associés à concurrence de leurs apports, alors que l'existence d'une souplesse de gestion ou de clauses statutaires visant à permettre de protéger le caractère familial du capital n'excluent pas l'assimilation à une société de capitaux, et qu'à l'inverse, la limitation de la responsabilité financière des associés à concurrence de leurs apports distingue les sociétés à responsabilité limitée, les sociétés anonymes, les sociétés par actions simplifiées et, s'agissant de leurs associés commanditaires, les sociétés en commandite par actions des formes sociales mentionnées à l'article 8 du code général des impôts" [by treating as ancillary, in determining the French form to which a foreign entity is comparable for the purpose of identifying the tax regime applicable to its profits, the criterion of the limitation of the members' financial liability to their contributions, whereas flexible management or clauses designed to protect the family character of the capital do not preclude treatment as a corporation and, conversely, the limitation of the members' financial liability to their contributions distinguishes limited liability companies, public limited companies, simplified joint-stock companies and, as regards limited partners, partnerships limited by shares from the forms of company referred to in Article 8 CGI]. The court had, moreover, failed to specify the French form to which the LLC was comparable (para. 5).
The scope of the holding. The paragraph contains two propositions. The first is negative: flexible management and clauses protecting the family character of the capital do not preclude treatment as a corporation. The reasoning of the court of appeal, based on formation formalities, management latitude and the personal character of the operating agreement (para. 4), is thereby rejected. The second is positive: limitation of the members' liability to their contributions is the feature that separates corporations from the partnership-type entities of Article 8 CGI. The Conseil d'État does not treat that criterion as one factor to be weighed when the evidence is evenly balanced; it treats it as the dividing line between the two categories of French tax law. The decision contains no reference to any "hybridity" of LLCs, nor to the Feelware or Emerald Shores appellate decisions. Finally, the court is criticised for not identifying the French form to which the LLC was comparable: a negative classification does not discharge the court's duty.
C. The decision on the merits: a simplified joint-stock company
The facts relied on. Deciding the case on the merits, the Conseil d'État noted that the company had been formed by its two members "sans que son terme soit affecté par leur éventuel décès" [without its duration being affected by their possible death]; that under section 15.2 of the operating agreement the members could not be held personally liable beyond their capital contributions for the company's debts, save where the law otherwise required; and that California law gives LLC members "une grande liberté dans la détermination de clauses statutaires essentielles" [wide freedom in setting essential provisions of the articles], which had been used as regards the manager's powers and the protection of the family character of the capital, in particular through a right of first refusal for the remaining members. It concluded that the company was comparable to a French société par actions simplifiée (SAS, simplified joint-stock company) (para. 9).
The tax consequence. The company was therefore liable to corporate tax by reason of its legal form, under Article 206(1) and Article 1655 quinquies CGI, "sans qu'il soit besoin d'examiner la nature et le caractère lucratif de son activité" [without any need to examine the nature and profit-making character of its activity] (para. 10). The Conseil d'État then rejected the procedural objections and held that the company, which bore the burden of proof, had not shown that the assessments were excessive, its US returns being insufficient to establish the nature and deductibility of the expenses claimed (paras. 11 to 16). The decision is consistent with earlier case law: a Delaware corporation whose shareholders are not liable for its debts was treated as an SAS (CE, No. 427880, para. 7), and a Swiss company whose shareholder was liable only up to its contribution was treated as a société anonyme, regardless of the civil nature of its object or the absence under Swiss law of any form comparable to the French société civile (CE, No. 444942, paras. 3 and 4).
III. What are the consequences for French-resident LLC members?
A. What the decision leaves open: SAS or SARL, which is decisive for single-member LLCs
The second criterion: freedom of contract in the articles. Limited liability separates corporations from Article 8 entities. It does not say whether the LLC is comparable to an SAS or to a société à responsabilité limitée (SARL, private limited company). For that second step, the Conseil d'État looks to the freedom of contract characteristic of the SAS. Regarding a single-member English private limited company, it held that the absence of preference shares cannot be the distinguishing factor between the two forms, that criterion being "au demeurant inopérant lorsque le capital est détenu par une seule personne" [in any event irrelevant where the capital is held by a single person] (CE, July 25, 2025, No. 489925, para. 7). Deciding the merits, it noted that the company had adopted model articles, some of them unsuited to its single-member situation, which showed that it "n'a pas été constituée à l'aune de la liberté statutaire caractéristique des sociétés par actions simplifiées de droit français" [was not formed in the light of the freedom of contract characteristic of French SASs]; it was therefore comparable to a SARL (para. 10). Carmejane applies the same test the other way: the use made of freedom of contract leads to the SAS (para. 9).
The single individual member. This distinction is decisive where the LLC has only one member. If it is comparable to a SARL whose sole member is an individual, it falls automatically within Article 8, 4° CGI, unless an election for corporate tax is made in France (CGI, Art. 206(3)(e); CE, No. 370385, para. 3). The member is then taxed in the income category matching the company's activity, and Article 123 bis CGI (the French anti-deferral rule for individuals) does not apply (CE, July 6, 2026, No. 501276, paras. 5 and 8). Nor do the rules on profits deemed distributed by foreign companies (CE, No. 489925, para. 10). If it is comparable to an SAS, it is liable to corporate tax. Where the sole member is a legal entity, or where the LLC has several members with limited liability, treatment as either a SARL or an SAS leads to corporate tax (CGI, Art. 206(1)), subject to the statutory elections for partnership treatment (CGI, Art. 8, 3° and 6°), whose availability to a foreign entity has not, to our knowledge, been decided by the courts.
B. The consequences of corporate classification
At the level of the LLC. French corporate tax reaches the LLC only on profits from businesses carried on in France and profits allocated to France by a tax treaty (CGI, Art. 209(I)). The most exposed situation is that of LLCs owning French real estate made available rent-free to their members or their relatives. For a corporation, forgoing income for the benefit of its members is not made normal by being consistent with the corporate object, nor offset by fulfilling that object (CE, No. 444942, para. 6; CE, Apr. 8, 2026, No. 499815, paras. 6 and 7). The authorities may then add the rental value of the property to taxable profit, as in Carmejane itself.
At the level of the French-resident member. Distributions are investment income subject to the 12.8% flat-rate income tax (prélèvement forfaitaire unique, PFU) (CGI, Art. 200 A(1)(B)(1°)), plus social levies, including the general social contribution (contribution sociale généralisée, CSG) at 10.6% (Social Security Code, Art. L. 136-8(I)(2°), as applicable to income received from 2026), or, on an overall election, to the progressive scale (CGI, Art. 200 A(2)). In our view, the 40% allowance will often be unavailable: it is reserved for distributions by companies "passibles de l'impôt sur les sociétés ou d'un impôt équivalent ou soumises sur option à cet impôt" [liable to corporate tax or an equivalent tax, or subject to it by election] (CGI, Art. 158(3)(2°)), a condition that an LLC treated as transparent in the United States will struggle to meet. For the same reason, the treaty credit for dividends, equal to the tax paid in the United States (France-US treaty, Art. 24(1)(a)(iii), as quoted in CE, No. 491788, para. 3), may have nothing to apply to. Finally, if the LLC mainly holds securities, receivables or deposits and enjoys a privileged tax regime within the meaning of Article 238 A CGI, Article 123 bis CGI, whose conditions the Conseil d'État restated (CE, No. 501276, para. 2), must be considered.
C. Our practical recommendations
Review the constitutional documents, not the US tax status. The review must focus on the Articles of Organization and the operating agreement: the limitation of liability clause; the extent to which freedom of contract has actually been used (manager's powers, transfer restrictions, pre-emption rights, classes of interests, consequences of a member's death); and, conversely, any reliance on standard provisions ill-suited to the company's situation. The number and nature of members must be checked for each year. Partnership or disregarded-entity status in the United States, and whether or not Form 8832 was filed, should no longer be used as classification arguments in France.
Deal with past years and secure reporting. Where an LLC has been reported as transparent although its features point to an SAS, or where a multi-member LLC has been reported as transparent, open tax years should be reviewed and, where appropriate, corrected, particularly where the company holds French real estate. Regardless of classification, an individual resident in France must report accounts opened, held, used or closed abroad (CGI, Art. 1649 A, second paragraph), failing which a fine of €1,500 per unreported account applies, increased to €10,000 where the obligation concerns a state or territory that has not concluded with France an administrative assistance agreement giving access to banking information (CGI, Art. 1736(IV)(2)). The discovery of an undisclosed activity (activité occulte) carries an 80% penalty (CGI, Art. 1728(1)(c)), which was applied in Feelware.
Conclusion
Carmejane LLC does not create a new hierarchy of criteria reserved for "hybrid" situations. Building on Artémis and the 2016 reversal in Emerald Shores, it confirms that classifying an LLC is a domestic-law exercise based on its legal regime, and it identifies the limitation of the members' liability as the feature that separates corporations from Article 8 entities. Flexible management, formation formalities and US tax status cannot defeat that classification.
Our view is that a US LLC whose members are liable for its debts only up to their contributions must now be presumed, for French tax purposes, to be comparable to a corporation. Transparency becomes the exception. It can be argued only for a single-member LLC owned by an individual, formed without using the freedom of contract characteristic of the SAS, and with no election for corporate tax made in France.
Our recommendation is clear: every French tax resident holding an interest in an LLC should have its constitutional documents reviewed before filing the next returns, as a priority where the company owns property in France. The cost of that review bears no comparison with a corporate tax reassessment with late-payment interest, or with distributions being taxed without the 40% allowance.
Frequently Asked Questions
Is my US LLC subject to French corporate tax since the Carmejane decision?
Not automatically, but it is now the starting assumption where its members' liability is limited to their contributions. On November 12, 2025, the Conseil d'État held that such limitation distinguishes corporations from the partnership-type entities of Article 8 of the French Tax Code, and treated the LLC at issue as an SAS liable to corporate tax. A multi-member LLC is therefore liable to corporate tax whether it is treated as an SAS or a SARL. French corporate tax, however, reaches the LLC only on profits taxable in France, such as income from French real estate.
Does it matter to the French tax authorities that my LLC is transparent in the United States?
No. Since 2016, the Conseil d'État has held that a court errs in law when it relies on the tax regime applicable to LLCs in the United States to classify them under French law. In Carmejane, the LLC filed US partnership returns and was nevertheless treated as an SAS. Only its legal characteristics and the law governing its formation and operation matter. The only relevant election is an election for corporate tax made in France.
Can a single-member LLC still be transparent for French tax purposes?
Yes, but within narrow limits. The sole member must be an individual and the LLC must be comparable to a French SARL rather than an SAS, which the Conseil d'État assesses by reference to freedom of contract: model articles point to the SARL, bespoke provisions to the SAS. In the first case, the member is taxed directly in the income category matching the activity, unless an election for corporate tax is made in France. The analysis must be based on the operating agreement, not on the US tax status.
My LLC owns a house in France that my family uses free of charge: what is the risk?
This is the most exposed situation. If the LLC is comparable to a corporation, making the property available rent-free to its members or their relatives is an abnormal waiver of income, and the tax authorities may subject to corporate tax a rent equal to the property's rental value. That is exactly what the Conseil d'État upheld in Carmejane, as it did in cases involving Swiss and English companies. The structure and the open tax years should be reviewed without delay.