US LLC and French Tax: How Courts Decide Between Transparent and Opaque

I. Which factors do French courts disregard when classifying an LLC?

A. A domestic-law classification that precedes the tax treaty

The test. A tax court must first identify, "au regard de l'ensemble des caractéristiques de cette société et du droit qui en régit la constitution et le fonctionnement, le type de société de droit français auquel la société de droit étranger est assimilable" [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 then determine the applicable regime under French tax law (CE, Nov. 24, 2014, No. 363556, Artémis, reported in the Recueil Lebon, para. 4). That holding, consistently restated since, applies to LLCs as to any foreign entity (CE, June 27, 2016, No. 386842; CE, Nov. 12, 2025, No. 502894). In this context, "transparent" (translucide) describes an entity whose profits are taxed directly in the members' hands under Article 8 of the French Tax Code (Code général des impôts, CGI); "opaque" describes an entity liable to French corporate income tax (impôt sur les sociétés, IS) under Article 206 CGI.

The treaty comes second. The court first applies domestic tax law to determine whether, and on what basis, the tax is due, and only then considers whether the tax treaty overrides that law (CE, Feb. 28, 2025, No. 491788, para. 4). The France-US tax treaty of August 31, 1994 allocates taxing rights; it does not, of itself, change how income is characterised under French tax law (CE, No. 363556, para. 8). The clause on income derived through a fiscally transparent entity, in Article 4(3) of the treaty as quoted by the Conseil d'État (CE, No. 491788, para. 3), is therefore not a criterion for classifying the LLC under domestic law.

B. US tax status, legal personality and the nature of the business

US tax status. Under US federal tax law, an LLC that makes no election is, by default, classified as a partnership if it has two or more members and disregarded as an entity separate from its owner if it has one; it may elect to be taxed as a corporation (Treas. Reg. § 301.7701-3(a) and (b)(1)). That classification is irrelevant under French law. The Conseil d'État reversed a court that had relied "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] to hold that an LLC was not liable to corporate tax (CE, June 27, 2016, No. 386842, para. 4). It had already held that a court may disregard the fact that a general partnership is transparent for Delaware tax purposes (CE, No. 363556, para. 5). In Carmejane, the LLC filed US partnership returns (CAA Marseille, Mar. 17, 2022, No. 19MA05309, para. 14), yet the Conseil d'État treated it as a French simplified joint-stock company (société par actions simplifiée, SAS), without mentioning that status. The check-the-box election is therefore neither evidence of transparency when absent nor evidence of opacity when made.

Legal personality. The general partnership at issue in Artémis had legal personality separate from its partners, yet it was treated as an Article 8 partnership (CE, No. 363556, para. 5). The LLC's legal personality does not determine its classification.

Civil or commercial object, and the absence of an equivalent form. In deciding whether a foreign company is comparable to a French joint-stock company, partnership limited by shares or private limited company (société à responsabilité limitée, SARL), the court need not consider whether its object is civil or commercial, since that is not one of the defining features of those forms (CE, July 22, 2022, No. 444942, para. 3; CE, Apr. 8, 2026, No. 499815, para. 4). Nor does it matter that foreign law has no structure comparable to the French société civile (CE, No. 444942, para. 3).

C. Formation formalities, management flexibility and the "hybrid category" label

The approach of the Marseille and Douai courts. The Marseille Administrative Court of Appeal long refused to treat LLCs as corporations, on the grounds that their formation formalities differ from those of French corporations, that they enjoy wider management latitude than SARLs and, in some judgments, that they "constituent une catégorie hybride de sociétés" [are a hybrid category of companies]. It concluded 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; to the same effect, CAA Marseille, Mar. 17, 2022, No. 19MA05309, para. 5, and CAA Marseille, Jan. 30, 2025, No. 23MA02689, para. 6). Its judgment of April 6, 2021 reaches the same result in different words, "nonobstant la circonstance que les associés n'y sont responsables qu'à hauteur de leurs apports" [notwithstanding that the members are liable only up to their contributions] (CAA Marseille, No. 20MA00725, para. 6). The Douai court, for its part, treated Feelware LLC as a partnership because the taxpayers had not shown that the company had the characteristics of an LLC, and 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 are treated as such "dès lors qu'elles n'établissent pas avoir opté aux Etats-Unis pour le régime fiscal des sociétés de capitaux" [unless they show that they elected corporate tax treatment in the United States] (CAA Douai, May 12, 2011, No. 09DA01666).

The reversal. The Conseil d'État set aside the 2025 remand judgment, which rested on formation formalities, management latitude and the personal character of the operating agreement, on the ground that the court had treated the limited liability criterion as ancillary whereas "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" [flexible management or clauses designed to protect the family character of the capital do not preclude treatment as a corporation] (CE, Nov. 12, 2025, No. 502894, para. 5). The "hybrid category" label, which appears only in the 2017 and 2022 appellate judgments, has never been adopted by the Conseil d'État. The treaty-based passage in Feelware, which turns on the absence of a US election, runs counter to the 2016 reversal. None of these appellate decisions can now usefully be relied on to argue that an LLC is transparent.

II. What are the decisive criteria, and what classification grid follows?

A. First criterion: the limitation of the members' liability

The dividing line. According to the Conseil d'État, the limitation of the members' financial liability to their contributions "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" [distinguishes private limited 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] (CE, Nov. 12, 2025, No. 502894, para. 5). It is not one factor among others: it is the criterion separating corporations from partnerships. An LLC whose members are liable for its debts only up to their contributions falls, in principle, into the first category.

How it is assessed. The court examines the extent of liability under the law of the state of formation and under the company's own documents. In Carmejane, it relied on section 15.2 of the operating agreement, under which the members could not be held liable beyond their contributions for the company's debts, save where the law otherwise required (para. 9). For a Delaware corporation, it combined state law, under which shareholders cannot, unless the certificate of incorporation provides otherwise, be held liable for the company's debts except by reason of their own conduct, with the company's certificate of incorporation, which contained no contrary provision (CE, Apr. 2, 2021, No. 427880, paras. 5 and 7). The same analysis led to Spanish and Luxembourg companies whose members were liable only up to their contributions being treated as SARLs (CE, Feb. 2, 2015, No. 370385, para. 3; CE, July 6, 2026, No. 501276, para. 8).

B. Second criterion: the use of freedom of contract, which separates the SAS from the SARL

The principle. Once the LLC is identified as a corporation, the question is whether it is comparable to an SAS or to a SARL. The Conseil d'État answers it by reference to the freedom of contract characteristic of the SAS. 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 found that the English company at issue had adopted model articles, some of which could not govern 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).

Application to LLCs. Carmejane applies that criterion the other way. 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: the LLC was therefore comparable to an SAS (CE, No. 502894, para. 9). Both the freedom offered by state law and the use actually made of it in the operating agreement must therefore be examined. An LLC governed by a bespoke agreement, with specific rules on governance, transfers or the allocation of rights, looks like an SAS. An LLC relying on standard provisions with no tailoring looks like a SARL.

C. The resulting classification grid

Multi-member LLCs. Where the members' liability is limited, the LLC is comparable either to an SAS or to a SARL. Either way, it is liable to corporate tax by reason of its form (CGI, Art. 206(1) and Art. 1655 quinquies), 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. An LLC formed by two spouses is no exception: that was precisely the configuration in Carmejane.

Single-member LLCs. If the sole member is a legal entity, the LLC is liable to corporate tax whether it is treated as an SAS or a SARL, since Article 8, 4° CGI covers only a sole member who is an individual. If the sole member is an individual, everything turns on the second criterion. If the LLC is comparable to an SAS, it is liable to corporate tax. If it is comparable to a SARL, 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; CE, No. 501276, para. 8). That is the only configuration in which an LLC whose members have limited liability can be transparent under French tax law.

Unlimited liability entities. Conversely, a US entity whose partners have unlimited liability, such as a general partnership, is comparable to an Article 8 partnership (CE, No. 363556, para. 5). It is the limitation of liability, not the entity's name or its treatment by the IRS, that determines the classification.

III. What are the tax consequences for a French-resident member, and what should be done?

A. The transparent LLC: direct taxation in the category of the activity

The principle. Where the LLC is comparable to a SARL whose sole member is an individual, that member is automatically liable to income tax on the share of profits corresponding to his or her rights, "déterminés et imposés selon les règles relatives à la catégorie d'imposition correspondant à la nature de son activité" [computed and taxed under the rules of the income category matching the nature of its activity] (CE, July 6, 2026, No. 501276, para. 5). Profit is computed at the level of the company, the tax being payable by the member (CAA Douai, No. 09DA01666). Depending on the activity, it is taxed as industrial and commercial profits (bénéfices industriels et commerciaux, BIC) or non-commercial profits (bénéfices non commerciaux, BNC) (CE, No. 370385, para. 3; CE, No. 489925, para. 10). Profits are taxable for the year in which the company's financial year ends (CE, No. 501276, para. 8). Income from a transparent LLC is not dividend income and falls outside the flat-rate tax.

Rules that do not apply. Article 123 bis CGI, the French anti-deferral rule for individuals, cannot apply to the profits of a foreign company comparable to one of the Article 8 forms, since the member is then taxed under Article 8 itself (CE, No. 501276, para. 5). Nor do the rules on profits deemed distributed by foreign companies and the related withholding tax apply (CE, No. 489925, para. 10).

B. The opaque LLC: a two-level analysis

At the level of the company. 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 common case is an LLC owning a property in France. If it makes the property available rent-free to its members or their relatives, forgoing the rent is an abnormal act of management, even if the arrangement is consistent with its corporate object (CE, July 22, 2022, No. 444942, para. 6; CE, Apr. 8, 2026, No. 499815, paras. 6 and 7). The rental value of the property is then added to its taxable profit.

At the level of the 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)). The 40% allowance is reserved for distributions by companies liable to corporate tax or an equivalent tax, or subject to it by election (CGI, Art. 158(3)(2°)); in our view, an LLC treated as transparent in the United States will struggle to meet that condition. Finally, an opaque LLC whose assets are mainly financial and which enjoys a privileged tax regime within the meaning of Article 238 A CGI may fall within Article 123 bis CGI. We discuss these consequences in our analysis of the Carmejane decision.

C. Our recommendations: draft, document, report

Draft with the French consequences in mind. French classification is decided by the Articles of Organization and the operating agreement, not by the election made with the IRS. Three points deserve particular attention: the extent of the members' liability, which determines corporate classification; the use made of freedom of contract (manager's powers, transfer restrictions and pre-emption rights, classes of interests, consequences of a member's death), which points to the SAS; and the number and nature of the members, which determines whether Article 8, 4° CGI can apply. Admitting a second member, even a spouse or child, turns a transparent LLC into one liable to corporate tax. Any amendment to the operating agreement should be preceded by an analysis of its French tax effects.

Document the classification adopted. For each open tax year, the member should keep the constitutional documents and their amendments, together with the version of the state statute then in force. Courts rely on these documents, and the burden of proof may lie with the taxpayer, particularly where the assessment was made on an ex officio basis (CE, No. 502894, para. 14). US tax returns alone do not establish which expenses are deductible in France (para. 16).

Report comprehensively. An individual resident in France must report accounts opened, held, used or closed abroad (CGI, Art. 1649 A, second paragraph). Failure to do so carries a fine of €1,500 per unreported account, 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 on the tax due (CGI, Art. 1728(1)(c)), a penalty the Douai court applied to the member of Feelware LLC, which had never registered in France nor reported its profits there.