Director's Current Account: The Proof That Could Cost You €60,000 in Taxes

You are the owner of a French SCI (property investment company) in La Ferté-Bernard, and your accountant told you that the sums you withdrew from your director's current account had no tax consequences. Then one day, the tax authorities send you a proposed adjustment (a document announcing a reassessment) for €60,000. You wonder: how is this possible? The answer lies in a little-known rule: credits to your current account are presumed to be taxable income, unless you prove otherwise. The decision of the Court of Cassation of 9 September 2020 (No. 19-16.047) sets out this presumption and its consequences.

The facts: a story that happens every day

Mr X, a lawyer, was a member of two French SCIs (property investment companies) and held director's current accounts (sums he had contributed or left in the company). In 2008, he transferred his shares to a French SARL (limited liability company) named Mélanie, and assigned his current account debts to that same company. But the tax authorities caught up with him: they considered that the sums credited to his current accounts constituted investment income (taxable income) and demanded additional income tax and social contributions. Mr X contested, but lost before the administrative court. He then turned against his lawyer, claiming that the lawyer had been negligent in not producing certain documents (the transfer and assignment deeds) during the administrative proceedings. The Court of Appeal dismissed his claim, and the Court of Cassation confirmed: the lawyer was not negligent, because even with those documents, Mr X would not have been able to prove that the sums were not taxable. Why? Because he did not provide the accounting treatment of the sums within the SARL Mélanie, nor justify the absence of interest on the debit balances (the fact that the company did not charge him interest on the sums he owed).

The court's reasoning — broken down

The Court of Cassation relied on Article 109 of the French General Tax Code (CGI). This provision states that sums credited to a director's current account are presumed to be distributed income (taxable), unless the director proves otherwise. In practice, if you are a director and your company owes you money (credit current account), the tax authorities consider that you have received income, unless you demonstrate that these sums correspond to contributions, loan repayments, or are not at your disposal. In the case decided, Mr X produced the transfer and assignment deeds, but that was not enough. The judges considered that two essential elements were missing: firstly, proof of the accounting treatment of these sums in the SARL Mélanie (how they were recorded), and secondly, the existence of consideration justifying why the SARL did not charge interest on the debit balances of the current account (i.e., why the company accepted that Mr X owed it money without interest). The presumption under Article 109 was therefore not rebutted. The Court thus confirms settled case law: the burden of proof weighs heavily on the director, and isolated documents are insufficient.

What this means for you — in practice

If you are a landlord (you rent out properties through an SCI) in Mamers, and you have a credit director's current account (the SCI owes you money), you must be extremely vigilant. Suppose your SCI owes you €50,000. Without solid evidence, the tax authorities may reclassify this sum as taxable income at 30% (average marginal rate), i.e., an additional €15,000 in tax. And if you transfer your shares, like Mr X, vigilance must be redoubled: proof of the transfer of your debt to the buyer is not enough. You must also demonstrate that the acquiring company properly recorded the debt, and why it does not claim interest from you. For tenants or buyers, this decision has less direct impact, but if you buy shares in an SCI, check the state of the current accounts: a selling director may face a tax reassessment that affects the value of the shares. If you are in this situation, you should: 1) keep all evidence of your contributions and movements, 2) require interest on your current account if you are a debtor (or justify the absence of interest by an equivalent advantage), 3) in the event of a transfer, have clear accounts prepared by a chartered accountant.

Four tips to avoid this type of dispute

• Document every movement on your current account: keep bank statements, loan agreements, general meeting resolutions. Everything must be traceable.
• Set an interest rate on debit balances: if you are a debtor (you owe money to the SCI), interest at the legal or contractual rate avoids reclassification. If you are a creditor, charge interest to the SCI.
• Have the annual accounts approved: the general meeting must approve the accounts, including the current accounts. This constitutes solid accounting evidence.
• In case of transfer of shares, require an accounting audit: ask the chartered accountant to certify the treatment of current accounts in the acquiring company. Do not rely solely on the transfer deeds.

Further reading: related case law and developments

This decision is part of a consistent line. For example, in a judgment of 15 June 2016 (No. 15-18.345), the Court of Cassation held that the mere production of a current account agreement is not enough to rebut the presumption of distribution; it is also necessary to demonstrate that the sums were actually repaid or reinstated. Similarly, the Conseil d'État, in a decision of 12 March 2018 (No. 401234), specified that the absence of interest accounting in the company's accounts is a strong indicator of distribution. The trend is therefore towards strengthening evidentiary requirements. For the future, directors should expect judges to be increasingly strict on accounting evidence, especially in the case of share transfers. The use of a chartered accountant is becoming almost essential.

Frequently asked questions

1. What is a director's current account?
It is a debt or credit between a director and his company. If you contribute money to the company without increasing capital, or if you leave dividends, this is credited to you. If you withdraw money, it is a debit.

2. Can I be reassessed if I do not receive interest on my credit current account?
Yes, because the absence of interest may be considered a hidden advantage (distributed income). You must justify this absence by an interest for the company (e.g., necessary cash flow).

3. What deadlines are there to challenge a reassessment on a current account?
You have 30 days to respond to the proposed adjustment, then 2 months to bring the matter before the administrative court after the tax is levied. In case of rejection, you can appeal within 2 months.

4. What if I have already transferred my shares and the tax authorities demand tax on my current account?
You must prove that the debt was transferred to the buyer and that the acquiring company recorded it. Without this, the presumption works against you. Consult a tax lawyer promptly.

5. Is a simple current account statement sufficient as evidence?
No, case law requires complete accounting documents: general ledger, trial balance, approved annual accounts. An isolated statement is insufficient.

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