In a July 6, 2026 decision, the French Conseil d’État applied the Artémis assimilation method to two Luxembourg single-member SARLs.
Because their legal characteristics were comparable to those of a French SARL with a sole individual shareholder, the companies fell within Article 8 of the French Tax Code.
The consequence is significant:
The sole shareholder is taxed in France on the company’s profits for the year in which those profits are earned, without waiting for a dividend distribution.
Article 123 bis of the French Tax Code does not apply when the foreign entity is assimilable to a French entity already falling within Article 8.
For French residents holding foreign companies, the key question is therefore not only where the company is incorporated or taxed, but what French legal entity it most closely resembles.
The Key Question: Can France Tax Foreign Company Profits Before They Are Distributed?
Yes, in certain circumstances.
The July 6, 2026 Conseil d’État decision shows why the absence of a dividend distribution does not necessarily prevent immediate French personal taxation.
Two French taxpayers each owned a Luxembourg single-member limited liability company.
The companies had generated profits.
Those profits had not been distributed to their shareholders.
The French tax authorities attempted to tax them under Article 123 bis of the French Tax Code, an anti-avoidance provision targeting certain interests held by French individuals in foreign entities benefiting from privileged tax regimes.
The Conseil d’État held that Article 123 bis was the wrong legal basis.
However, that did not mean the profits escaped French taxation.
The reason lies in the way French law classifies foreign companies.
The Artémis Method: France Looks Beyond the Foreign Company’s Name
The governing principle comes from the Conseil d’État’s landmark Société Artémis decision of November 24, 2014.
When French tax law must determine the treatment of a foreign entity, the analysis takes place in two stages.
Step 1: Identify the Closest French Legal Equivalent
The foreign entity is examined according to:
- its legal characteristics;
- the law governing its formation;
- the law governing its operation;
- the rights attached to its equity;
- and the liability of its shareholders.
The French tax judge then determines which type of French entity the foreign company most closely resembles.
Step 2: Apply the French Tax Rules Attached to That Equivalent
Once the French equivalent has been identified, the relevant French tax regime is applied.
The foreign company’s name is therefore not decisive.
Its local tax treatment is not decisive either.
The legal characteristics of the entity come first.
Why the Luxembourg Companies Were Treated Like French Single-Member SARLs
The Conseil d’État focused on two characteristics of the Luxembourg companies.
Their capital was divided into shares that were not freely negotiable.
Their sole shareholders were liable for company debts only up to the amount of their contributions.
Those characteristics led the Conseil d’État to assimilate the Luxembourg entities to French limited liability companies with a sole individual shareholder.
That classification changed the entire French tax analysis.
Why Article 8 of the French Tax Code Applied
Article 8 of the French Tax Code provides, among other situations, that the sole individual shareholder of a French SARL falling within its scope is personally subject to income tax on the share of company profits corresponding to that shareholder’s rights.
The Conseil d’État therefore concluded that the Luxembourg companies were subject, by assimilation, to this regime.
The practical consequence is crucial:
The shareholder is taxed when the company earns the profit, not when the money is later distributed.
No dividend is required to trigger that taxation.
This can create a significant cash-flow mismatch.
A taxpayer may owe French income tax even though the relevant profits are still held by the foreign company.
Why Article 123 Bis Was Displaced
Article 123 bis was designed to combat tax avoidance involving French individuals holding interests in certain foreign entities located in low-tax environments and primarily holding financial assets.
The Conseil d’État clarified that this special anti-avoidance mechanism cannot be used when the foreign company is already assimilable to a French entity falling within Article 8.
Why?
Because Article 8 already makes the French shareholder directly taxable on the relevant company profits.
The two regimes therefore do not operate cumulatively in this situation.
Where Article 8 applies through the Artémis assimilation method, Article 123 bis is displaced.
Why the Taxpayers Still Won the Case
This is one of the most interesting aspects of the decision.
The taxpayers succeeded in the litigation, even though the Conseil d’État concluded that the profits were potentially taxable directly in their hands.
The companies had earned the relevant profits during the financial year ending December 31, 2012.
Because Article 8 applied, those profits were taxable for 2012.
The tax authorities had instead relied on Article 123 bis and taxed them in 2013 as deemed distributed income.
The administration therefore had:
- the wrong legal basis;
- and the wrong tax year.
The reassessment failed.
That procedural victory should not obscure the broader lesson of the case.
For future structures, the rule established by the Conseil d’État may produce immediate French taxation even when no cash has been distributed.
Practical Example
Assume a French tax resident owns 100% of a Luxembourg company.
The company earns €300,000 in 2027 and retains the entire amount to finance future investments.
No dividend is paid.
If the company is legally assimilable to a French entity governed by Article 8, the French shareholder may nevertheless be taxed personally on the relevant profit for 2027.
The shareholder may therefore face an income tax liability without receiving the corresponding cash.
This is why the legal classification of a foreign entity must be assessed before looking only at dividend policy or local taxation.
What This Means for French Residents Holding Foreign Companies
The decision creates several practical lessons.
1. No Distribution Does Not Automatically Mean No French Tax
Retaining profits abroad is not sufficient by itself to defer personal taxation.
The French classification of the foreign entity must first be determined.
2. Foreign Tax Status Is Not Enough
A company may be treated one way for tax purposes in Luxembourg and differently when French law determines the relevant French equivalent.
3. Legal Structure Can Drive Personal Taxation
Small differences in:
- shareholder liability;
- transferability of shares;
- governance;
- legal personality;
- or rights attached to the equity
can materially alter the French tax outcome.
4. Cash Flow Must Be Considered
Taxation without distribution can create a liquidity problem for the shareholder.
International structuring should therefore model both:
- the tax liability;
- and the cash actually available to pay it.
Frequently Asked Questions
Are retained profits in a Luxembourg company automatically protected from French personal income tax?
No.
The absence of a dividend does not automatically prevent taxation in France. The tax result depends on how the foreign entity is classified under French law.
What is the Artémis assimilation method?
It is the method developed by the French Conseil d’État for determining how a foreign entity should be treated under French tax law. The judge first identifies the closest French legal equivalent based on the foreign entity’s legal characteristics, then applies the French tax rules attached to that equivalent.
Does the Luxembourg company’s local tax regime determine the French result?
No.
The French assimilation exercise focuses first on the company’s legal characteristics under foreign law rather than simply importing its foreign tax classification.
Why did Article 8 apply in the July 2026 case?
The Luxembourg companies had non-freely negotiable shares and limited shareholder liability. They were therefore assimilated to French SARLs with a sole individual shareholder.
Does Article 123 bis still apply to foreign companies?
Yes.
The decision does not eliminate Article 123 bis. It clarifies that Article 123 bis does not apply where the foreign company is assimilable to a French entity already falling within Article 8.
Can a shareholder be taxed before receiving any cash?
Yes.
Where Article 8 applies, company profits may be taxable directly in the shareholder’s hands for the year in which the company earns them, even without distribution.
Key Takeaway
The July 6, 2026 decision changes the way foreign corporate structures should be analyzed from France.
The first question should not be:
“Has the company distributed a dividend?”
It should be:
“What would this foreign company be if French law had to classify it?”
That answer can determine whether profits remain inside the company or become immediately taxable in the hands of its French shareholder.
For cross-border structures, legal classification is therefore not a secondary compliance question.
It can determine the timing and nature of the tax itself.