Non-déductibilité d'une provision pour créances douteuses liée à une avance consentie à une filiale

The facts

On 27 December 2013, the French company SA Groupe Adeo granted an advance of €2,520,000 to its Turkish subsidiary Adeo Maya, in which it held a 90% stake and which had been in financial difficulty for several years.

Four days later, the French company SA Groupe Adeo recorded a provision for doubtful debts corresponding to the amount of the advance thus granted.

This subsidiary had been placed in voluntary liquidation by a decision taken at an extraordinary general meeting in January 2014. It was struck off the Turkish trade register on 5 February 2015.

The French company SA Groupe Adeo underwent a tax audit covering the period from 1 January to 31 December 2013, following which the Tax Authorities challenged the deductibility of the provision for doubtful debts corresponding to the advance granted on 27 December 2013.

They considered that this advance constituted a waiver of debt of a financial nature, not tax-deductible under Article 39, 13 of the FTC, which justified the non-deductibility of the provision for doubtful debts.

In a judgment of 11 October 2024, the Paris Administrative Court of Appeal upheld the reassessment (CAA Paris, 11 October 2024, No. 22PA03435).

The decision of the Conseil d'État

The French company SA Groupe Adeo brought the case before the Conseil d'État (French Supreme Administrative Court), which also confirmed the non-deduction of the provision for doubtful debts corresponding to the advance granted on 27 December 2013 (CE, 30 March 2026, No. 499612).

The advance granted is treated as non-deductible financial aid

The Conseil d'État considers that where a company grants an advance to a subsidiary without intending to obtain repayment, that advance must be regarded as aid within the meaning of Article 39, 13 of the FTC.

Where such aid is not of a commercial nature, it is therefore not deductible from that company's taxable profit, either as an expense for the financial year in which the advance was granted, or as a loss for the financial year in which the company subsequently formalised its waiver of repayment or recorded in its accounts that the advance was irrecoverable.

In the case at hand, in view of the following circumstances, the Conseil d'État considers that the French company SA Groupe Adeo never intended to recover the advance granted to its subsidiary on 27 December 2013, so that this advance must be treated as aid of a financial nature that is not deductible from its taxable income:

• the advance was paid in order to avoid the compulsory liquidation of the subsidiary, which had been loss-making during the three financial years preceding the grant;
• the company's board of directors had proposed, nearly three weeks before the advance was granted, the voluntary dissolution of the subsidiary, a decision adopted by the general meeting of shareholders on 8 January 2014.

A characterisation that justifies the non-deduction of the provision for doubtful debts

The Conseil d'État restates the principle laid down in its decision of 12 June 2013 (CE, 12 June 2013, No. 351702), according to which a provision set up to cover a loss or an expense is deductible, under Article 39, 1, 5° of the FTC, only where the expense or loss it anticipates is itself capable of affecting the basis of the tax due for a future financial year. Accordingly, the company cannot deduct from its taxable profit a provision set up to cover the loss corresponding to the aid thus granted.

In the present case, since the advance granted by the French company SA Groupe Adeo to the Turkish subsidiary was characterised as aid of a financial nature, SA Groupe Adeo having had no intention of recovering the disputed advance when it was granted, SA Groupe Adeo could not claim a tax deduction for the provision set up to anticipate the loss corresponding to the non-recovery of that aid.