Image rights and foreign companies: French anti-abuse tax rules tested against athletes’ asset-holding structures

A Panamanian company revealed during a tax audit: image rights at the heart of the fiscal debate‍

As part of a tax audit concerning their 2015 income, professional football player Angel Di Maria and his spouse were required to file a corrective tax return. This amended return disclosed the existence of a company incorporated in Panama, wholly owned by the player, through which income derived from the commercial exploitation of his image rights was received.

Following this disclosure, the French tax authorities issued a new reassessment proposal, this time invoking the anti-abuse rule allowing France to tax the income earned by certain foreign entities controlled by French tax residents.

This mechanism aims to prevent taxpayers from diverting income to foreign companies established in low-tax jurisdictions. It applies where three cumulative conditions are met:
– A French tax resident holds, directly or indirectly, at least 10% of the capital of a foreign company;
– The foreign company is subject to a preferential tax regime;
– The company’s assets are predominantly financial in nature (such as investments or cash holdings).

Where these conditions are satisfied, the profits of the foreign entity are deemed to be the personal income of the French shareholder, who must then declare them in France as if received directly, subject to a 25% uplift in the taxable base. If the company does not close its accounts during the year, the income is deemed to be acquired as at 31 December, even if the taxpayer became a French tax resident partway through the year.

In this case, Mr. Di Maria became a French tax resident on 6 August 2015. Accordingly, he only declared the income earned by the Panamanian company after that date. The French tax authorities, however, sought to tax the entire amount earned in 2015—estimated at approximately €2.78 million—based on the provisions of the anti-abuse rule.

Book value or fair market value? The cornerstone of financial predominance

In the first instance, the Paris Administrative Court ruled in favour of Angel Di Maria and his spouse, cancelling the additional tax assessments without addressing in detail the specific conditions for applying the anti-abuse provision. Instead, the judges relied on a different line of reasoning: in their view, there was no artificial arrangement justifying the use of the anti-abuse mechanism. To support this conclusion, the court noted that the income received by the Panamanian company had been reported voluntarily and within the legal time limits, and that the company itself had been established back in 2009—six years prior to the player’s arrival in France.

On appeal, the Paris Administrative Court of Appeal, following the opinion of the reporting judge (rapporteur public), refocused the debate on the core issue: whether the substantive conditions for applying the mechanism were met, particularly the question of the nature of the foreign company’s assets.

The French tax authorities argued that the composition of the company’s assets should be assessed based on their net book value, i.e., the value recorded in the accounts at the end of each financial year. This interpretation is supported both by the relevant regulatory provisions and by official tax guidance.

The taxpayers, on the other hand, contended that the fair market value of the assets—reflecting their actual value on the open market—should be used, particularly in the case of the player’s image rights.

To substantiate this approach, Angel Di Maria submitted an independent valuation report estimating the fair market value of his image rights at €9.3 million as of 31 December 2015. On the same date, the book value recorded on the Panamanian company’s balance sheet was only €1.5 million. This significant discrepancy has major implications: if the fair market value is used, financial assets become clearly non-predominant, falling below the 50% threshold, thereby calling into question the applicability of the anti-abuse rule.

The economic approach prevails: the Paris Court of Appeal accepts the fair market value of image rights

Unexpectedly, the Paris Administrative Court of Appeal ruled in favour of the taxpayer. In its decision, the court highlighted a key point: the Minister did not challenge the independent valuation submitted by the player, relying solely on the book value of the image rights as recorded in the company’s accounts. Yet, as the court noted, the same company had received €2.88 million in 2015 alone in consideration for the licensing of those rights.

This clear discrepancy between the original book value of the image rights and the actual income generated from their exploitation appears to have weighed heavily in the court’s reasoning. It demonstrated that the asset’s real economic value had significantly increased since its initial recognition in the accounts, making it difficult to justify relying exclusively on the historical accounting value to determine the nature of the company’s assets.

The reporting judge also provided valuable insight by referring to a previous decision of the Conseil d’État concerning the “animating” role of a holding company. In that case, the Conseil held that book values alone do not provide a reliable basis for assessing the true nature of a company’s activity, since they are constrained by prudence rules and the obligation to record assets at their historical cost—factors that may result in substantial discrepancies from actual market value. Transposed to the present case, this reasoning supported the view that accounting data alone were insufficient to determine whether the company’s assets were “mainly financial”.

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As the Minister has lodged an appeal, the Conseil d’État’s position is now eagerly awaited—particularly on whether the fair market value of an asset may be taken into account when assessing the financial predominance required to trigger the application of the anti-abuse rule.