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Presumption of income The presumption that the sums paid by a company to its partner as advances constitute income distributed to the partner unless proven otherwise (CGI, art. 111, a) does not apply when the sums are made available to a partnership of which the partner is a member, rather than directly to the individual.

Presumption of income distribution  : –

In a particular case where the tax authorities reinstated sums in the taxable result of a partner of a SARL on the grounds that these sums were indirectly made available to the partner through the intermediary of real estate companies of which he was also a partner, the Council of State determined that the tax administration could only justify this decision if it could establish that the real estate company served as an intermediary between the taxable company and the beneficial owner of the distribution.

Presumption of income The Council of State specifies that this principle must be applied in accordance with the legislative and regulatory provisions governing the burden of proof.

Burden of proof and challenge:-

However, the Council of State stresses that the burden of proof must comply with the applicable legislative and regulatory provisions. In this particular case, the taxpayer did not contest the tax increases upon receipt of the notification. It was therefore up to the taxpayer to demonstrate the excessive nature of the disputed taxes (LPF, art. R. 194-1). This could have been done, for example, by proving that the advances had been repaid before the end of the financial year in which the SARL had granted them, which the taxpayer did not do.

In summary, the presumption of distribution of income does not apply where amounts are made available to a partnership rather than directly to the individual partner. The tax administration must establish that an intermediary entity acted between the taxable company and the beneficial owner. In addition, the burden of proof rests with the taxpayer and failure to challenge tax increases may result in the taxpayer being required to demonstrate the excessive nature of the taxes in question.

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