Case analysis, French wealth tax on real property

French wealth tax for non-residents: French real estate held in foreign companies does not escape taxation

A non-resident who holds French real estate through a chain of foreign companies remains liable for wealth tax. The French Supreme Court rules that the treaty notion of companies with predominant real property holdings is interpreted by reference to French domestic tax law (Cass. com., 6 May 2026, No. 24-22.185, published in the Bulletin). Family ownership and chains of shareholdings are taken into account, and the shareholder loan granted by the holding company to relay companies does not dilute the real property predominance. Decision rendered under the former wealth tax (ISF), transposable to the IFI (French Tax Code articles 964 and 965). The firm assists non-residents in auditing their real estate ownership structures.

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— En bref
Decision
Cass. com., 6 May 2026, No. 24-22.185, published in the Bulletin, appeal dismissed
Issue
Whether a Cypriot holding company has predominant real property holdings within the Franco-Russian tax treaty (art. 22 § 2)
Ruling
The notion, undefined by the treaty, is interpreted by reference to French domestic law (art. 3 § 2): French Tax Code articles 750 ter, 2° and 990 D
Consequence
The 95% stake held by the taxpayer's daughter in French real estate companies is taken into account; the shareholder loan granted by the holding company does not dilute the real property predominance
IFI Scope
Decision rendered under the former wealth tax (ISF), applicable to the IFI: French Tax Code articles 964 and 965, 2° (taxable fraction of French real property holdings in foreign company shares)
— 01

The facts and the principle: the treaty refers to French domestic law

The facts. A resident of Russia held 100% of a Cypriot company, which held two Swiss companies and 5% of two French real estate companies (SCI, a French legal form for real estate partnerships), with the taxpayer's daughter holding 95% of these SCIs, all owning real estate in France. The non-resident sought a refund of wealth tax (ISF) paid, arguing that his Cypriot company did not have predominant real property holdings within the meaning of the Franco-Russian treaty if his daughter's shareholding was not included.

The principle. The court reasons in two steps. A tax treaty takes precedence over domestic law (French Constitution, art. 55), but when it does not define a term, article 3, paragraph 2, refers that term to the meaning given by the tax law of the State applying the treaty. Article 22, paragraph 2, of the Franco-Russian treaty imposes taxation, in the State where real property is located, on wealth consisting of shares in companies with predominant real property holdings, without defining this predominance.

The Supreme Court concludes that it must be understood in the sense of French tax law: articles 750 ter, 2°, and 990 D of the French Tax Code, which govern indirect ownership of real property. Under these provisions, real property is deemed to be owned indirectly when the taxpayer, together with his spouse, ascendants, descendants, siblings, holds more than half of the companies that own it, through any chain of shareholdings.

The firm limits its engagements to ensure direct involvement of shareholders on each matter and systematically evaluates the relevance of an intervention before any commitment.

— 02

The ruling and its scope, point by point

01

The ruling: family ownership is taken into account

Real property predominance is measured by including shareholdings of family members, through any chain of shareholdings.

  • Real property is deemed to be owned indirectly when the taxpayer, together with his spouse, ascendants, descendants, siblings, holds more than half of the companies that own it (French Tax Code art. 750 ter, 2° and 990 D)
  • The 95% stake held by the taxpayer's daughter in the French real estate companies is therefore taken into account in assessing the real property predominance of the Cypriot holding company
  • The shareholder loan account that the holding company had granted to the relay companies was disregarded: this financing obligation did not dilute the real property predominance
  • Tax was owed: appeal dismissed
02

Scope for the IFI (French wealth tax on real property)

Rendered under the former wealth tax (ISF), the decision applies to the IFI, which uses the same logic.

  • Article 964 of the French Tax Code subjects non-residents to the IFI only on their real property rights and interests located in France
  • Article 965, 2° includes in the taxable base shares in companies, whether established in France or abroad, to the extent of the fraction of their value representing French real property held directly or indirectly
  • The provision neutralizes interpositions and takes into account control and beneficial enjoyment: a chain of foreign companies does not provide a screen
  • A tax treaty offers no shelter when, for its key concepts, it refers to French domestic tax law
03

In practice: three essential steps for non-residents

For a non-resident holding French real estate through foreign structures, three verifications are essential.

  • Audit the ownership chain: the taxable share is calculated by applying, at each level of interposition, a real property coefficient (article 965, 2°) equal to the ratio between the value of French real estate and the total value of the company's assets
  • Do not overestimate treaty protection, often illusory on real property predominance
  • Handle share valuation carefully (article 973), which can justify discounts (occupancy, minority status, illiquidity) and requires precise treatment of receivables and shareholder accounts
  • Document each level of the structure before filing; the burden of proof rests in practice with the taxpayer
04

The pitfalls of foreign structures

The ruling rejects several defenses frequently invoked by non-residents.

  • Believing that a chain of holdings (Cyprus, Switzerland, Luxembourg) breaks the link to French real property: chains of shareholdings are traced at each level
  • Focusing on personal shareholdings alone: the holdings of family members (spouse, ascendants, descendants, siblings) are aggregated
  • Relying on intercompany receivables to dilute real property assets: the financing provided by the holding company had no effect on real property predominance
  • Invoking treaty supremacy without checking its referral clause: most treaties refer to domestic law for undefined terms
— 03

Our approach

The firm advises on wealth taxation of non-residents at all stages: audit of chains of real estate ownership (foreign holdings, relay companies, real estate partnerships), qualification of real property predominance under applicable tax treaties, calculation of taxable fractions and share valuation (French Tax Code articles 965 and 973), filing and amendment of IFI returns, and representation in audits or disputes. Analysis integrates applicable tax treaties and the taxpayer's family situation, which is decisive under this ruling.

  • IFI
  • Non-residents
  • Real property predominance
  • Tax treaties
  • French Tax Code article 965
— FAQ

French wealth tax for non-residents and foreign companies: your questions

What exactly does the Supreme Court rule in the 6 May 2026 decision?

That the notion of companies with predominant real property holdings, used by article 22, paragraph 2, of the Franco-Russian tax treaty without being defined there, is interpreted by reference to French domestic tax law, in accordance with article 3, paragraph 2, of the treaty (Cass. com., 6 May 2026, No. 24-22.185, published in the Bulletin). The referral leads to articles 750 ter, 2° and 990 D of the French Tax Code, which govern indirect ownership of real property. The real property predominance of the taxpayer's Cypriot holding company is thus assessed by including the 95% stake held by his daughter in the French real estate companies. The appeal is dismissed and tax was owed.

The decision was rendered under the former wealth tax (ISF): does it apply to the IFI?

Yes. The decision, rendered regarding the ISF (wealth tax, prior to 2017), applies to the IFI (wealth tax on real property, in effect since 2017), which uses the same logic. Article 964 of the French Tax Code subjects non-residents to the IFI only on their real property rights and interests located in France, and article 965, 2° includes in the taxable base shares in companies, whether established in France or abroad, to the extent of the fraction of their value representing French real property held directly or indirectly, neutralizing interpositions and taking into account control and beneficial enjoyment.

Can a tax treaty protect a non-resident against the IFI on foreign companies?

Rarely on this basis. A tax treaty takes precedence over domestic law (French Constitution, art. 55), but most treaties include a referral clause: when a term is not defined in the treaty, it takes the meaning given by the tax law of the State applying the treaty. For real property predominance, this referral leads to articles 750 ter, 2° and 990 D of the French Tax Code, which include family ownership and chains of shareholdings. Treaty protection is therefore often illusory on this concept, and each treaty must be examined article by article.

Are shareholdings held by family members taken into account?

Yes. Under articles 750 ter, 2° and 990 D of the French Tax Code, real property is deemed to be owned indirectly when the taxpayer, together with his spouse, ascendants, descendants, siblings, holds more than half of the companies that own it, through any chain of shareholdings. In the case decided, the taxpayer held only 5% of the French real estate companies through his Cypriot holding company, but the 95% stake held by his daughter was sufficient to establish indirect ownership and real property predominance.

How is the IFI calculated for a non-resident holding French real estate through foreign companies?

In two steps. First, the taxable fraction of the shares is determined by applying, at each level of interposition, a real property coefficient (French Tax Code article 965, 2°) equal to the ratio between the fair value of French taxable real property and the fair value of the company's total assets. Second, the valuation of the shares follows article 973 of the French Tax Code: it can justify discounts (occupancy, minority status, illiquidity) and requires precise treatment of receivables and shareholder accounts, as certain debts are not taken into account for valuation. An audit of the ownership chain before any calculation is the starting point for reliable assessment.

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