Social security contributions for SELs? Between astonishment and uncertainties

« The profits of the liberal practice company (SEL), within which the self-employed worker carries out their activity, constitute the product of their professional activity and must be included in the basis of the social security contributions for which they are liable, including when these profits are distributed to the financial holding company of liberal professionals (SPFPL) that holds the capital of the liberal practice company »: this is what the Court of Cassation recently affirmed in a ruling dated October 19, 2023, published in the bulletin, which was received with astonishment by practitioners (C.cass. Civ. 2^e, October 19, 2023, n°21-20.366).

In this case, a dental surgeon, who practiced his activity through an SELARL in which he directly held 1% of the shares, the other 99% being held by the SPFPL he had created in equal shares with his wife, saw the dividends paid by his SELARL to the SPFPL subject to social security contributions by the Autonomous Retirement Fund.

Seized of the practitioner's challenge, the social security affairs court of Bouches-du-Rhône and then the Aix-en-Provence Court of Appeal upheld the position of the Fund (CA Aix-en-Provence, June 11, 2021, No. 20/09464), so he appealed to the Court of Cassation.

In its judgment of October 19, 2023, the Court of Cassation dismissed his appeal: under Article L. 131-6, III of the Social Security Code in its version applicable to the dispute, relating to social security contributions on the earned income of non-agricultural self-employed workers, it states that the partner practicing within an SEL is subject to social contributions on dividend distributions made by the company, including when these dividends are paid to an SPFPL.

The High Court's position ultimately amounts to denying – with regard to social security contributions – both the principle of the legal personality of the SPFPL (or even the SEL) and the corporate income tax regime of these companies, since it includes dividends remitted to the SPFPL in the contribution base, placing the practicing partner in the same situation as if they were practicing individually or within a fiscally transparent structure.

Although courts have already been able to challenge, on the basis of abuse of rights, corporate structures whose sole purpose is to reduce the base of social security contributions, the Court of Cassation here addresses the issue on a different ground than fraud, by retaining a very broad assessment of the base of social security contributions thus including "the profits of the liberal practice company". On the basis of this decision, one could consider that the profits of the SEL (liberal practice company) enter the base of social security contributions whether or not they are passed up to the SPFPL (parent holding company), and without even taking into account the fact that the SPFPL might not distribute profits, or allocate them to certain non-practicing partners.

According to other less extensive interpretations of the ruling, where only dividends would be included in the contribution base, other uncertainties remain: for example, if a balance of profits allocated to reserves were subsequently distributed, would it also be subject to social contributions? Will the profit distributed by the SPFPL to practicing partners also be included in the social contribution base, even though it is generally composed mainly of dividends passed up from the SEL (and therefore already subject to contributions), thus resulting in double "taxation"?

This decision was made in the case of a sole practicing partner, and it is therefore possible to question its applicability to an SEL held by several practicing partners where determining the amount of each person's income by reference to the profits generated is more complex, and depends less on the sole will of the partner but on a collective agreement.

Nevertheless, the overall spirit of the decision is to affirm that contributions are based on professional income, i.e., on income resulting from the liberal activity, regardless of the legal arrangements put in place, and in particular the existence of intermediary companies.

This decision sows a wave of concern among liberal professionals, some of whom rely on the profits received by their holding company to repay the loan that the latter generally had to take out to buy their shares in the SEL.

One thing is certain, the practical applications of this decision remain uncertain and we must hope for clarification, or that its scope will be limited to situations similar to the facts of the case.

 

Corporate law