On 8 October 2025, the French Court of Cassation provided several clarifications on its case law in tax matters.

The Commercial, Financial, and Economic Chamber of the Supreme Court opened the possibility for the tax authorities to change the basis of a tax adjustment on appeal without the need to notify the taxpayer in advance. This decision also provided an opportunity for the Court to confirm that (i) the rules relating to professional secrecy between a lawyer and his client apply in tax matters and (ii) the heirs must declare to the tax authorities assets placed by the deceased in a trust even when they are not the beneficiaries.

This decision was handed down in relation to a dispute between a taxpayer who was the subject of a proposed adjustment and the tax authorities. This measure concerned the reassessment of transfer duties on the estate left by the taxpayer’s father upon his death, which included trusts abroad, particularly in the Cayman Islands. After challenging the adjustment in administrative proceedings, the taxpayer then sued the tax authorities for relief from the additional duties, late payment interest, and extra charges that had been levied. Following the rejection of his claims by the Paris Court of Appeal, he challenged the decision before the Court of Cassation.

This decision confirms the position of the Commercial Chamber regarding the confidentiality of lawyer-client correspondence (I) and clarifies the scope of judges’ prerogatives in relation to the taxation of foreign trusts, as well as the rules concerning changes in the grounds for reassessment (II).

I. The Commercial Chamber confirms its position on the confidentiality of correspondence between a lawyer and their client in tax matters

Article 66-5, paragraph 1, of the Act of 31 December 1971 provides that correspondence between a lawyer and his client is, in principle, protected by professional secrecy.[1]

In this context, the ruling of 8 October 2025 is consistent with the established case law of the Commercial Chamber.[2] It reaffirms that tax authorities cannot legally base an adjustment on documents covered by attorney-client privilege. In this case, the Court of Cassation criticizes the Court of Appeal for failing to verify whether the fax sent by a lawyer, indicating that the trustee wished to establish a new trust concerning a ranch in Kenya and transfer it to his heirs upon his death, constituted protected correspondence.[3]

This position is also in line with EU case law. In a ruling dated 26 September 2024, the Court of Justice of the European Union (hereinafter “the CJEU”) ruled that the provisions of Luxemburg relating to the disclosure of tax information about clients by lawyers were contrary to the Charter of Fundamental Rights of the European Union. It thus considered that all legal advisory activities carried out by lawyers are protected by professional secrecy, regardless of the area of law in which these advisory activities are carried out.[4]

However, the position of the commercial division differs from that of the criminal division, which in recent years has tended to restrict professional secrecy between a lawyer and their client to the exercise of the rights of defense[5], which excludes from the scope of professional secrecy documents relating to advice given on tax matters.

II. The Commercial Chamber clarifies the scope of judges’ powers in relation to the taxation of foreign trusts and validates the change in the grounds for reassessment

When asked about the reorganization of a trust located abroad, the Commercial Chamber of the Court of Cassation specified that the settlor’s heirs are required to declare the assets placed in this trust to the French tax authorities when the deceased settlor has not effectively and irrevocably disposed of them. In reaching this conclusion, the Court relied on the extended tax jurisdiction in matters of inheritance law provided for in Article 750 ter, 1° of the General Tax Code.[6]

It notes that in this regard, especially about trusts, the judge must verify, in concreto, that the deceased settlor exercised effective ownership rights over the trust. However, it is not the judge’s role to examine the validity and effects of this trust under the foreign law governing it. If such a right of ownership existed, the Court considers that the trust forms part of the deceased’s estate transferred to his heirs, regardless of whether they are the beneficiaries. It therefore falls within the scope of transfer duties.[7]

Finally, with regard to the adjustment procedure, the Court of Cassation first pointed out that, in the context of a tax audit and in order to allow the taxpayer to submit comments within a certain period of time, a proposed adjustment must always be justified.[8] In this regard, it recalls its case law according to which an adjustment based on grounds that have not been notified to the taxpayer is irregular,[9] as the addition of a ground must always give taxpayers the opportunity to defend their position.[10]

However, in its ruling of October 8, the Court departed from this case law. In its decision, the Commercial Chamber relied both on Article L.199 C of the Tax Procedures Code, which provides that the administration and the taxpayer have the possibility of putting forward new arguments at first instance and on appeal[11] and on the principle that the administration cannot waive the benefit of tax law and decide not to apply it. It considers that the tax authorities may ask the judge to accept a new ground for justifying an adjustment without notifying the taxpayer again. This is only possible provided that this substitution does not undermine the taxpayer’s procedural guarantees, in particular their right to challenge such a measure.[12]

With this decision, the judicial court has aligned itself with administrative case law which, since 2004 and 2007, has held that the tax judge may substitute grounds at any stage of the proceedings, provided that the procedural guarantees offered to the taxpayer are respected.[13]