OD FLASH | Tax exemption for settlement indemnity subject to dismissal without real and serious cause

Marseille Administrative Court of Appeal, 3rd Chamber, 6 November 2025, No. 24MA01928

In 2006, a taxpayer who had been regional director since 2004 was dismissed for refusing to adhere to the company’s strategy and for challenging its reorganization. In 2016, the labor court ruled that her dismissal was based on a real and serious cause. Nevertheless, a settlement was subsequently concluded with her former employer for an amount of €145,000.

The tax authorities considered that this indemnity was taxable, as she could not claim the benefit of the exemption provided for under Article 80 duodecies, paragraph 1(1) of the French General Tax Code (“CGI”), and therefore issued additional income tax assessments. This position was upheld by the Administrative Court of Marseille[1].

The Marseille Administrative Court of Appeal dismissed the taxpayer’s appeal. In accordance with Article 80 duodecies, paragraph 1(1) of the CGI, entitlement to the exemption for settlement indemnity paid in connection with a termination is conditional upon the dismissal being without real and serious cause. Since the case file establishes that the taxpayer’s dismissal was based on a real and serious cause, she cannot claim the exemption for the compensation received. The tax authorities were therefore correct in subjecting this indemnity to additional income tax assessments.

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[1] Administrative Court of Marseille, 6th Chamber, June 28, 2024, No. 2110902