Confusion of assets in tax matters

The main advantage of setting up a company is the creation of its own legal person separate from that of its shareholders.

Consequently, the assets of the latter are protected from the risks associated with the commercial life of companies, which are treated as persons with their own legal personality.

Indeed, the deficits, losses or debts of a company cannot, in principle, affect the shareholders’ own assets.

However, this advantage may be eliminated in the event of confusion of assets.

The notion of confusion of assets and liabilities is a judicial creation which was finally legislated in 2005 in Articles L621-2, L641-1 and L631-7 of the Commercial Code.

Thus, the confusion of assets and liabilities is the hypothesis that there are abnormal financial or commercial flows, or blurred overlaps between the assets and liabilities of two natural or legal persons. As the independence of these assets is no longer respected, they will be treated as a single asset.

Indeed, the relationships between these two people are so intertwined and complex that it becomes impossible to distinguish their assets, thus leading to their merger.

The consequences can be disastrous, particularly in tax matters. Indeed, the tax audit of a company can be extended to its shareholders, who are jointly and severally liable for the payment of the amount of the adjustments thus applied.

 

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