Management fees convention in France: the complete guide for managers

La Management fees agreement is an essential tool in the life of groups of companies. However, it remains poorly understood by many managers and is subject to increased surveillance by the tax administration. An approximate wording, a lack of justification or a financial imbalance can have serious consequences: tax adjustment, cancellation of the agreement, or even conviction for abuse of social assets.

This guide aims to provide you with an in-depth and operational analysis of the management fees agreement: its definition, operation, benefits, risks and best practices for securing it. Whether you are the manager of a holding company, manager of an SME or an executive involved in the structuring of a group, you will find here all the keys to mastering this subject.

What is the management fees agreement? Definition and fundamental principles

Management fees: legal definition

Les Management Fees — literally “management fees” — refer to the amounts invoiced by a company, generally a Holding, to its subsidiaries in exchange for the provision of services. These services cover a wide range of functions: strategic management, administrative, accounting, legal, financial, IT or commercial assistance.

La Management fees agreement is the contract for the provision of services that formalizes this relationship. It precisely defines the nature of the services provided, their methods of execution, the method of calculating remuneration and the billing conditions. In practice, this contract is concluded between two companies belonging to the same group — most often between a parent company and one or more subsidiaries.

To put it simply: the holding company provides services to its subsidiaries, and the subsidiaries pay it in return. It is this financial flow that constitutes the management fees.

Concrete example: You are the manager of a holding company that has three operating subsidiaries in the construction sector. Your holding company centralizes accounting, legal and commercial strategy for the entire group. The management fees agreement will formalize these services and allow your holding company to bill each subsidiary for the services actually provided.

Management fee agreements and omnium conventions: what is the difference?

The management fees agreement is sometimes called Omnium convention or assistance agreement. While these terms are often used interchangeably, they cover slightly different realities.

La Omnium convention has historically referred to a broader contract by which the parent company undertakes to provide a comprehensive set of management and management services to its subsidiaries, in a logic of global management of the group. It sometimes goes beyond simple technical services to include strategic management functions.

La Management fees agreement, in the strict sense, may be more targeted: it relates to identified and delimited services (accounting, human resources, IT, etc.) without necessarily encompassing general management.

In practice, the distinction is mostly semantic. What matters for the judge and for the tax administration is the reality of benefits rendered, their distinction in relation to the functions of the corporate officer And the proportionality of remuneration.

Why use management fees? The strategic goals

The use of management fees meets several objectives that are combined according to the configuration of the group:

The sharing and rationalization of costs. Rather than duplicating support functions in each subsidiary (accounting department, legal department, financial department), the group centralizes them at the level of the holding company. This pooling generates significant economies of scale. A single CFO, a single accounting team, and a single legal department can serve the entire group.

The financing of the holding company. Management fees are a source of turnover for the holding company, which allows it to finance its own operating expenses and, if necessary, to repay a purchase loan. It is a central point in the operations of LBO (Leveraged Buy-Out) orOBO (Owner Buy-Out), where the holding company incurred significant debt to acquire the target.

Tax optimization. Management fees, when they are regularly established, represent a deductible charge of the taxable income of the subsidiary. Unlike dividends, which are deducted from earnings that have already borne corporate tax, management fees are charged Before IS on the operating income of the subsidiary. For the holding company, they generate taxable turnover, but allow cash flows within the group to be modulated in a more flexible way than simply distributing dividends.

Qualification as an animating holding company. The fact that it effectively provides services to subsidiaries contributes to qualifying the holding company as Holding animator (as opposed to a passive or asset holding company). This qualification opens access to advantageous tax regimes, in particular in terms of business transfers (Dutreil Pact), exemption from capital gains or IFI.

Concrete example: You buy a company through an LBO arrangement. Your holding company borrows 800,000 euros to finance the acquisition. The dividends paid by the target are not enough to repay the loan. Thanks to a well-written management fee agreement, the holding company invoices the target for administrative, accounting and strategic management services for an annual amount of 60,000 euros excluding VAT. This additional cash flow contributes to debt repayment.

Management fees and holding: an inseparable couple

The central role of the leading holding company

The holding company plays a major role in the management fee system. Contrary to the Holding passive (or pure holding), which simply holds financial participations, the managing holding company actively participates in group policy. She provides services, defines the strategy, coordinates activities and makes structural decisions for all subsidiaries.

This distinction is fundamental because the qualification of managing holding company conditions access to numerous tax advantages. However, the management fees agreement is one of the strongest pieces of evidence to demonstrate this animatory nature to the administration.

In short, management fees are not only an internal management tool: they participate directly in legal and fiscal structuring of the group.

What services can you charge for as part of the management fees of a holding company?

The nature of the services that can be invoiced under management fees is vast, but it must imperatively correspond to real, identifiable and useful services to the beneficiary subsidiary. Here is an overview of the main categories:

Strategic management services: definition of the general policy of the group, impetus of the commercial and marketing strategy, coordination between subsidiaries, investment arbitrations.

Administrative and management services: general secretariat, human resources management (recruitment, training, payroll), administrative management, purchasing and logistics management.

Accounting and financial services: bookkeeping, drawing up annual accounts, cash flow management, bank relationships, financial reporting, management control, budgeting.

Legal and fiscal benefits: drafting and analysis of contracts, litigation follow-up, regulatory monitoring, corporate law assistance, tax advice, intellectual property management.

IT and technical services: provision of information systems, computer maintenance, development of digital tools, technical support.

Commercial services: commercial development, prospecting, brand policy, communication and marketing.

It is essential to be well individualize each service in the agreement, and to clearly distinguish them from functions that fall within the social mandate of the manager. It is precisely on this point that maximum vigilance must be maintained, as we will see later.

How do I charge management fees? Methodology and best practices

Methods for calculating remuneration

The question of Management fees award is central. An amount that is too high will be suspected of a transfer of benefit; an amount that is too low may raise questions about the reality of the benefits. Several calculation methods coexist in practice:

The “cost plus” method (increased cost of production). It is the method most commonly accepted by the tax authorities. The holding company invoices the actual cost of the services provided (personnel expenses, general expenses, depreciation, etc.) plus a reasonable margin, generally between 5% and 15%. This approach has the advantage of transparency and traceability.

Example: Your holding company employs an administrative and financial director whose total cost (gross salary, social security contributions, benefits) represents 90,000 euros per year. He devotes around 60% of his time to subsidiaries. The billable cost is therefore 54,000 euros, plus a margin of 10%, or 59,400 euros excluding tax divided between the subsidiaries in proportion to the time spent on each.

The flat rate method. The holding company invoices a fixed amount determined in advance, which can be revised annually. This method is simpler to implement but more difficult to justify in the event of an inspection. It must imperatively be backed by a preliminary cost study And to a Demonstrated economic reality.

The method in proportion to the turnover. The remuneration is calculated as a percentage of the subsidiary's turnover. This approach is risky because it can lead to amounts that are unrelated to the real cost of the services provided, especially in the event of strong growth of the subsidiary.

Regardless of the method chosen, the guiding principle is as follows: the remuneration must be proportionate to the services actually provided and must not be excessive.

Billing rules to be respected

Each management fee service must result in the issuance of a Compliant invoice to the requirements of the Commercial Code and the General Tax Code. The invoice must include the usual mandatory information (identity of the parties, date, detailed description of the service, amount excluding VAT, rate and amount of VAT, amount including VAT, amount including VAT).

A crucial point: The wording of the invoice must be accurate. An invoice with the sole mention “management fees” or “management fees” is insufficient and constitutes a major risk factor in the event of an audit. The nature of the services provided during the billing period should be detailed.

In practice, it is recommended to attach to each invoice a Activity log Or a benefit report describing the work actually carried out. This document is a decisive evidentiary element in the event of a tax audit.

Management fees are entering the scope of application of VAT at the standard rate of 20%. The provider company (holding) collects VAT, and the beneficiary subsidiary deducts it under the conditions of common law.

Accounting for management fees: the paperwork you need to know

How to account for management fees at the subsidiary?

At the subsidiary that receives the services, management fees constitute external service expenses. They must be recorded in a class 62 account. The accounting entry diagram is as follows:

• Account debit 628 “Miscellaneous” (or a specific subdivision of account 62 according to the company's chart of accounts) for the amount excluding tax of the invoice
• Account debit 44566 “VAT on other goods and services” for the amount of deductible VAT
• 401 account credit “Suppliers” for the total amount of the invoice including VAT

At the end of the financial year, if services have been performed but have not yet been invoiced, a Invoice not received (FNP) :

• Account debit 628 for the estimated amount excluding VAT
• Account debit 44586 “VAT on invoices not received” for the corresponding VAT
• Account Credit: 4081 “Suppliers — invoices not received” for the amount including VAT

How to account for management fees at the holding company?

For the parent company that provides the services, management fees represent a operating income. They must be registered in a product account:

• Account debit 411 “Customers” for the total amount of the invoice including VAT
• Account Credit 706 “Services” for the amount excluding VAT
• Account Credit: 44571 “VAT collected” for the VAT amount

The account 706 is the appropriate account when the provision of services is the main activity of the holding company. Account 708 “Income from ancillary activities” should only be used if the services are ancillary to another main activity.

Summary table of accounting entries

Concrete example: Your holding company invoices its subsidiary 10,000 euros excluding tax in management fees each month (i.e. 12,000 euros including VAT with 20% VAT). The agreement provides for annual adjustment in April N+1. At the end of December 31, if the estimated settlement is 5,000 euros excluding VAT, the subsidiary will have to record an NPF of 6,000 euros including VAT. This accounting rigor is essential for compliance with the principle of independence of financial years and for the justification of expenses in the event of an audit.

What are the management costs of a company that can fall under management fees?

The management fees that may be invoiced under a management fee agreement are varied. They include all support functions that the holding company is in a position to supply to its subsidiaries. However, it is essential to distinguish between services that can legitimately be invoiced and those that fall under the corporate mandate of the manager.

Technical and functional services

These are the least legally risky benefits. They relate to operational and technical functions which, by nature, do not fall under the responsibilities of a corporate officer:

• Accounting and preparation of annual accounts
• Payroll Management and Staff Administration
• Computer maintenance and software provision
• Purchasing management and supplier negotiation
• Logistics support and supply management
• Communication and marketing services

Management and management assistance services

These services are located at frontier between technical and managerial functions. They require particular attention in their drafting:

• Assistance in defining the commercial strategy
• Investment and development advice
• Support in external growth operations
• Support for banking and financial relationships
• Coordination between the various entities of the group

Executive services: the risk zone

It is here that the legal and fiscal risk is the highest. Services that consist, in essence, of exercising the management functions of the subsidiary must not be invoiced by a third party — including the holding company — when a natural person manager is already in place in the subsidiary to exercise these same functions.

The principle is clear: a company does not have to pay a third party to benefit from the provision of its own manager. If the president of the holding company is also president of the subsidiary, the invoicing of management services by the holding company to the subsidiary constitutes a Duplication likely to result in the cancellation of the agreement.

Practical example at risk: Mr. Dupont is president of the ALPHA holding and president of the BETA subsidiary. The ALPHA holding company invoices BETA for management fees for “general management services, strategy definition and operational management”. This agreement is highly exposed: these functions are precisely those that Mr. Dupont is supposed to perform as part of his social mandate in BETA. The tax authorities are likely to reject the deduction of these charges.

Who is affected by regulated agreements? The essential formalism

Regulated agreements and management fees: why it's crucial

In the vast majority of cases, the management fees agreement constitutes a regulated agreement within the meaning of company law. This means that it must comply with a specific control and approval procedure, under penalty of civil sanctions.

A regulated agreement is a contract between the company and a person who has a particular relationship with it: a director, a partner holding more than 10% of the voting rights, or a company controlling the former. In the context of management fees, this is almost always the case: the holding company is a shareholder (often the majority) of the subsidiary, and the two companies frequently share one or more common managers.

Non-compliance with the regulated agreements procedure may result in serious consequences : nullity of the agreement, invoking the liability of the manager, or even reclassification for tax purposes of the amounts paid.

The procedure for regulated agreements according to the social form

The procedure varies according to the legal form of the company:

In the SAS (article L. 227-10 of the Commercial Code): the agreement is subject to control a posteriori. The auditor — or, failing that, the president of the SAS — draws up a special report on the agreements entered into during the financial year. This report is presented to the partners who vote at the annual general meeting. The interested partner may participate in the vote (unless otherwise provided in the articles of association).

In the SARL (article L. 223-19 of the Commercial Code): agreements concluded between the company and one of its managers or partners are also the subject of a report by the manager or auditor, subject to the approval of the general meeting.

In the SA (article L. 225-38 of the Commercial Code): the agreement must receive a prior authorization of the board of directors before its conclusion and then be approved by the general meeting.

In SASU: the procedure is simplified. Agreements between the company and its sole manager or partner must simply be mentioned in the register of decisions.

Comparative table of procedures by social form

Risks related to management fees: fiscal, civil and criminal

Tax risk: the abnormal act of management

The tax authorities rigorously control management fee agreements. Its objective is to verify that the amounts invoiced correspond to real benefits, rendered in the interest of the beneficiary company And to a price not excessive.

If any of these conditions are lacking, the administration may proceed with an adjustment on the basis ofabnormal act of management. This mechanism makes it possible to reintegrate into the subsidiary's taxable profit the expenses whose deductibility is contested.

The main reasons for recovery are as follows:

The absence of real compensation. The holding company invoices for services that were not actually provided, or whose reality cannot be demonstrated by supporting documents (reports, reports, exchanges, deliverables).

The excessive nature of the remuneration. The amount invoiced is disproportionate to the real cost of the services and to the prices charged on the market. The classic example is that of a holding company that invoices its subsidiaries for double its personnel expenses, without justification.

Duplication with the functions of the corporate officer. The services invoiced overlap with the normal duties of the subsidiary manager, which is equivalent to paying the same person twice for the same functions.

The absence of a written agreement or detailed invoices. The lack of formalization is a warning signal for the auditor and considerably weakens the company's position.

The consequences of a recovery are serious: Reintegration of deducted expenses, VAT reminders, CVAE recalls, 40% penalties for wilful misconduct See 80% for fraudulent maneuvers, and late payment interest.

Civil risk: the nullity of the agreement

On a civil level, a management fees agreement may be cancelled when the services it provides are without real compensation or when they do Duplication with the functions of the manager.

The legal basis for this cancellation is the absence of compensation (formerly “absence of cause” under the visa of former article 1131 of the Civil Code, now replaced by article 1169 of the Civil Code relating to illusory or derisory consideration).

Cancellation of the agreement involves the obligation to return all amounts paid, with all the chain consequences that this implies for the group's cash flow.

Criminal risk: the abuse of social assets

In the most serious cases, a manager who sets up a fictitious or clearly excessive management fee agreement is exposed to the crime ofabuse of social assets (article L. 241-3 of the Commercial Code for SARL, L. 242-6 for SA and SAS).

The abuse of social assets involves the demonstration of the use of the company's assets or credit. contrary to social interest and in a personal interest. A management fee agreement allowing the manager to receive, via the holding company, excessive remuneration at the expense of the subsidiary may characterize this offense.

The penalties incurred are five years in prison and a fine of 375,000 euros.

Concrete example: The sole manager of a holding company and its subsidiary pays, via management fees, a remuneration of 200,000 euros per year, while the real cost of the services provided does not exceed 40,000 euros and the subsidiary is in financial difficulty. This situation combines the risks of abuse of social assets, abnormal management actions and the nullity of the agreement.

How to write a secure management fee agreement?

The essential content of the convention

Writing the management fees agreement is a delicate exercise that cannot be improvised. Here are the essential clauses that any agreement must include:

The preamble. It introduces the parties, describes the context of the group, and recalls the reasons for using management fees. This preamble has interpretative value in the event of a dispute.

The object of the agreement. It defines precisely the nature of the services provided. Each service must be individualized and described in sufficient detail for a third party to understand what is actually provided. Vague formulations such as “executive services” or “general assistance” should be avoided.

The execution modalities. It is necessary to specify the human and material resources mobilized, the frequency of interventions, the expected deliverables (reports, studies, dashboards), and the designated contacts within each company.

The duration and conditions of cancellation. The agreement may be concluded for a fixed or indefinite period, with a termination clause providing reasonable notice.

The method of calculating remuneration. The method for determining the price must be clearly stated: cost plus, package, percentage, or combination of methods. The agreement may provide for a mechanism of monthly installments with annual adjustment.

Invoicing and payment conditions. Invoicing frequency, payment methods, late payment penalties, etc.

The confidentiality clause. Given the strategic nature of the information exchanged as part of the services, a confidentiality clause is strongly recommended.

The review clause. It makes it possible to adapt the agreement to the evolution of the group's needs and to modify the scope or the price of the services by amendment.

Example of a benefit description clause

As an illustration, a clause describing benefits could be written as follows:

“Under this agreement, the Service Provider Company undertakes to provide the Beneficiary Companies with the following services:

a) Accounting and financial services: maintenance of current accounts, establishment of interim accounting situations and annual accounts, preparation of provisional budgets, cash management, monitoring of intra-group cash flows, relationships with banking institutions and auditors.

b) Legal services: drafting and negotiating commercial contracts, monitoring commercial leases, assistance in the holding of general meetings and drafting of minutes, sectoral regulatory monitoring.

c) Human resources services: payroll management, preparation of pay slips, follow-up of social declarations, recruitment assistance, development of the training plan.

d) IT services: provision of the group's information system (ERP, messaging, collaborative tools), maintenance and first-level technical support.”

Best practices for securing the device

In addition to the drafting of the agreement, several concrete measures make it possible to strengthen the legal and fiscal security of the arrangement:

Build a solid case of evidence. Systematically keep activity reports, meeting minutes, email exchanges, deliverables produced and all documents attesting to the reality of the services.

Ensure the adequacy between resources and billing. The holding company must have human and material resources in proportion to the amounts invoiced. A holding company without any employees that charges 200,000 euros in management fees will inevitably raise questions.

Update the agreement regularly. The evolution of the group's scope of activity, the entry or exit of subsidiaries, the modification of the services provided: each significant change must lead to a personable to the convention.

Clearly distinguish between benefits and social mandate. If the manager of the holding is also the manager of a subsidiary, the services invoiced under management fees must be materially distinct the management functions that the latter exercises in the subsidiary as part of his mandate.

Consider appointing the holding company as the manager. In structures where the subsidiary is a SAS, it is possible to name the holding company as president or chief executive officer of the subsidiary. The holding company is then paid directly under its social mandate, which considerably secures the set-up and reduces the risk of duplication.

The common leader: the crux of the problem

Why is the joint leader a risk factor?

The problem of common leader is at the heart of litigation relating to management fees. When the same natural person is both manager of the holding and manager of the subsidiary, the border between the functions performed under the corporate mandate in the subsidiary and the services invoiced by the holding company becomes extremely thin.

The reasoning is as follows: the manager of the subsidiary is normally vested, by law and by the articles of association, with all the management powers of this company. He is paid (or likely to be paid) under this social mandate. If the holding company then charges for services that in reality correspond to the functions that this same manager performs in the subsidiary, there is Duplication and there is no compensation for the agreement.

How to secure the situation in the presence of a common leader?

Several strategies can be used to reduce this risk:

Appoint the holding company as manager of the subsidiary. It is the most effective solution. By designating the holding company as president (in a SAS) or managing (in an SNC or civil society), the natural person manager no longer exercises a direct social mandate in the subsidiary. He acts as the legal representative of the holding company, which is itself the corporate officer of the subsidiary. The holding company is paid directly for its management functions, and the management fees agreement may be limited to additional technical services.

lookout : this solution assumes that the legal form of the subsidiary allows the appointment of a legal person as manager. This is the case of the SAS (whose statutes may provide for a president who is a legal person) and of the SNC, but Not an SARL, where the manager must be a natural person.

Strictly limit the services to technical functions. If the holding company is not appointed manager of the subsidiary, the services invoiced must be restricted to technical and operational functions (accounting, IT, HR, legal) and exclude any services relating to general management functions (strategy, decision-making, operational management).

Document the distinction between roles Keep a precise file to demonstrate, in the event of an audit, that the services provided by the holding company are materially different from the functions performed by the manager under his mandate in the subsidiary.

A regulated matter requiring the assistance of a lawyer

The management fees agreement is at the crossroads of corporate law, of tax law, of accounting law And of criminal business law. Its drafting and implementation require a thorough mastery of these various disciplines and a detailed knowledge of the position of the tax administration and the jurisdictions.

It is not a simple contract for the provision of services that could be drawn up using a standard template found on the Internet. Each agreement must be custom designed, depending on the structure of the group, the nature of the activities, the resources available and the objectives pursued. The financial stakes are considerable: a poorly drafted agreement can lead to recoveries amounting to hundreds of thousands of euros, not to mention civil and criminal consequences.

Recourse to a business law lawyer is essential for:

• Analyze the group's situation and identify the services that can legitimately be invoiced
• Draft an agreement in accordance with legal requirements and adapted to the specificities of the company
• Determine a defensible and proportionate remuneration method
• Ensure compliance with the regulated agreement procedure
• Anticipate fiscal, civil and criminal risks
• Support the manager in the event of a tax audit or litigation

FAQ: the most frequently asked questions about management fees

What is the management fees agreement?

The management fees agreement is a contract for the provision of services concluded between two companies in the same group, generally between a holding company and its subsidiaries. It formalizes the conditions under which the holding company provides its subsidiaries with management services, administrative, accounting, legal, financial or strategic assistance to its subsidiaries, in exchange for remuneration. This contract is essential to justify financial flows between group companies to the tax authorities.

How do I charge management fees?

The billing of management fees must respect specific rules. Each service must result in the issuance of a detailed invoice including mandatory information (identity of the parties, precise description of the services provided, amount excluding VAT, 20% VAT, amount including VAT). The invoiced amount must be determined using a transparent method (cost plus, flat rate, etc.) and be proportionate to the real cost of the services. It is strongly recommended to accompany each invoice with an activity report describing the work actually carried out during the period.

What are the costs of running a business that can be invoiced?

The management fees that can be invoiced under a management fees agreement include a wide range of services: bookkeeping, payroll management, legal assistance, cash management, IT support, strategic advice, strategic advice, strategic advice, human resources management, marketing and communication. The main thing is that each service is real, identifiable, useful to the subsidiary and distinct from the functions of the corporate officer.

Who is affected by the agreements regulated in the context of management fees?

Management fee agreements are subject to the procedure of regulated agreements when they are concluded between a company and a person related to it: manager, partner holding more than 10% of the voting rights, or company controlling the former. In practice, this is almost always the case in the context of a holding/subsidiary group. The procedure requires the establishment of a special report (by the CAC or the president) and the vote of the partners in a meeting.

Management fees of a holding company: what are the specificities?

The management fees of a holding company have specific characteristics linked to its role as Head of group. The holding company invoices all its subsidiaries for shared services, which contributes to qualifying it as a leading holding company. The amounts must be distributed between subsidiaries according to objective distribution keys (in proportion to turnover, headcount, time spent, etc.). The holding company must have own resources (staff, premises, tools) in proportion to the services invoiced.

How are management fees recorded?

At the subsidiary, management fees are recorded as external service expenses at the debit of account 628, with the VAT deductible to account 44566 and the credit to the 401 Supplier account. At the holding company, they constitute a operating income credited to account 706 Services. At the end of the year, invoices that have not been received or are yet to be drawn up must be recorded in order to comply with the relationship of expenses and income to the financial year.

What is the legal definition of management fees?

Management fees refer to amounts paid by a subsidiary to its parent company in return for the provision of management, assistance and management services. This mechanism is based on a service contract — the management fees agreement — which formalizes the nature, terms and remuneration of the services provided. From a fiscal point of view, these amounts constitute a deductible expense for the subsidiary and a taxable product for the holding company, subject to VAT.

What are the risks in the event of a poorly written management fee agreement?

The risks are multiple and potentially devastating. On the map fiscal : rejection of the deductibility of expenses, VAT reminders, penalties of up to 40% to 80% of the adjusted amount. On the map civilian : cancellation of the agreement for lack of consideration, obligation to return the amounts paid. On the map penal : proceedings for abuse of social assets in the event of clearly excessive or fictitious remuneration (5 years of imprisonment and 375,000 euros fine). On the map patrimonial : loss of the qualification of managing holding and questioning of the related tax advantages (Dutreil, IFI exemption, etc.).

Article written by Guillaume Leclerc, business lawyer in Paris, 34 Avenue des Champs-Elysées

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