Total exemption of a transactional redundancy payment

A senior manager of a large group was dismissed on spurious grounds, even though he had always received excellent evaluations from his superiors and colleagues. In the context of negotiations with his employer, he was awarded a settlement of almost one million euros. On the advice of the firm, he had treated this sum as non-taxable since it compensated for a dismissal without real and serious cause (Art. 80 duodecies, 1, 1° of the French tax code). He claimed the application of the Constitutional Council’s case law of 20 September 2013 (No. 2013-340 QPC) according to which compensation awarded by a court and that awarded under a transaction should be treated in the same way.
The exemption of this transactional indemnity was challenged by the administration. The dispute was brought before the administrative court of Cergy-Pontoise which, by a judgment of 8 July 2022, fully upheld Alain Frenkel’s request and discharged the entire additional income tax contributions resulting from the rectification. It should be noted that such a decision is rare, as the courts rarely grant full satisfaction to taxpayers in this matter (because they consider either – in most cases – that the proof of the absence of real and serious cause is not provided, or that it is appropriate to break down the compensation between its exempted portion repairing the prejudice resulting from the absence of real and serious cause and its taxable portion allocated as compensation for distinct prejudices).
The administration did not appeal against this judgment.