Tax losses: when a change of activity can cost you everything

Have you been through difficult years and your company has accumulated losses? Those losses are a valuable asset because they can be set against future profits and reduce your tax bill. But beware: a change of activity can make you lose that right overnight.

A recent ruling of the Nancy Administrative Court of Appeal reminds us of the rules. And they are stricter than you might think.

What the law says

The principle looks simple on paper: where a business changes activity in a significant way, the tax authorities consider that there is acessation of business. That cessation has two major consequences:

• Immediate taxation of profits not yet taxed
• Thepermanent loss of the right to carry forward lossesaccumulated

But what counts as a "significant" change of activity? That is where it gets complicated.

The 50% threshold: an objective criterion

The tax authorities consider there is a real change of activity where abandonment or transfer of activity leads to a reduction of at least50%compared with the previous financial year on one of these criteria:

• Turnover
• Average headcount
• Gross amount of fixed assets

If you cross this threshold on one of these three indicators, you are in the danger zone.

The estate agency case: a textbook example

In this case decided in November 2025, an estate agency sold two business assets attached to its branches. After the operation, its activity refocused on property transactions and rental management.

The business thought it was simply scaling back. The tax authorities saw a characterised change of activity. The judges agreed with them.

Why did the court rule against the business?

The judges identified several converging factors:

• A very sharp fall in turnover
• A significant reduction in headcount
• A substantial decrease in fixed assets

For the court, this combination did not reflect a simple "downsizing" but theabandonment of two lines of business. The distinction is fundamental.

Simple reduction or abandonment of activity: how to tell the difference?

That is the whole issue. Case law distinguishes two situations:

What is NOT a change of activity:A simple reduction in the volume of activity, provided the activity itself is maintained. You may lose clients, reduce headcount or close a branch without losing your losses, as long as you continue the same activity.

What IS a change of activity:Abandonment or transfer of one or more lines of business that changes the very nature of your company.

The line is sometimes fine. A business that sells and provides services, and abandons sales to keep only services, changes activity. A business that reduces its sales team but continues both activities does not change activity.

The exception: ministerial approval

There is a way out. If abandonment or transfer of activity isnecessary to ensure the survival of the business and jobs, you may apply for ministerial approval allowing you to keep your losses.

This procedure is nevertheless burdensome and the outcome is not guaranteed. It must be started before the operation.

Key takeaways

• A change of activity causing a drop of more than 50% in turnover, headcount or fixed assets may be treated as a cessation of business
• That characterisation causes loss of the right to carry forward prior losses
• A simple reduction in activity (even a large one) is not a change of activity if the nature of the activity remains the same
• Abandonment of distinct lines of business constitutes a change of activity
• Ministerial approval can preserve your losses if the operation aims to safeguard the business and employment

Before any restructuring, reorganisation or partial disposal of activity, review the potential tax impact with your accountant. Losing carry-forward losses can be very costly.