Are you in the habit of granting credit notes to loyal clients at year end? It is a common commercial practice. But did you know it can cost you dearly if it is not properly justified?
A recent ruling of the Versailles Administrative Court of Appeal, handed down on 18 December 2025, reminds us that commercial generosity has its limits. When discounts become too systematic, the tax authorities may recharacterise them asabnormal debt write-offs— and refuse their deductibility.
Here is what you need to know to avoid this tax trap.
What the case law says
In this case, a company provided administrative services to client businesses belonging to the same family group. It invoiced its services at €500 excl. VAT per month per outlet, then systematically granted 50% credit notes at year end.
The problem? These discounts represented exactly half of the invoiced amounts every year. The tax authorities considered that this was not normal commercial practice, but anabnormal management act.
The judges confirmed this analysis. Result: the credit notes were no longer deductible from the company's taxable profit.
The 5 criteria that tipped the case
Why did this company lose? The judges identified several problematic elements:
- The percentage was always identical.Every year, the credit notes represented exactly 50% of invoices. No variation according to circumstances.
- No adjustment by client.The discounts took account neither of the financial year concerned nor of each client company's financial position.
- Flat-rate, unlinked credit notes.The discounts were granted globally, with no link to particular invoices or specific services.
- A margin that became negative.According to the tax authorities, after applying the discounts, the service company was operating at a loss.
- No evidence of the alleged difficulties.The client companies cited financial difficulties, but no documents supported this claim.
A contractual clause is not enough
The company tried to defend itself by relying on a contractual amendment. That document did provide for the possibility of granting reductions of up to 60% on commercial grounds.
But the judges dismissed this argument.Providing contractually for a discount is not enough to justify it for tax purposes.You must show that each discount granted responds to a genuine, documented commercial rationale.
How to secure your commercial practices
To avoid your discounts being recharacterised as abnormal management acts, adopt the following good practices:
- Vary the percentages.An identical discount every year raises suspicion. Adapt your credit notes to the reality of each situation.
- Document your decisions.Keep written records explaining why you grant a given discount to a given client: exceptional purchase volume, loyalty, justified temporary difficulties, etc.
- Link your credit notes to specific invoices.A global year-end credit note is more suspect than a discount tied to identified services.
- Check your profitability.If your discounts mean you work at a loss, the tax authorities will consider that you are not acting in your commercial interest.
- Obtain supporting evidence.If you grant discounts because of a client's financial difficulties, request supporting documents (accounts, accountant's certificates).
Key takeaways
Trade discounts remain perfectly lawful and deductible — provided they are justified by normal management. Systematic, flat-rate, undocumented credit notes may be recharacterised as debt write-offs and lose their tax deductibility.
If you are in the habit of granting substantial discounts to certain clients, now is the time to review your practices and build a solid file. Prevention is better than a tax adjustment.