Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USAFranceemploying company may normally deduct these costs from its taxableprofits. 19Social security contributions: The employer must pay social securitycontributions on any discount on shares which is taxable in the hands ofthe employee. The amount subject to income tax is subject to employersocial contributions at an approximate rate of 45-50% subject toearnings caps. The applicable rates and earnings caps depend on thenature of employment. 20 The rates of social security and the earningscaps may be varied twice a year (in January and July).4.2 Taxation of share options4.2.1 Employee tax and social security contributionsGrant: There is no tax charge on the grant of a share option.Exercise: There is an income tax charge on the exercise of a shareoption on the difference between the market value of the shares at thedate of exercise and the option exercise price. For the 2010 tax year,the income tax rates range from 0% to 40%. However, the tax positionon exercise is different if the option complies with the favourable taxregime described in paragraph 5 below.Social security contributions: Employee social security contributionsare due at an approximate rate of 20-30% on the exercise of the option,subject to earnings caps.1920Specific provisions of the French tax code specifically allow the tax deduction of such costs in relationto free shares/options granted under qualifying free share plans and stock option plans (i.e. planswhich fulfil the conditions provided for under articles L. 225-177 to L. 225-186-1 of the FrenchCommercial Code for stock option plans and under articles L. 225-197-1 to L. 225-197-6 of the FrenchCommercial Code for free share plans, as described under paragraph 5 below). However, there arearguments to sustain that the deduction should also be possible in the case of non-qualifying freeshares/stock option plans on the grounds of the general French tax law principles, providing, inter alia,that the company can justify that the costs are borne in accordance with the company's corporateinterest, that the costs are not excessive and are paid in consideration for services performed by thebeneficiaries of the free shares/stock options.These rates vary depending upon the professional category of the employee concerned(executive/non-executive), the business sector in which the employing company operates, thecollective agreements applicable within the employing company and the commitments made by theemployer, if any. These rates decrease quite substantially along with the increase in remunerationabove €250,000 (e.g. for an annual remuneration of €500,000: approximately 35% of employer's socialsecurity contributions and 15% of employee's contributions). This is because the basis on which mostsocial security contributions are calculated are capped between one to eight times the social securityceiling (fixed at €2,885 per month for 2010).UK/1729295/03 60 September 2010