Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USAFrance4.2.2 Employer tax and social security contributions4.3 Tax withholdingCorporation tax deduction: French companies may deduct from theirtaxable profits, subject to certain limitations, the expenses incurred as aresult of the exercise by their employees of options to buy existingshares 21 . Allowable expenses would include the cost of buying shares inthe market to satisfy the exercise of options, to the extent that the cost ofbuying the shares exceeds the exercise price due from the employee 22 .Where a French or a non-French parent company recharges the costs ofproviding options to employees to the French company, the Frenchcompany may deduct the costs from its taxable profits where the optionsare to buy existing shares 23 (see also paragraph 5).Social security contributions: Employer social security contributionsare due at an approximate rate of 45-50% on the exercise of the option,subject to earnings caps 24 .The employee is responsible for paying any income tax due but the employer isresponsible for withholding employee social security contributions.4.4 Taxation of share disposalsAn employee may be liable to capital gains tax on the disposal of shares. Tax ischarged on the difference between the proceeds of sale received by theemployee and the price paid by the employee to acquire the shares (or, if the21222324Again, as indicated under footnote 19, the provisions of the French tax code allowing the tax deductionof such costs refer to qualifying stock option plans (cf. paragraph 5.1.2). There are however argumentsto sustain that the deduction should also be possible in the case of non-qualifying stock option plans onthe grounds of general French tax law principles.In the case of options to subscribe for new shares, the French tax authorities and the courts considerthe exercise of the option to be, both from a legal and accounting point of view, a contribution whichcannot result in a deductible capital loss. However, pursuant to a law dated 30 December 2006 for thedevelopment of employees' participation and shareholding, in the year of exercise by the employees oftheir options to subscribe for new shares of the company, the company will benefit from a deduction forcorporation income tax purposes of an amount equal to the difference between the value of the sharesat the time of the increase of capital and subscription price of the shares, provided that the options (i)benefit all employees of the company and (ii) are granted either uniformly or based on time of presencein the company/salaries or on a combination of these criteria (see paragraph 5.1.2 below).Such costs may normally not include a capital loss on options to subscribe for newly issued shares,unless the conditions mentioned under footnote 21 are fulfilled.The comment in footnote 19 also applies for employee’s social contributions.UK/1729295/03 61 September 2010