Employee Share Plans in Europe and the USA - Sorainen

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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
Employee Share Plans in Europe and the USAFranceshares were subject to income tax when they were acquired, the market value ofthe shares at that time). For 2010 income (declared in 2011), the rate of tax is30.1% (capital gains tax at 18%, CSG at 8.2%, CRDS at 0.5%, social tax of 2%and an additional contribution of 1.4%).The capital gains tax charge only arises ifthe total sale proceeds of all shares disposed of by the employee in any onecalendar year exceed a certain level (€25,830 for sales realised in 2010).5. Tax favoured employee share plans 255.1 Favourable tax regime for optionsA favourable tax regime is available for employees of French companies foroptions granted by their employer, or by a parent of their employing company inaccordance with article L. 225-177 to L. 225-186 of the French CommercialCode. This favourable tax regime can also apply to options granted by a foreignparent company of the French employing company provided the options aregranted in accordance with the relevant provisions of articles L.225-177 to L.225-186 of the French Commercial Code. However, the French tax authorities haveconfirmed that only the "essential" French law requirements need be met for thefavourable tax regime to apply to a foreign parent company. 26 A non-exhaustive25 The French Government has made a number of announcements in relation to proposed changes to therates of, amongst other things, social security charges payable by both the employer and the employeeon qualified share plans. These changes are included in current end of year finance bills, which are to bevoted on later this year. The proposals include (1) an increase in the employer social security charge atgrant from 10% to 14% (2) an increase in the employee social security charge on qualified share plans,due in the year of sale of the acquired shares from 2.5% to 8%. In addition, under the proposals, (1) thehighest marginal rate of income tax will increase from 40% to 41% and (2) the current capital gains taxexemption for gains below the current threshold of €25,830 is expected to be removed.26The main conditions are as follows:• the option plan has been authorised by a shareholder meeting of the company granting the optionsor by any other committee or board of the company in accordance with the local corporate law ofthe foreign company. Under French commercial law, such authorisation must be limited to nomore than 38 months from the date of the shareholder meeting. However, the French taxauthorities will accept a longer authorisation than 38 months provided that it is in compliance withthe legislation applicable to the relevant foreign issuer and is reasonable (an authorisation of 10years is not considered to be reasonable by the French tax authorities);• the beneficiaries of the stock options must be:(a) if the underlying shares are listed on a stock exchange, employees or executive officersof (i) the French issuing company, (ii) a company which directly or indirectly holds atleast 10% of the share capital or voting rights of the French issuing company, (iii) acompany which is directly or indirectly held to more than 10% by the issuing company (atleast 10% of the share capital or voting rights), or (iv) a company which is directly orindirectly held to more than 50% by a company which holds at least 50% of the issuingcompany;UK/1729295/03 62 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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