Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USAFrance6.2 Employer contribution: The employer may make a contribution 47 into the PEE(i.e. for the benefit of an employee), which is deductible for corporation taxpurposes and is not subject to employer social security contributions. Theemployee is not subject to income tax or employee social security contributionson the contribution, provided that the contribution remains invested in the PEEfor five years (subject to certain exceptions). However, 97% of the employercontribution is subject to CSG (7.5%) and CRDS (0.5% 48 ). The full amount ofthe employer contribution is subject to a 4% social security contribution (forfaitsocial). 49There are also tax benefits in connection with dividends 50 and loans made toemployees to subscribe for shares 51 .4748495051Abondement.The CSG and the CDRS are to be withheld by the employer before the termination of the five-yearholding period.The 4% contribution (forfait social) was introduced by the 2009 French Social Security Financing Billand has been applicable since 1 st January 2009 (originally set at 2%, it was raised to 4% as from 1January 2010).Dividends and tax credits received while the shares are held in the PEE are not subject to tax as longas they are reinvested in the PEE and are subject to the same holding period as applies to the sharesfrom which the dividends derive (at least 5 years). The exemption continues to apply even if the sharesare sold before the end of the holding period in the limited circumstances specified in article R. 3324-22of the French Labour Code.Following the provisions of article L. 225-216 of the French Commercial Code, in the case ofsubscription or acquisition of shares of the company (or a subsidiary or an affiliated entity within themeaning of article L. 3344-1 of the French Labour Code) the employees may be granted a loan by thecompany. As far as personal income tax is concerned, if the loan is interest free, the benefitcorresponding to it will not be subject to personal income tax as a benefit-in-kind, provided it is grantedfor a maximum period of twelve months from the day of the paying up of the shares. If the delay for therepayment is longer than one year, the benefit corresponding to a loan granted at a preferential ratewill be subject to personal income tax (i) if the interest rate reduction exceeds 30% of the lowestinterest rate usually offered to the general public if the employer is a financial institution or (ii) if theinterest rate is lower than the legal interest rate provided for by article L. 313-2 of the French Monetaryand Financial Code and published yearly by the French Ministry of Finance (0.65% for the year 2010) ifthe employer is not a financial institution or if the loan is not of those that are habitually offered to thegeneral public. As far as social security contributions, CSG and CRDS are concerned, (i) if theemployer is a financial institution, the interest rate reduction will be treated as benefit in kind, subject tosocial security contributions, CSG and CRDS, if the reduction exceeds 30% of the lowest interest rateusually offered to the general public by the employer, regardless of the duration of the spreadinginstalments; (ii) if the employer is not a financial institution or if this kind of loan is not usually granted tothe general public, the preferential interest rate will constitute a benefit in kind if it is lower than thelegal interest rate provided for by the article L. 313-2 of the French Monetary and Financial Code(0.65% for the year 2010), thus the benefit corresponding to the difference between the legal interestrate and the interest actually charged to the employee will be subject to social security contributions,UK/1729295/03 72 September 2010