Free shares granted under the « Macron law »: expected comments from the french tax authorities

Article 135 of the « Macron Law » (n° 2015-990 for economic growth and business dated August 6, 2015) amended in depth the regime applicable to free share awards by offering a more flexible legal framework and a more favorable tax and social security treatment both for the beneficiaries and the employer (see Annex). This new regime is applicable to grants of free shares which have been authorized by a decision of the Extraordinary General Meeting of the shareholders (“EGM”) taking place as from August 8, 2015.

The French tax authorities have just issued comments on this “Macron law” regime on June 13, 2016, while proposed amendments are currently being issued to try to put an end to the Macron law regime or significantly reduce its tax and social benefits less than one year the law was adopted(1).

The French tax authorities have made some important clarifications, and notably the following points:

• Foreign issuer: the specific tax and social security regime only concerns free shares whose grant has been authorized after August 8, 2015 by the corporate body entitled to do so under the foreign issuer’s law. The French tax authorities specify that the implementation of a French sub-plan by the board of directors or similar body even after August 8, 2015 but based on an authorization given prior to that date does not allow the benefit from the new regime to be applied.

• Withholding tax on the French source gains related to « Macron » free shares realized by non-French tax residents at the time of sale of the shares: the French tax authorities specified that the basis for determining the withholding tax (as provided for by article 182 A ter of the French tax code) could be reduced by the 50% or 65% rebate for holding period of the shares.

• Starting point for the calculation of the holding period of the shares: the holding period of the shares must be counted as from the date the shares are definitively acquired. The French tax authorities specified that the holding period is counted as from the early acquisition date in the specific case of disability, if this case is allowed by the EGM. Also, when the heirs request the allocation of the free shares within the 6-month period as from the death of the beneficiary, the counting of the holding period begins as from the date of the heirs’ request.

The French tax authorities have also adapted some of their comments notably in order to take into account the regulatory or case-law developments, such as the implementation of the “Nominative Social Declaration” (or “DSN”) or the non-application of the rebate for the holding period of the shares to the capital loss (the capital loss is deducted in full from the acquisition gain, the remaining amount benefitting from the rebate for the holding period of the shares). The French tax authorities have also indicated that when the holding period provided for in the plan rules is not respected, even if this holding period is longer than the minimum period imposed by the law, the tax regime applicable to the acquisition gain is the standard one applicable to salary income.

1 - Proposed law “Charroux” dated April 13, 2016 whose purpose is to control remuneration as well as the proposed law “Sapin 2” dated March 30, 2016 which relates to the disclosure of information, the fight against corruption and the modernization of economy.

 

Annex: Main amendments applicable to free share awards provided for by the « Macron Law »

 

As a reminder, please find below the main amendments to the current regime applicable to free share awards by the « Macron Law »:

• Reduced “acquisition” and “holding” periods

The “Macron Law” has reduced the total acquisition and holding periods and allows the beneficiary to sell the shares after two years (four years for the previous plans). 
The minimum acquisition period is reduced from two to one year and the holding period is not obligatory. However, the cumulated periods of acquisition and holding shall not be less than two years, so that the holding period must be at least one year if the acquisition period is one year. The new regime creates therefore the possibility for a “1+1” or “2+0” formula a minima.

• An attractive tax and social security regime

- Income tax: taxation of the acquisition gain remains deferred to the time of sale of the shares, but this gain will be taxed as a capital gain.

- The acquisition gain will be thus subject to taxation at progressive rates, but could benefit from a rebate applicable to capital gains whose rate varies based on the holding period of the shares:
o 50% when shares have been held between two and eight years, and
o 65% when shares have been held for at least eight years.

- Social surtaxes: the acquisition gain will no longer be subject to social surtaxes applicable to employment income (8% rate), but will be subject to social surtaxes applicable to investment income at the 15.5% rate (of which 5.1% is deductible from income in the year of payment).

- Employee contribution: the 10% employee contribution is cancelled.

- Employer contribution: the contribution is reduced from 30% to 20%. The payment of this contribution is now due the month following the acquisition date of the shares (and no longer the month following the date of grant). This contribution applies to the actual value of the shares delivered. Under certain conditions, small and medium size companies are exempt from this specific employer contribution (and without being subject to the flat social rate).

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