EMPLOYEE STOCK PURCHASE PLANS

EMPLOYEE STOCK PURCHASE PLANS: EMPLOYMENT

Labor Concerns

To reduce the risk of potential claims from employees that they have entitlements under Plans, Plans should be carefully drafted so that it is clear that participation is discretionary and that termination of employment will result in the loss of unvested rights.

It is no longer possible to provide that an employee whose employment is terminated for cause or gross misconduct will lose his acquired rights. All employees should be treated in the same way, regardless of the grounds for termination. Certain French company savings plans (including the French qualified employee stock purchase plan ("PEE")) must be negotiated with employee representatives if the company has union delegates or a works council.

Communications

Translation of Plan documents for employees is recommended but is not a legal requirement. Government filings must be made in French.

Electronic execution of award agreements may be acceptable under certain conditions.

EMPLOYEE STOCK PURCHASE PLANS: REGULATORY

Securities Compliance

If the Issuer does not have securities listed on a regulated exchange in the EU, there may be a requirement to publish a prospectus in France which has been approved in the Issuer's Home Member State if (i) the offer is made to 150 persons or more in any Member State and (ii) the price being paid for Stock by employees throughout the EU is greater (in aggregate) than €5m, when aggregated with offers of securities made in the EU in the previous 12 months. If the Issuer has securities listed on a regulated exchange in the EU, the Issuer will be required to publish summary information about the Plan and the Stock being offered to employees.

Foreign Exchange

The employee must satisfy declaration requirements for the transfer of currency into or out of France under certain conditions.

Data Protection

Employee consent for the processing and transfer of personal data is recommended in order to comply with data privacy requirements. Employers must inform employees about data processing and the transfer of data abroad. In addition, any database containing personal data must be reported to France's data protection authorities prior to the transfer of any data abroad.

EMPLOYEE STOCK PURCHASE PLANS: TAX

Employee Tax Treatment

The employee is taxed on the spread at the time the purchase right is exercised. The proceeds from the sale of Stock may be subject to income tax at progressive rates up to 45%, plus additional social taxes at a total rate of 15.5% (of which 5.1% is deductible) and, if applicable, to the exceptional income tax for high earners at a rate of 3% or 4%. The taxable gain is reduced by a progressive allowance depending on the holding period (50% for Stock held between 2 and 8 years and 65% for Stock held for more than 8 years).

Social Insurance Contributions

Social insurance contributions are due on any income from a Plan that is not established as a tax-favored scheme. Most social insurance contributions are uncapped and payable at a rate amounting to approximately 45% for employers and 23% for employees.

No social insurance contribution applies under the PEE tax-favored regime (details of which are set out below).

Tax Favored Program

A tax-favored scheme (PEE) is available, but not appropriate for every company.

Under the PEE regime, the contributions made by the employee and the employer in the PEE to acquire shares must be frozen for at least five years. The employee's annual contribution in the PEE is limited to 25% of his or her annual gross salary. The additional contribution of the company is not taxable for the employee if it does not exceed three times the employee's contributions, capped to €3.089[1] per calendar year and per employee.

This additional contribution can be increased if used for the purpose of the employee's acquisition of shares, or investment certificates issued by the company or by an associated company. The total value of the company's contributions which are not taxable for the employee under the conditions mentioned above, but subject to CSG and CRDS withheld by the employer, must still be lower than three times the employee's contribution.

Withholding and Reporting

In general, reporting is required (notably, deposit of the corporate saving plan to the "DIRECCTE" – Labor Administration) but there are no income tax withholding obligations. Withholding is required for social insurance.

Employer Tax Treatment

Under the PEE regime, the company's additional contribution is tax deductible and exempt from social contributions, and other taxes (except from tax on wages with respect to the company's additional contributions made from 1 January 2013). However, a fixed social tax (forfait social) of 20% is payable by the employer on the company's contributions.

RESTRICTED STOCK and RSUs

RESTRICTED STOCK and RSUs: EMPLOYMENT

Labor Concerns

To reduce the risk of potential claims from employees that they have entitlements under Plans, Plans should be carefully drafted so that it is clear that participation is discretionary and that termination of employment will result in the loss of unvested rights.

Free shares allotted under Article L. 225-197-1 to 3 of the Commercial Code can be placed on a tax-favoured scheme (PEE), subject to specific conditions. Stock should be granted on the same terms to all employees pursuant to objective criteria; the shares are blocked for 5 years and the modalities of application of the shares among the employees must be defined in an in-house collective agreement.

It is no longer possible to provide that an employee whose employment is terminated for cause or gross misconduct will lose his acquired rights. All employees should be treated in the same way, regardless of the grounds for termination.

Communications

Translation of Plan documents for employees is recommended but is not a legal requirement. Government filings must be made in French.

Electronic execution of award agreements may be acceptable under certain conditions.

RESTRICTED STOCK and RSUs: REGULATORY

Securities Compliance

Provided the restricted stock or RSUs are awarded and vest free of charge, securities filings are not likely to be triggered at award or vesting.

Foreign Exchange

The employee must satisfy certain declaration requirements for the transfer of currency into or out of France. However, if the award is granted to the employee via bank transfers, a declaration will not be required.

Data Protection

Employee consent for the processing and transfer of personal data is recommended in order to comply with data privacy requirements. Employers must inform employees about data processing and the transfer of data abroad. In addition, any database containing personal data must be reported to France's data protection authorities prior to the transfer of any data abroad.

RESTRICTED STOCK and RSUs: TAX

Employee Tax Treatment

Unless the qualified tax treatment for free shares applies (see below), the employee should be subject to income tax at the progressive rate (up to a maximum rate of 45%) on the value of the Stock when the restricted stock is granted and, in the case of RSUs, on the value of the Stock when the RSU award vests. Such gains are also liable, if applicable, to the exceptional income tax for high earners at a marginal rate of 3% or 4%.

Any capital gain realized upon a subsequent sale of the Stock is also subject to income tax at progressive rates up to 45%, plus additional social taxes at a total rate of 15.5% (of which 5.1% is deductible) and, if applicable, the exceptional income tax for high earners at rate of 3% or 4%.

Any such capital gain (being, broadly, the difference between sale proceeds and market value on vesting) is reduced by a progressive allowance depending on the period during which the Stock has been held following vesting (50% after 2 years, 65% after 8 years).

Income tax arising on the acquisition of restricted stock or vesting of RSUs as the case may be (on a non-qualified basis) should be paid by the employee following each chargeable event through their annual tax return.

Social Insurance Contributions

Social insurance contributions are due on any income from a restricted stock or RSU plan which does not qualify for the tax-favored program. The rates for most social insurance are not subject to a cap and can be approximately 45% for employers and 23% for employees. The employer is responsible for withholding and paying the employee's proportion within one month of acquisition of restricted stock and the vesting of RSUs.

As set out above, gains on a subsequent disposal of Stock are also subject to social surtaxes on employment income (CSG and CRDS) at a global rate of 15.5%, payable following the sale of the Stock. A 5.1% portion of the CSG is deductible from the taxable income arising in the year of its payment.

Within the month following the vesting date of the free shares, employers are required to pay a specific social security contribution of 20% on the value of the shares on the date of vesting.

Tax Favored Program

From 8 August 2015, there is a qualified free share plan regime in France under which no tax is payable until the sale of the Stock, and there is favourable social security treatment for both employees and employers.

To qualify, broadly speaking:

  • Stock must be held at least one year between award and vesting;
  • a minimum 2 years from award to sale (including vesting and holding periods); and
  • express consent is required by shareholders.

For grants of qualifying restricted stock/RSUs made on a free basis on or after 8 August, the gain on acquisition of Stock/vesting of RSUs is subject to progressive rates of tax (as ordinary income) up to a maximum rate of 45% (increased by an additional 3% or 4% where the participant is a higher earner). However, such taxable gains benefit from a 50% (or 65%) reduction if the Stock is held for more than 2 years (or 8 years) years following vesting. Income tax arising on acquisition/ vesting is not due to be paid by a participant until following a disposal of the underlying Stock.

There are no employee social security contributions payable by the employer (please refer to the above section for social security contributions), subject to certain filings. A 20% specific social contribution is payable by the employer on vesting, as compared to the 45% contribution payable under non-qualifying arrangements. The employee's social security contributions, at an aggregate rate of up to 23% (as described above), are replaced by social surcharges (CSG and CRDS) at a rate of 15.5%. These are payable by the employee via annual reporting following disposal.

Withholding and Reporting

In general, reporting is required but there are no income tax withholding obligations. Withholding is required for social insurance arising in respects of awards which have not been granted under the tax-favored program.

Employer Tax Treatment

The costs relating to the provision for the acquisition of the restricted stock should be deductible (no up-to-date official position).

STOCK OPTIONS PLANS

STOCK OPTIONS PLANS: EMPLOYMENT

Labor Concerns

To reduce the risk of potential claims from employees that they have entitlements under Plans, Plans should be carefully drafted so that it is clear that participation is discretionary and that termination of employment will result in the loss of unvested rights.

It is no longer possible to provide that an employee whose employment is terminated for cause or gross misconduct will lose his acquired rights. All employees should be treated in the same way, regardless of the grounds for termination.

Communications

Translation of Plan documents for employees is recommended but is not a legal requirement. Government filings must be made in French.

Electronic execution of award agreements may be acceptable under certain conditions.

The company must provide (i) the employee with an individual information report in connection with the exercise of employee options during the reference period, no later than 1 March in the relevant year, and (ii) a copy of the individual information report to the National Tax Service, by no later than 30 April.

STOCK OPTIONS PLANS: REGULATORY

Securities Compliance

Provided the options are non-transferable, securities filings are not likely to be triggered at grant or exercise of employee options.

Foreign Exchange

There are no foreign exchange control issues to be considered in France.

Data Protection

Employee consent for the processing and transfer of personal data is recommended in order to comply with data privacy requirements. Employers must inform employees about data processing and the transfer of data abroad. In addition, any database containing personal data must be reported to France's data protection authorities prior to the transfer of any data abroad.

STOCK OPTIONS PLANS: TAX

Employee Tax Treatment

For non-qualified plans, the employee is liable to income tax at progressive rates on the gain at exercise, up to a maximum rate of 45%, plus additional social taxes at a total rate of 15.5% (of which 5.1% is deductible) and, if applicable, the exceptional income tax for high earners at a rate of 3% or 4%. The taxable gain is reduced by a progressive allowance depending on the holding period (see below).

Social Insurance Contributions

Social insurance contributions are due on the gain resulting from a non-qualified option plan at approximately 45% for employers and 23% for employees.

Details of social security contributions in relation to French qualified option plans are set out below.

General Tax Treatment

For grants made under a French-qualified option plan on or after 28 September 2012, gains on exercise are subject to progressive rates of tax up to a maximum rate of 45% (increased by an additional 3% or 4% where the participant is a high earner).

These gains are subject to the social surtaxes on employment income (CSG and CRDS) at a global rate of 8%. A 5.1% portion of the CSG is deductible from the taxable income in the year of its payment. The gain resulting from a qualified option plan is exempt from employer's social insurance contributions, provided the employer complies with reporting obligations (see below).

Otherwise, within the month following the grant date of the stock options, employers are required to pay a specific social security contribution of 30%. The taxable basis of the contribution is equal, at the employer's discretion, to either (i) the fair value of the options (as defined under IFRS 2) or (ii) 25% of the value of the underlying shares on the date of grant.

During the year in which the sale of Stock occurs, employees are required via their own annual tax return to pay a specific social security contribution of 10%. The contribution is assessed on the gain income arising from the difference between the (i) exercise price of the options and (ii) market value of the Stock on the date of disposal.

The total maximum marginal tax rate applicable to gains resulting from options granted under a French-qualified option plan on or after September 28, 2012 amounts to 64.5% (of which 5.1% is deductible).

Capital gains realized upon sale of the Stock are subject to income tax at progressive rates up to 45%, plus additional social taxes at a total rate of 15.5% (of which 5.1% is deductible) and, if applicable, to the exceptional income tax for high earners at a rate of 3% or 4%.

A rebate of 50% for Stock held between 2 and 8 years, and of 65% for shares held more than 8 years, is applied on the amount of the capital gains.

Tax Favored Program

Preferred tax treatment is available for grants made under a French-qualified option plan before 28 September 2012, resulting in deferral of tax for employees and elimination of employer social insurance tax if the Stock is held for four years from grant. A qualified sub-plan is often adopted to ensure that the necessary changes are made to the Plan in order to meet the various conditions.

If the shares are sold between the fourth and the sixth year after the date of grant, any gain arising on the exercise of the options will be subject to income tax at the rate of (i) 45.5% (30% + 15.5 % additional social charges) for the proportion of any gain below €152,500, and (ii) 56.5% (41% + 15.5% of additional social charges) for the proportion of any option gain above €152,500.

If the shares are sold after the sixth anniversary of the date of grant, any gain arising on the exercise of options will be subject to income tax at the rate of 33.5% (18% + 15.5% of additional social charges) for the proportion of any gain below €152,500 and at 45.5% (30% + 15.5% additional social charges) for the proportion of any option gain above €152,500.

A 5.1% portion of additional social charges is deductible from the taxable income in the year of its payment. If applicable, the gains are subject to the exceptional income tax for high earners at a rate of 3% of 4%.

Withholding and Reporting

There are no income tax withholding obligations. The local employer may have a withholding obligation in relation to social insurance arising on the exercise of options. Reporting requirements apply to the employer and employee.

Grant to certain managers or to the ten employees benefiting from the highest option grants during the year must be disclosed in a report in the annual shareholder meeting.

Employer Tax Treatment

Costs relating to the provision of options under the Plan over existing shares can be deducted from the Subsidiary's taxable income. No such deduction is available for options over newly issued shares.