Nearly two years after its announcement by the French President, François Hollande, one year after the French Constitutional Court (Conseil Constitutionnel) censored the first draft, the 50% employer-paid tax on high remuneration has finally been adopted by the French Parliament and validated by the French Constitutional Court on December 29th, 2013.
The tax will be paid by the entities and not by the beneficiaries, as the French High Administrative Court (Conseil d’Etat) suggested in its March 21st, 2013 decision. The tax concerns all enterprises, companies, groups or pass-through organizations performing businesses in France.
The portion of individual remuneration that exceeds Eur 1 million will be taxed at a 50% flat-rate (not the announced 75% rate). Although commercial, liberal or agricultural incomes are excluded from the basis of this new tax, the government wanted to broaden the scope of the tax by including any type of employees’ and corporate officers’ remunerations. The law directly provides with a list of remunerations included in the scope of the tax:
- wages, salaries, any other similar items and any benefits in cash or in kind;
- directors’ fees;
- retirement pensions, additional retirement incomes, severance packages, allowances or benefits and any other items attributed due to retirement;
- amounts granted pursuant to the provisions of the French Labor Code regarding employee profit-sharing and employee savings plans ("participation, intéressement, épargne salariale);
- grant of options, RSUs, BSPCEs (equity award for newly incorporated entities); and
- reimbursements to other entities of one of the remuneration listed above.
The portion of individual remuneration that exceeds Eur 1 million will be subject to a 50% tax if the remuneration is booked in the accounts of the paying/granting entity in 2013 and/or 2014.
With respect to options, RSUs and BSPCEs granted in 2013 or 2014 in accordance with the French Commercial Code, the tax basis is similar to the basis of the French 30% employers’ social contribution due at grant, meaning either the fair value of the options, RSUs and BSPCEs, or 25% of the value of the underlying shares, i.e., the shares of the granting entity, for options and BSPCEs.
The amount of the tax, capped at 5% of the 2013 or 2014 turnover of the paying/granting entity, is due by February 1st, 2014 and/or 2015, and must be paid by April 20th, 2014 and/or 2015 together with the filling of a specific declaration which model should be provided by the French tax authorities within the next few weeks. At last, it should be noted that the 50% employer-paid tax is not deductible from the 10.7% exceptional contribution on corporate income tax.
The government would like to ensure that this tax is not bypassed by splitting up remuneration between several entities in France and/or abroad. Many questions are therefore expected in these situations.