Companies have the capacity to allot free shares to their employees, or the employees of the group they belong to, mainly for the purpose of retaining talent. Such grants lead to favorable tax and social security contributions treatment, provided that the plan qualifies under French law i.e., several conditions must be met, and in particular, there must be an acquisition period, followed by a conservation period. Most of the time the acquisition is conditioned upon the presence of the beneficiary on the payroll at the time of the shares’ vesting date and is sometimes also subject to collective and/or individual performance conditions.
Under French law, when the free share plans do qualify, the corresponding value is not subject to the standard social security contributions. The employer is, however, required to pay an employer-specific contribution (“contribution patronale”). Prior to the Macron Act dated 6 August 2015, the employer’s contribution was due within the month following the company’s decision to grant the free shares, i.e., before the employees effectively acquire the shares. Since the Macron Act, it now becomes due within a month of the share acquisition date.
In this context, the following question was brought to the French Constitutional Council (“Conseil Constitutionnel”) regarding the provisions in force prior to the Macron Act: was the employer entitled to claim for the employer’s contribution refund, in the event the free shares were allotted but, in the end, not actually granted to the employees as some conditions were not met.
By a decision 2017-627/628 dated 28 April 2017, the French Constitutional Council underlined that the challenged provisions were leading to the taxation of the decision of allotting “remuneration” and not the “remuneration” itself. As a result, the Constitutional Council ruled that an employer could not be liable to pay contributions on remuneration it did not ultimately pay the employee and thus, was entitled to get a refund of the contribution paid when the free shares’ conditions of acquisition have not been met.
Consequently, companies could be eligible to ask the URSSAF for a refund if the following two conditions are met:
- the decision of allotting free shares was made prior to the enactment of the Macron Act on 7 August 2015;
- and the shares were not ultimately granted to the employees because a condition had not been met.
Last, but not least: the date from which the three years’ statute of limitation runs is still unclear. It could be (i) either the date on which the employer has been made aware that one of the conditions to a final grant is not fulfilled; or (ii) the payment date of the employer’s contribution. So, if relevant, we recommend asking for the refund as soon as possible.