The Macron Draft Bill Would, If Enacted, Improve Significantly the French Tax and Legal Treatment of Awards Under Qualifying Share Plans, Which Would Become Very Attractive Compared to Cash Bonuses or Stock Option Plan


The Macron Draft Bill (projet de loi pour la croissance et l’activité) was approved on January 19, 2015 by the Special Commission of the French National Assembly, and will be discussed in the coming weeks before the French Parliament.

If enacted as currently drafted, shares granted to French resident beneficiaries under qualifying share plans (“attribution d’actions gratuites” or “AGA”) would benefit from a much improved tax and legal regime. The total duration of the vesting and holding periods would be reduced to two years (instead of four years), and the social security tax paid by the employer would be reduced to 20% (from 30%) and would be paid only if and when the shares are effectively attributed to the beneficiaries. Finally, the income tax treatment of the beneficiaries would also be alleviated, as the entire gain realized by the beneficiary would benefit from the capital gain tax regime.

Such modifications would also apply to qualifying share plans established by foreign companies for French resident employees.

The Macron Draft Bill is expected to be enacted in the spring of 2015, and would retroactively apply to qualifying share plans approved by shareholders’ meetings held as from January 1, 2015.


1. Shortening of holding and vesting period requirements

Currently, the total duration of the vesting period and holding period must be at least four years.Under the Macron Draft Bill, the minimal vesting period would be reduced to one year. In addition, the draft law provides that the cumulative duration of the vesting and holding periods must be no less than two years.

2. Tax treatment of the beneficiaries

Beneficiaries of stock awards under qualifying share plans potentially realize two separate gains: (i) one upon acquisition of the shares once vested, which is equal to the fair market value of such shares at the vesting date (the “acquisition gain”) and (ii) a gain (or loss) upon the subsequent sale of the shares, which is equal to the difference between the sale price and the fair market value of the shares at the vesting date (the “sale gain/loss”).

Under the current regime, the acquisition gain is treated as salary, and as such is fully taxable at standard income tax rates. The sale gain/loss is subject to capital gains tax treatment, under which tax reductions are available depending on the number of years the shares have been held (tax reduction of 50% for a holding period between two and eight years, and 65% above eight years).

Under the Macron Draft Bill, both the acquisition and sale gains would benefit from capital gains tax treatment. The acquisition gain would therefore benefit from the same 50/65% reduction as the sale gain, if any. The holding period for the application of such reductions would start as from the vesting date. If a sale loss is recognized upon the sale of the shares, such loss would be deducted against the acquisition gain. Taxation on both the acquisition gain and the sale gain/loss would be due upon the sale of the shares.

For instance, assuming the shares have a vesting period of one year, and a holding period of two years, the beneficiary would be entitled to a tax reduction of 50% on both the acquisition gain and the sale gain, whereas, under the current regime, only the sale gain would benefit from such reduction. While a holding period of only one year would be required from a legal standpoint, the income tax treatment of the beneficiary would be more favorable with a holding period of two years, as the beneficiaries would benefit from the 50% income tax reduction.

Regarding social security tax, the acquisition gain is currently subject to a specific tax of 10%, payable upon the sale of the shares by the beneficiary, and to social contributions applicable to salary income at a rate of 8%. The sale gain is subject to social security tax due on capital gains, at a rate of 15.5%.

The proposed regime would lower the social contributions due by beneficiaries: (i) Both the acquisition gain and the sale gain would be subject to social security tax due on capital gains (at a rate of 15.5%) and (ii) the specific social surtax of 10% applicable on the acquisition gain would be eliminated.

3. Employer social security contributions

Currently, the employer is liable for social security contributions equal to 30% of the fair market value of the shares. Such tax is due at the date of grant, on all shares awarded to the beneficiaries and is not refunded if certain shares are not effectively acquired by the beneficiaries (for instance because of non-compliance with performance or presence conditions). The Macron Draft Bill would lower this contribution to 20%. Such 20% contribution would be due at the vesting date rather than at the grant date, and only with respect to shares effectively received by the beneficiaries. In addition, certain small and medium-size companies would be exempted from such social security contributions up to a certain threshold per beneficiary.

Click here to view table.