The second Amending Finance Act for 2012 significantly increases taxation on employee savings and on certain compensation: it also eliminates the exemption on taxation and social contributions of overtime hours.
- Elimination of deductibility of provisions for investment
Article 237 bis of the French Tax Code allowed posting of a tax-free provision for investments reserved for companies which had either adopted a derogatory regime for calculating employee profit sharing or voluntarily applied it (companies with fewer than 50 employees).
This mechanism had been introduced with the goal of keeping companies’ self-financing margins for making certain investments when they granted shares to their employees based on the companies’ earnings which exceeded the employee profit sharing to which application of the legal formula would have given a right.
This system is henceforth eliminated and, therefore, no new deduction is authorized for fiscal years ended as of thelaw ’s publication date. As regards provisions posted for fiscal years ended before the act enters into force, they will be carried back only if they are not used after a 2-years period.
- Increase in the special social contribution
The rate of the special social contribution ("forfait social") that has been applicable for several years to compensation items exempted from social contributions (employee bonus in case of dividends payment, directors’ fees, profit-sharing) was increased from 8% to 20%. This rate enters into force for compensation paid as of August 1, 2012.
- Increase of the social contributions on stock options and share awards
Stock options and share awards benefiting from the specific tax regime for both tax purposes (Articles 163 bis C, 80 bis and 200 A-6 of the French Tax Code for stock options and Articles 80 quaterdecies and 200 A-6 bis for shares awards) and social security purposes (Article L. 242-1 of the French Social Security Code) are subject to a 14% special employer contribution at grant. The rate of this contribution was increased from 14% to 30% and applies to options and share awards granted made as of July 11, 2012.
In addition, the rate of the 8% specific social contribution due by those receiving benefits at the time of sale (i) of shares acquired when the stock options are exercised, (ii) of share awards, benefiting from the specific regime, was increased to 10% for sales made as of the time when the law enters into force.
The increase in these contributions is aimed at harmonizing the social contributions due on the various forms of compensation.
- Elimination of social reductions related to overtime hours
Overtime hours created a right to exemption from employee social contributions and were exempt from income taxes. In addition, a flat-rate deduction of employer contributions were also granted to small and mid-size companies.
As of September 1, 2012, the exemptions from social contributions that were applicable to overtime hours will be abrogated. The exemption from income taxes on overtime hours is also eliminated for hours worked as of August 1, 2012. On the other hand, the deduction of employer contributions for small and mid-size companies (with fewer than 20 employees) was continued.
- Lowering of the cap for triggering the social contributions due on the highest termination indemnities
The exemptions from social contributions related to the termination indemnities made to corporate officers when they cease their duties and when employees’ employment agreements are terminated have been reduced in recent years. Hence, indemnities are notably subject as of the first euro to social contributions if it exceeds thirty times the annual value of the social security cap.w
Considered to be a social niche, this threshold for triggering contributions due as of the first euro was lowered to ten times the annual value of the social security cap for termination indemnities made as of September 1, 2012.
- Doubling of the rates of social contributions on defined term pensions ("retraites chapeaux")
In return for exclusion from the social contributions base, the amounts paid by an employer to provide a good retirement level to a beneficiary and which corresponds to a percentage of the employee’s last salary are subject to a specific contribution paid by the employee and at its choice:
- either a 16% contribution on the total pension amount
- or a 12% contribution in case of external management or 24% in case of internal management on bonuses paid to finance supplementary defined-benefit retirement plans.
These rates will be doubled as of January 1, 2013, for the contribution based on the total pension amount (32%) and as of the fiscal years ended after December 31, 2012, for the others (24% and 48%).