The approval requirements for granting tax-favoured share awards and options in France have been the subject of some uncertainty. The French Commercial Code (FCC) requires French companies to obtain corporate approval of their share plans in order to benefit from tax favoured status. The French Tax Authorities (FTA) indicated in 2010 that non-French companies are also required to comply with the substantial elements of the FCC by:
- obtaining shareholder approval for plans (though in some instances board approval is sufficient); and
- ensuring that approvals lasting over 38 months are for a ‘limited and reasonable’ period.
The exact meaning of a ‘limited and reasonable’ period has been the source of some concern for non-French companies seeking to benefit from tax-favoured status. In our December Bulletin we mentioned a July 2010 ruling by the FTA that a ten year period - as regularly used in UK and USA plans - would not be considered a ‘limited and reasonable’ period.
The FTA passed ruling in May 2011 which indicates that a 76 month approval period will be treated as being limited and reasonable.
The new ruling also introduces a safe harbour for non-French companies if they are subject to national rules which have the level of corporate transparency and shareholder protection provided by French commercial legislation. It has already been confirmed that companies subject to US laws, those with securities listed on the New York Stock Exchange and those listed on NASDAQ fall within the safe harbour.
Unfortunately, the FTA are yet to confirm the position for UK listed companies, though it intends to publish a ruling in due course. Until such a ruling has been provided, care should be taken to ensure that the date of grant of any awards or options under French tax-favoured plans is within 76 months of the date of the relevant approval of the plan. Companies failing to comply with the requirements might find that awards granted under French appendices to UK company share plans (or other non-French share plans) do not qualify for tax favoured treatment.
When considering future grants on a tax favoured basis, non-French companies may wish to ensure they fall within a safe harbour or check whether they need to renew board or shareholder approval of the plan earlier than would normally be the case.