France's new tax diminshes advantages of stock plans in employee compensation

Conclusion The impact of the new regulations likely will be felt more in France than outside of France. Despite the clarification provided by the OECD sourcing principles, which resulted in the taxation in France of French-source equity gains realized by nonresidents, there was no mechanism to secure the collection of the relevant tax in the case of qualified plans. Moreover, as from , new reporting obligations for qualified plans issued on 31 January require the employer or issuer to calculate the French-source portion of the gain, report this information to the tax administration and deliver a certificate to the withholding agent. For practical purposes, the tax administration has adopted a calendar day approach, taking into account the period from the date on which the employee takes on an assignment in another country, including days not actually worked. Germany BFH rules on setoff of loss carryforwards.

individuals arriving in or leaving France whilst holding stock options. France broadly sources equity income based on time spent during vesting. Trailing liabilities (and reporting obligations) may apply. It is highly recommended that advice is sought on an individual case by case basis.


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Also, gains on stock options granted before June 20, are not subject to withholding tax. The withholding tax applies only to the French portion of the gain, that is, the portion of the gain which rewards an activity exercised in France during the “reference period” as defined in tax instruction BOI 14 A . Impact of France’s finance law on qualifying stock option and restricted stock unit plans incites companies to examine remuneration alternatives. The French government has decided to increase taxation of the wealthiest taxpayers, and to align the tax treatment of income derived from employment and from capital. Today, the regulation of stock options in France is comparable to that in other countries, although France still requires a 5 year delay between the attribution of an option and the sale of stocks.


Global Tax Guide: France UPDATES! The Global Tax Guide explains the taxation of equity awards in 43 countries: stock options, restricted stock, restricted stock units, performance shares, stock appreciation rights, and employee stock purchase plans. Unlike non-qualified stock options, gain on incentive stock options is not subject to payroll taxes. However it is, of course, subject to tax, and it is a preference item for the AMT (alternative minimum tax) . Conversely, the same logic leads to the full taxation (without tax treaty relief) of stock option income earned by French residents, even if such income is related to a professional activity performed outside France and is taxable in the foreign country concerned.

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