May 7, 2013

Amy ReinaDeloitte Tax LLP

GEO Boston Chapter Presents: Update on France-Recent Tax Law Changes

© 2013 Deloitte LLP. Private and confidential.

General Overview

New Tax Law and Proposed Tax Increase

Qualified plan changes

Where Do we Go From Here?

2

Agenda

© 2013 Deloitte LLP. Private and confidential.3

I am so pleased to be a

Russian citizen!

Welcome Gerard!

© 2013 Deloitte LLP. Private and confidential.

What has already changed?

4

From July 11, 2012• Qualified grants: Employer tax at grant increased;• From 14% to 30%

• Contribution on high revenue CHR – ALL CATEGORIES• 3% / 4 %From January 1, 2011

From January 1,2012• Social surtaxes on investment income increased;• From 13.5% to 15.5%

From August 18, 2012• Qualified plans: Employee contribution increased;• From 8% to 10%

From August 1, 2012• Forfait social rate on all-employee profit sharing schemes• Increased to 20%

• Individuals leaving France are subject to capital gains tax on unrealized gains (“exit tax”)From March 3, 2011

© 2013 Deloitte LLP. Private and confidential.

2013 Key Rate Changes

5

• Subject to progressive income tax rates. Overall top marginal rate including CHR and social surtaxes is 64.5%

• 40% deduction for dividends brings overall top marginal rate to 46.5%

• Some exceptions (life insurance / PEA)• New withholding tax

Dividends and Interests

• Subject to progressive income tax rates.• Taper relief of 20% to 40% bringing top overall rates to between

46.5% and 64.5%.• Some exceptions: entrepreneurs / reinvestments

Income Tax

• New tax bracket: 45% for 2012 annual income bracket over € 150,000;

• 75% rate proposal struck down, but has been reintroduced;• Wage tax (Taxe sur les salaires) increased to 20% at top bracket

© 2013 Deloitte LLP. Private and confidential.

75% Company Tax

French President announced his intention to reintroduce a temporary 75% personal income tax on income earned in excess of EUR 1 Million. Last December, the High Court struck down the 75% tax. Not an employee income tax rate this time around, but a 75% company tax.

What does this mean for you? Company social charges & payroll taxes on this income already capped at 25%. Additional tax amounts to an additional 50% in taxes applied. Temporary tax will apply for 2 years.

Draft legislation expected in July

6

© 2013 Deloitte LLP. Private and confidential.

Qualified vs. non-qualified plans

The 2013 Finance Bill amended the tax treatment of qualified awards- no longer the same tax advantages for employees

7

Are qualified plans worth pursuing?

TheThe main benefit of a qualified plan is

tax deferral to date of sale; and company tax savings

© 2013 Deloitte LLP. Private and confidential.

Stock Options - Qualified v Nonqualified

Qualified Tax TreatmentNon-qualified Tax

Treatment

 

For qualified grants after October 16, 2007 and

before September 28, 2012

For qualified grants on or after September 28,

2012Non qualified grants

Employee Tax Sale Exercise

Employee Income Tax 18%, 30%, 41% Progressive rates up to 45%

Progressive rates up to 45%

Employee Social Contributions Sale Exercise

 Basic social security contributions  NA NA

23%-8.85% CSG 15.5% 8% (5.1% deductible)

 CRDS Employee contribution 10%  10% N/A

CHR (High Income Contribution) 3-4%  3-4%  3-4% 

Employer Social Contributions Grant Exercise

 Basic social security contributions  N/A 45%-26.5%

Employer contribution 30%  30%  N/A

8

© 2013 Deloitte LLP. Private and confidential.

Free Shares- Qualified v Nonqualified

9

Qualified Tax Treatment

Non-qualified Tax Treatment

 For qualified grants after

October 16, 2007 and before September 28,

2012

For qualified grants on or after September 28,

2012Non qualified grants

Employee Tax Sale Vest

Employee Income Tax 30%  Progressive rates up to 45%

Progressive rates up to 45%

Employee Social Contributions Sale Vest

 Basic social security contributions  NA NA

23%-8.85% CSG  15.5% 8% (5.1% deductible) CRDS Employee contribution 10% 10% N/A

CHR (High Income Contribution) 3%-4% 3%-4% 3%-4%

Employer Social Contributions Grant Vest

 Basic social security contributions  N/A 45%-26.5%

Employer contribution 30%  30% N/A

© 2013 Deloitte LLP. Private and confidential.

New lawWhat does not change – Qualified Plans

•New qualified awards will still benefit from the employee deferral of income and social tax until the sale of the shares

•Company tax of 30% remains payable at grant : choice on taxable basis => strongly recommended to do an plan specific IFRS 2 valuation to reduce employed costs

•Full exemption from any type of social charges and taxation as capital gain on sale of shares remain for “start-up” company stock option plans : maximum rate is 19% plus 15.5% = 34.5% (before CHR)

10

© 2013 Deloitte LLP. Private and confidential.

New lawWhat does change – Qualified Plans

• New flexibility with holding periods:

•Stock options – no longer required?

•Free shares – if release is year 4, no longer required?

•This is a strict reading of new code articles – may be unintended

•Reporting at grant linked to social security exemption

•Stay tuned for legislation in summer/fall 2013

11

© 2013 Deloitte LLP. Private and confidential.

New employer qualified plan reporting obligations

• DADS Reporting is due by the end of January 2014 for calendar year 2013.‒ For year of grant for free shares/stock options (reporting at grant tied to employer

social security exemption)‒ For year of exercise for stock options ‒ For year of vest for free shares ‒ French sourcing

• In some cases, individual certificates to be filed with tax administration directly

12

© 2013 Deloitte LLP. Private and confidential.

Employer withholding obligations

•Withholding obligation for French non-residents - both qualified and non qualified plans.

• Qualified options/awards granted prior June 20, 2007 not subject to any withholding.

• The plan administrator or the broker is often the responsible party for any withholding due on qualified awards/options at sale.

13

Company action items:

• Identify responsible party for withholding (plan administrator ? broker ? )• Ensure responsible party is complying• Alternatives if not complying: in-house/outsourcing/French broker

© 2013 Deloitte LLP. Private and confidential.

Wage tax

• Beginning in 2013, for equity compensation exceeding EUR 150,000, an additional wage tax will be payable at a rate of 20% by the employer where the business is VAT exempt. So generally applicable to financial industry.

• The legislation is currently unclear and further clarification is being sought in the wage tax application to qualified equity plans.

14

© 2013 Deloitte LLP. Private and confidential.

Action Steps

15

Look at impacts for your population

Qualified plans vs. non qualified: not always obvious; remember IFRS2 tax basis,

employee deferral

Specific attention on international mobility:

movement out of France

Beware not to disqualify outstanding qualified awards=> Additional social charges

New flexibility on holding periods

Eligible for start-up stock option regime? No company

taxes; 34.5%

Questions?

© 2013 Deloitte LLP. Private and confidential.

Contact information

Amy ReinaSenior Tax ManagerDeloitte Tax LLP(1) 203 708 4622 amyreina@deloitte.com

© 2013 Deloitte LLP. Private and confidential.

This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.

About DeloitteDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

Copyright © 2013 Deloitte Development LLC. All rights reserved.Member of Deloitte Touche Tohmatsu Limited