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Tapestry Alert:
USA - Section 409A deferral saved?
France -Tax favoured “Macron” free share awards -
and now it’s Macron 3!
November 2017
Dear Client
USA -
Section 409A deferral saved?
A week is
a long time in politics. In our newsletter on Monday (here), we reported that the US finance
bill, currently under negotiation by US law makers, proposed the
repeal of section 409A (the section in the tax code which allows US
taxpayers to defer the payment of tax on cash and shares until the
point when actually received). In the amended version of the
finance bill released on Thursday, the clause dealing with the
repeal of section 409A has been removed entirely. So, at least for
now, it looks as if section 409A will remain intact.
The other change reported in our newsletter, the elimination of the
performance-based compensation exception to section 162(m), was not
amended by the revised finance bill.
Tapestry
comment
This is a very
welcome development, however the bill is still under negotiation
and further changes are possible. We will update you again as the
Bill progresses and once it becomes law.
France
-Tax favoured “Macron” free share awards – and now it’s Macron 3!
The 2017 Finance Bill, which is
currently being discussed by the French Parliament, will introduce
several important changes affecting the taxation of individuals,
including the tax treatment of free share plans - the so-called
Macron regime.
What are
‘Macron’ awards?
Macron awards are tax-qualified
free shares. The regime was introduced in 2015 by the current
President Macron while he was the Economy Minister. The rules
changed at the end of 2016 (heralding the Macron 2 regime) and are
due to change again under the current Finance Bill.
The rules
to qualify for the tax benefits are tricky, and many non-French
companies have struggled with the rules governing the
implementation of these plans.
What’s
going to change?
There are
several key changes which will, directly or indirectly, affect the
tax treatment of free shares. The two key changes are:
Abolition
of holding period for tax-qualified free shares:
- Current position: the shares are
taxed on sale, with the acquisition gain (the value of the
free shares at grant) taxed separately from the sale gain (the
difference between the acquisition gain and the amount that
the employee receives on the sale of the shares). Where
the acquisition gain is under EUR300,000 in a year, the
employee pays progressive tax and social security on the gain
(that is, up to 45% income tax and up to 15.5% social
security) and is entitled to a rebate of 50% or 65%, depending
on how long the employee has held the shares. For the
annual portion of the acquisition gain above EUR300,000, the
employee pays income tax and social security and is
not entitled to a rebate on that amount.
- Sale gain: the sale gain is
taxed as a capital gain and will be subject to a new flat rate
capital gains tax (discussed below).
- Macron 3: under the new
rules, the acquisition gain under a qualifying free share
plan, up to EUR300,000 per annum, will benefit from a 50%
deduction, irrespective of how long the individual has held
the shares. The other rules are not changed, so the portion of
the acquisition gain over EUR300,000 will not benefit from the
50% deduction.
New flat tax for investment income:
- Current capital gains regime: currently there is
a specific tax treatment for each type of investment income
(dividends, capital gains and interest).
- Current tax rate: in effect,
investment income is currently subject to progressive income
tax (up to 45%) and social security taxes (currently up to
15.5%), although rebates apply to the tax payable on dividends
and capital gains. Individuals are also able to take a tax
deduction for part of the social security tax.
- Flat tax rate: the 2017 Finance
Bill propose a flat 30% tax (EPU) for all investment
income The flat rate is a combination of income tax at
12.8% and social taxes of 17.2% (the increased social security
tax rate discussed below). Under the new flat rate, the
rebates for holding periods no longer apply and there will be
no tax deduction for social security.
- Impact on taxable amount: for higher rate
tax payers, the flat rate seems likely to result in a
reduction in the amount of tax payable. For lower rate
tax payers, there is an option to elect to have the income
taxed at progressive rates.
Increase in social security rate
The
government has also announced an increase in the rate for
CSG. CSG is a social tax levied on gross income and is
set at 7.5% for salary income (which includes non-qualified share
awards) and 8.2% for other income (which includes investment income
and qualified free share awards). Under the 2017 Finance Bill, CSG
will increase by 1.7%. As a result, the combined social
security tax rate applicable to investment income and qualified
free shares will increase to 17.2%.
Anything
else?
The Finance Bill proposes
scrapping the current wealth tax and replacing it with a tax on
real property. Currently, all French tax residents are liable
to pay a tax on world wide assets valued at above EUR1.3million as
at 1 January each year. Rates are progressive from 0.5% to 1.5%
(the higher rate applies to net wealth above EUR10million). Shares
acquired under a share plan would be included in net wealth,
although they can be eligible for certain allowances. Under the
2017 Finance Bill, only real estate assets would be liable for the
tax. As a result, shares would no longer come under the asset tax
from 1 January 2018.
Has there
been any change to the tax treatment of the employer?
Currently the employer pays social
security on the value of the free shares at vesting. This
contribution rate was increased from 20% to 30% in the 2016 Finance
Bill. We understand that there has been a proposal to reduce
the employer contribution back to 20% but this is subject to
on-going discussion.
When do
these changes start to apply?
The Macron 3 regime will only
apply to grants that are authorised by shareholders after
publication of the French Tax Bill (which is expected to happen no
later than 31 December 2017). The other changes
(investment flat tax, increase in social security and abolition of
wealth tax on shares) are due to apply from the start of 2018.
Tapestry
comment
For both employers
and employees, the regular changes to the tax treatment of free
shares in France is frustrating. Each change requires
additional time and expense to ensure compliance with the
rules. Some take the view that these plans are more
trouble than they are worth – however the tax benefits are
considerable and French employees continue to push for them.
If you have any questions, please do get in touch - we are
delighted to help!
Bob, Sally, Jordan & Emma
   
Bob Grayson
Sally Blanchflower Jordan Levy Emma Parker
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