In a decision dated February 5, 2024, the French Council of State (Conseil d’Etat) cancelled the French administrative tax ruling that refused to apply the tax deferral mechanism to a transaction involving the contribution of shares subscribed in exercise of BSPCE.
A BSPCE is a profit-sharing scheme which, under certain conditions, allows employees or directors of companies created less than 15 years ago to subscribe for shares in their company at a price fixed on the day the BSPCE are allocated (article 163 bis G of the French Tax Code (FTC)).
The beneficiary of a BSPCE will therefore have an interest in exercising his BSPCE if the value of the share to which he may subscribe has increased since the BSPCE was granted.
The subsequent sale of the shares resulting from the exercise of the BSPCE gives rise to a gain taxed in accordance with the capital gains tax regime for the sale of shares provided by Article 150-0 A of the FTC.
This capital gains tax regime provides notably for a tax deferral mechanism for shares contributions (article 150-0 B of the FTC).
For example, an individual who wishes to contribute the shares he owns in company A to company B, which is subject to corporate tax, may benefit from the tax deferral regime, provided notably that the individual does not control company B after the contribution (1).
The contribution of shares is deemed to be an intercalary transaction. The tax deferral mechanism therefore makes it possible to defer the effective taxation of the capital gain on the contribution until the sale of the shares of company B (shares received as consideration for the contribution).
In a ruling published on May 25, 2023, the French tax authorities considered that the capital gain arising on the contribution of the shares received on exercise of the BSPCE could not benefit from the tax deferral regime provided by Article 150-0 B of the FTC.
The French tax authorities consider that the reference made in Article 163 bis G to Article 150-0 A of the FTC was only to define the basis of assessment applicable to the gain resulting from the sale of shares subscribed in exercise of the BSPCE and not to enable the entire tax regime provided by this Article to be applied.
It is this position of the French tax authorities that has just been censured by the French Council of State in its decision dated 5 February 2024.
The French Council of State considered that the gains realized on the sale of shares subscribed in exercise of the BSPCE were indeed eligible for the ordinary tax regime for capital gains provided by Article 150-0 A et seq. of the FTC and thus confirmed that the reference to Article 150-0 A in Article 163 bis G of the FTC was not only for the purpose of defining the basis of assessment for this gain.
Therefore, the French Council of State cancelled the ruling of the French tax authorities and confirmed that the gain resulting from the contribution of shares received in exercise of BSPCE can benefit from the tax deferral regime provided from article 150-0 B of the FTC, all other conditions being met.
This decision is part of a political context favorable to sharing the value generated by companies for the benefit of their employees and managers.
(1) There are also conditions relating to the size of any balancing payment received in cash on the contribution.
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