In a decision dated 17 March 2010 (CE, 8th and 3rd sub-section, number 315831, min. c/ M. de Roux), the Conseil d’Etat (the French Supreme Court of the Administrative jurisdiction) held that the benefit obtained when exercising stock options before the expiration of their period of unavailability is not entirely taxable in France when part of such benefit results from a payment for activities performed abroad.
In this case, an employee was granted options in the company employing him. The employer then sent him on secondment in Belgium between the date of the attribution of the option and the date at which the option could be exercised. The employee sold his shares immediately, i.e. before the end of the unavailability period which triggers the benefit of the favourable tax treatment of stock options. At the occasion of control, the French Revenue and Customs administration reintegrated the amount of the gain obtained in the employee’s taxable income for the year of the exercise of the option. The gain was calculated by the administration as being equal to the difference in value between the actual value of the shares at the date of the exercise of the option and the price of the option.
The Conseil d’Etat noted that such a gain was subject to income tax under French law when the period of unavailability has not been respected and concluded that, in application of article 11 of the tax treaty between France and Belgium, the gain was taxable only if the activity it paid for was exercised in France.
In order to determine whether the gain paid for an activity exercised in France or abroad, the Conseil d’Etat looked at the conditions specified in the option plan. When the options can only be exercised after a period of time, as in the above case, the gain pays for a future performance. As a result, in the event of the employee’s international mobility, the tax on the gain must be split between the states in which the employee worked. The division must be made proportionally to the number of days of work spent by the employee in each state between the date of the attribution of the options and the date at which the options expired, that is to say the date at which the employee could have validly exercised the options. Conversely, in the absence of any period of unavailability, the employer pays for a concurrent performance and the gain is an income entirely taxable in the state in which the performance takes place at the time of the attribution.
If this reasoning of the Conseil d’Etat is not without subtlety, its decision does not guarantee that employees who are mobile and who are granted options will not face difficulties and double taxation as the States in which they are on secondment may have a different approach, notably on the basis of difference of qualification and understanding of the gain obtained at the occasion of stock-options plans.
