Reminder
Gains on the sale of management packages are in principle taxable as capital gains on the sale of securities. However, since the Conseil d’Etat rulings of 13/07/2021, they may be reclassified as salaries and wages if they are deemed to relate to the duties of a manager or employee.
What’s new?
The Finance Act for 2025 introduces the principle that gains on the sale of securities subscribed, acquired or allocated to employees or directors should be taxed as salary if the gain relates to their duties. The conditions of this connection will probably be specified at a later date. However, if the securities in question present a risk of financial loss and have been held for at least two years, a portion of the gain on disposal will be taxed under the capital gains tax regime for sales of securities.
The portion of the gain on disposal that is taxable as capital gains (vs. salaries) corresponds to the difference between an amount determined by applying the issuing company’s ‘financial performance multiple’ to the price paid, less the price at which the shares were obtained.
The ‘financial performance multiple’ is a concept introduced by the Finance Act for 2025. It is equal to 3 times the ratio between (i) the real value of the issuing company on the exit date (real exit value) and (ii) the real value of the issuing company on the date the relevant securities were obtained (real entry value). In other words, the portion taxable as capital gains on the sale of securities is calculated as follows:
acquisition price x [3x (actual exit value / actual entry value) – 1]
Conclusion
Despite uncertainties that could be resolved quickly, these changes to the taxation of management packages could create a secure space for taxing a fraction of the gain on disposal as capital gains on the sale of securities (and a certain shift of the gain on disposal above this fraction to the category of salaries and wages).
