Many companies offer their executives and/or employees share acquisition schemes known as management packages.

In principle, these schemes align the interests of executives and/or key employees with those of shareholders.

In practice, these arrangements allow managers/employees to benefit from more lenient taxation on the income earned. Indeed, the taxation applicable to capital gains on securities is generally more favourable compared to the taxation applicable to employment income.

The tax system is based on the principle that the taxpayer is entitled to the same tax treatment as the employee.

Potentially abusive arrangements

Management packages are included in the list of potentially abusive arrangements published by the Ministry of Economy and Finance on 1 April 2015.

The schemes targeted by Bercy are mainly the following: share warrants, preference shares (ratchet) and share purchase option contracts.

The schemes governed by tax law are not, however, covered by this list (allocation of free shares, share subscription or purchase options, warrants for business creator shares).

Risks of requalification

The tax authorities reserve the right to requalify a capital gain as non-trading profits, or salaries and wages, if the shares, or options were granted on preferential terms and outside the legal arrangements.

The list of abusive arrangements published by Bercy follows on from numerous court cases and the “Gaillochet” decision no. 365573 of 26 September 2014.

In the light of the case law of the Conseil d’Etat, the risk of requalification can be reduced when the following conditions are cumulatively met:

  • the investment is made at market price;
  • the risk of loss of the sums invested is real;
  • the investment is not conditional on the exercise of functions within the company;

For several years, the tax authorities have regularly referred these disputes to URSSAF, which can claim from the company issuing the shares the employer and employee contributions on the amount of the capital gains requalified as salaries and wages.

The decisions of the Conseil d’Etat n° 428506, 435452 and 437498 of 13 July 2021

The Conseil d’Etat recently ruled that an executive, by subscribing to share warrants at preferential rates, benefited from an advantage.

This benefit, when granted by reason of the functions held in the company, constitutes according to the Conseil d’Etat a salary complement.

The salary nature of the gain therefore no longer seems to depend on whether the investment was made at a market price or whether there was a real risk of loss.

In practice, however, management packages go hand in hand with a condition of presence (i.e. with an exit settlement in the context of LBO transactions). However, on reading the conclusions of the public rapporteur, the mere fact that the transferor was a director or employee of the company whose securities he is transferring is not in itself sufficient to justify a reclassification.

It is therefore advisable to encourage the greatest caution when structuring such profit-sharing tools, in particular by having such tools valued (by a third party) on entry and by excluding any non-transferability clause.


List of potentially abusive arrangements published by the Ministry of Economy and Finance on 1 April 2015

Council of State decision “Gaillochet” n° 365573 of 26 September 2014

Decisions of the Council of State n° 428506, 435452 and 437498 of 13 July 2021