BSPCE: Definition
•Founder’s share subscription warrants (BSPCE) are among the tools frequently used in “Private Equity operations, as well as to provide deferred compensation to employees of” a company
•Created in 1997 and governed by Article 163 bis G of the French General Tax Code, BSPCEs are a deferred capital access instrument based on the option technique
•They were initially created to encourage employees and managers of startups to enter the capital of the newly created company and to incentivize them to stay
•Initially restricted to employees of joint-stock companies and managers subject to the employee tax regime, the scope of BSPCE beneficiaries has been expanded by the PACTE law to include directors and members of the supervisory board of public limited companies, as well as members of any equivalent statutory body in simplified joint-stock companies
•BSPCEs grant their holders the right to acquire shares representing the capital of their issuing company under preferential conditions and at a price set by the General Meeting
•The subscription price of the shares should be evaluated as accurately as possible, with the possibility of applying a discount if necessary
•The shares subscribed by exercising the warrant – called underlying assets – can be sold later and potentially generate a gain if the value of the social rights appreciates between the date of the warrant’s attribution and the date of the sale of the shares subscribed by exercising it
BSPCE: Conditions
•BSPCEs can only be subscribed by natural persons, employees / corporate officers / directors / members of a supervisory board
•They are non-transferable
•They can only be exercised
•They can be granted for free
•The issuance falls under the competence of the shareholders’ General Meeting of a company
(i) with shares (excluding LLCs, limited partnerships, general partnerships…)
(ii) not listed or with a market capitalization < €150m
(iii) less than 15 years old
(iv) subject to corporate tax or equivalent
(v) located in France, EU or a country with a tax treaty
(ii) not listed or with a market capitalization < €150m
(iii) less than 15 years old
(iv) subject to corporate tax or equivalent
(v) located in France, EU or a country with a tax treaty
•BSPCEs can be issued within a group of companies: issuance of warrants by a holding company or parent company that can give access to the capital of a subsidiary or sub-subsidiary
•Their exercise may be subject to conditions: presence and progressive vesting, financial performance, liquidity… These conditions should be assessed with regard to the risk of reclassification as salary: the Firm is available for any questions on this subject
BSPCE: Taxation
BSPCEs are subject to a specific tax regime:
•For the issuing company: unlike other employee shareholding schemes (options or free shares), it (or, if applicable, the employer company of the beneficiary in case of intra-group attribution) is not liable for any contribution for BSPCE attributions
•For the beneficiary: taxation only occurs following the sale of shares subscribed during the exercise of BSPCEs. No tax is due before this sale, neither at attribution nor at exercise.
(i) Two distinct tax regimes exist, depending on seniority:
(ii) Activity carried out for at least 3 years: 12.8% Income Tax + 17.2% Social Contributions = 30%
(iii) Activity carried out for less than 3 years: 30% Income Tax + 17.2% Social Contributions = 47.2%
(iv) These rates should be compared to salary charges and taxes, which can reach 65%…
(v) The High-Income Contribution of 3 to 4% may apply in addition, if applicable
BSPCE: New Developments
•Contribution of BSPCEs to a company subject to corporate tax not controlled by the contributor:
(i) These operations are now eligible for the tax deferral under Article 150-0 B of the French General Tax Code (Council of State, February 5, 2024, request n°476309)
(ii) The deferral regime should also apply in case of contribution to a company controlled by the contributor
•Not eligible for PEA: except if acquired within the plan
(i) The beneficiary of warrants can now use the cash available on the “cash” account of their PEA to acquire shares resulting from the exercise of their BSPCEs (Council of State, December 8, 2023)
No clarification has been provided on the tax regime for the future sale of the concerned securities
– As a reminder, the holder of a PEA is in principle exempt from income tax (but not from social charges) on capital gains from the sale of securities registered therein
– The gain from the sale of shares subscribed through the exercise of warrants and registered in a PEA will thus be exempt from income tax
– The tax regime for the gain from exercising these securities, realized prior to registration in the PEA, remains independent, and would, according to the administration’s position, be taxed without the benefit of PEA taxation
•Government Promises:
– Illiquidity discount soon to be possible on the exercise price of BSPCEs
– BSPCE regime likely to apply to companies less than 30 years old (instead of 15)
– Taxation at the 30% flat tax (excluding social security contributions) for sales made by employees or managers with at least 1 year of seniority (instead of 3)
Appendix: International News
The Franco-Danish Convention has entered into force
• Entered into force on December 29, 2023
• This entry into force ends 15 years without a convention, following Denmark’s denunciation on June 10, 2008 (effective January 1, 2009)
• The convention covers income tax, with:
– Clarifications regarding permanent establishments and the residence of legal entities
– Clarifications on the taxation of dividends
– Specific provisions regarding capital gains derived from the disposal of shares or participations in real estate-heavy entities
– Specific provisions regarding transparent entities
– Provisions on payments received from social security by an individual
The lists of tax havens have been published
• Publication of the French list (list of Non-Cooperative States and Territories) on February 16 and publication of the EU blacklist on February 20, 2024
• Already on the blacklist, Russia is now part of the French ETNCs
• Addition of Belize, even though this country was removed from the EU list four days later
• An ETNC may justify the application of the following deterrent measures: 75% withholding tax on dividends, exclusion from the parent-subsidiary regime, enhanced obligation for transfer pricing documentation…
