In more detail
A benefit subject to social security contributions
In order to include the benefit resulting from the issuance of the BSA in the basis for social security contributions, the Supreme Court applied, in the same way as in the Barrière case law, Article L. 242-1 paragraph 1er of the Social Security Code, implying the following two cumulative conditions: (i) the BSA are offered to a limited number of individuals in consideration for or in connection with their employment status and (ii) they are acquired by such individuals on preferential terms.
According to the Supreme Court, the first condition is met if the opportunity to subscribe to BSA is linked to the existence of an employment relationship as of the date of subscription. The fact that beneficiaries retained and exercised their BSA after leaving their positions within the company is irrelevant.
With regard to the second condition, concerning the preferential terms of the BSA, these would result "both from the status of employees or corporate officers of the beneficiaries and their limited number, and from the terms of issuance and transferability of the BSA, the financial terms of the subscription constituting no more than a mere indicator". The Supreme Court did not specify the conditions of issuance and transferability of the BSA that would have influenced its decision, but it is to be noted the fact that "leavers" provisions allowing the company to request repayment in the event of departure were provided, as well as non-transferability of the BSA provisions. This decision also confirms that the existence of preferential financial conditions at the time of subscription of the BSA is only incidental to establishing the presence of a benefit subject to social security contributions, and thus confirms that the capital risk assumed by the beneficiary is not taken into account, in accordance with the decisions of the French Tax Supreme Court.
Triggering event and basis for social security contributions
In the Barrière case law, the Supreme Court determined that the triggering event for social security contributions was "the effective availability of the benefit for the beneficiary, i.e., the date on which he had free disposal of the BSA".
Noting the difficulties raised by this previous decision, which led to a "theoretical benefit being subject to contributions rather than the actual benefit", the Supreme Court reversed its position, ruling that "the triggering event for social security contributions relating to this benefit is the date of sale or realization of the BSA so that the benefit must be assessed at this date in relation to the gain obtained or the saving made by the beneficiary".
While this reversal may resolve some of the complexities involved in determining the gain and valuing the BSA, it nevertheless appears to be detrimental to the company and the beneficiaries of the BSA, since it (i) shifts the starting point of the statute of limitations to the date of exercise or disposal of the BSA, and (ii) increases the basis for social security contributions in the event of an increase in the value of the underlying shares. Payment of the employee's social security contributions might also remain problematic if the underlying shares are not sold directly after the exercise of the BSA.
In any case, this decision is a reminder that BSA issued to executives are actively scrutinized, both by the social security authorities in the event of a URSSAF audit and by the tax authorities, and that it is now more than ever necessary to prioritize other instruments than BSA when structuring a management package.
