The Conseil d’Etat (French Council of State) confirms the reclassification of the capital gain as part of a French Package Management in wages.

Many French restructuring operations (and particularly LBOs) may include a Management Package. This mechanism generally allows the management team of a target company to purchase on terms favorable to them.

Once the conditions set out in the Management Package have been met, the manager may exercise the option to purchase and acquire securities at a low value. The latter can then directly sell the shares thus acquired, at their real value, enabling it to realize a gain.

However, the legal regime applicable to this operation is far from being determined with any accuracy.

In theory, transfers of French shares are taxed according to the rules relating to capital gains. This scheme allows to set off charges against the added value.

However, the French Administration retains the right to reclassify this gain in order to impose it as salary, substantially altering the regime (BOI-RSA-ES-20-10-20-50 no. 20).

The outlines of this reclassification have just been specified by the Conseil d’Etat (CE, 26 September 2014 No. 365573).

The Conseil d’Etat has in fact approved the reclassification of the gain realized during a management Package management in wages, because of the advantageous conditions for the exercise of the call options.

It is tempting to say that it is precisely these favorable conditions that make the interest of a Management Package. Bearing in mind this assumption, any gain realized in connection of the exercise of option would be taxed in the income category.

However, it should be noted that other decisions recently rejected this reclassification in different circumstances (see, in particular, TA CERGY-PONTOISE, July 17, 2014, no. 1209307).

In the light of these various decisions, it appears essential to pay particular attention to the drafting and the conditions of implementation of the Management Package.


Co-Founder & Partner - Taxation
Fabrice DELOUIS has been assisting his customers throughout their projects for the past twenty years.

He majored in tax law and obtained a DJCE (Diplôme de Juriste Conseil d’Entreprise/Business Law Consultant Degree). He also holds a Master of business and Tax Law.

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