Management packages have developed with the rise of LBO deals. They serve as an incentive to managers - keys persons to the success of a LBO deal - by enabling them to have a stake in the capital and, therefore, to benefit from an exit capital gain, in conditions that are generally relatively favorable.
For a long time, common practice considered the exit capital gain as a capital gain on securities, as opposed to a salary, until the French Tax Authorities (the “FTA”), through a Tax Instruction initially published in 1995, updated since then and still in effect today, made it clear that taxable gains earned under schemes providing access to capital other than those schemes specifically provided for by the French legislator (stock options, nowadays free shares, etc.) would likely be subject to re-characterization.
Yet, the first tax inspections were carried out only later, i.e. at the beginning of the 2000’s.
In a decision issued on September 26, 2014, the Conseil d’Etat (French Supreme Administrative Court) ruled - for the first time to our knowledge - on the nature of the taxable gain.
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