France and Bank Bonus Tax, Rules for Compensation
France and Bank Bonus Tax, Rules for Compensation
In France, a recent Draft Amended Finance Law for 2010 introduces a new tax charge equal to 50 percent of the amount of bonuses and awards paid in relation to fiscal year 2009 by banks and financial institutions – many of which received some government assistance during the financial crisis. The tax applies to payments made in excess of €27,500 per relevant employee. French President, Nicholas Sarkozy, on December 10, had announced, in principle, that France would levy a tax on bank bonuses. The announcement was made at the European leaders summit meeting in Brussels. The United Kingdom has announced a similar tax.
Under the proposed measure, employers in France will be liable for the tax in respect of relevant employees who are financial market professionals with activities that are likely to have a significant impact and expose the bank to greater business risk.
The tax base is the amount of variable pay awarded in relation to the calendar year 2009 whether it is intended to reward individual or collective performance, even where payment or vesting is conditional, except for amounts due to them under French profit sharing schemes (intéressement and participation) and irrespective of the year of payment or the one in which the bonus or award is definitively acquired.
Where the award relates to stock options, free shares, or other securities made on preferential terms, including where the award is made by a parent or subsidiary company, the base is equal to the fair value of these options, shares, or securities at the date of grant, as estimated under IFRS 2 principles.
The tax will be payable on the first day of the month following the entry into force of the law. If all or part of the variable remuneration defined is awarded after that date, the corresponding tax is payable by the first day of the month following the award decision.
If it is found that the amount of the variable elements of compensation which are actually paid to the employees is less than the amount included in the tax base, no refund of tax will be made.
Other Scrutiny of Compensation-related Developments
The aforementioned development comes on the heels of recent moves by the French government to lay down new rules dealing with incentive compensation to be followed by all banks operating in France, including non-French banks.2 Under the new rules, banks will be obliged to spread out the payment of bonuses over several years as a means of supporting the connection between incentive compensation and long-term performance. In such case, at least half of the bonus awarded will be withheld, to be paid over three years depending on performance. The bonus amounts and how they are distributed must be published each year.
Source: KPMG
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