Stock Options in France: International, Estateand Divorce Planning

International Taxation: The Reference Period and Apportionment

When a stock option beneficiary has worked in more than one country during the period between attribution and the vesting of their rights, the acquisition gain cannot simply be taxed in its entirety by France. The gain has the nature of a salary supplement in French domestic law — even for options attributed before 20 June 2007 where it was taxed as a capital gain for domestic purposes — and is therefore subject to the employment income provisions of bilateral tax treaties, generally Article 15 of the OECD model convention.

The starting point is identifying the reference period (période de référence): the period during which the beneficiary performed the services that the option was intended to reward. Under the OECD's guidance (Commentary on Article 15, §§12.7–12.13), the reference period ordinarily runs from the attribution date to the date on which the beneficiary definitively acquires the right to exercise the option — effectively the end of the vesting schedule. Where the beneficiary owns the option unconditionally from the moment of attribution (no vesting conditions), the option is treated as rewarding past service and the reference period is simply the attribution date itself, making the country of employment at attribution the country of taxation.

Once the reference period is defined, the French portion of the gain is the fraction corresponding to the proportion of days worked in France during that period. The calculation uses a calendar-day count (365 days per year) including non-working days. The same apportionment applies where the beneficiary is a French tax resident selling shares that relate partly to work performed in another treaty country: only the French-sourced fraction is taxable in France, and any disposal loss on French-source gains may be offset proportionally (CE 17-3-2010 n° 315831). For a non-resident of France disposing of shares, a disposal loss is not deductible from the French-source gain — it may only be offset in the country of residence.

Residence assessed at exercise, not at disposal

A critical practical point for beneficiaries who change residence between attribution and disposal: the Conseil d'État has held that French residence for purposes of the acquisition gain is assessed at the date of exercise, not the date of sale (CE 4-6-2019 n° 415959; CE 16-7-2021 n° 448500). A beneficiary who was a French tax resident when they exercised their options cannot invoke a subsequent change of residence — for example to Switzerland — to avoid French taxation of the acquisition gain when the shares are eventually sold. The applicable treaty is therefore the one in force between France and the beneficiary's country of residence at the date of exercise.

How courts have applied the OECD principles

The leading case (CE 17-3-2010 n° 315831), decided under the Franco-Belgian treaty, established: where the plan imposed no delay before the option could be exercised (option granted unconditionally), the gain remunerates services at the date of attribution, and the country in which the beneficiary was working at that date has exclusive taxation rights. Where the plan imposed a mandatory holding period before exercise, the gain remunerates future services, and taxation must be apportioned pro-rata to the days worked in each state between attribution and the date from which the option was legally exercisable.

The Conseil d'État has also clarified that the nature of the gain under French domestic law — capital gain or salary — does not affect its treaty classification: whether taxed as a plus-value or as a salary in French domestic law, the acquisition gain is always employment income under treaty Article 15 (CE 1-4-2015 n° 369586). One important qualification applies to corporate officers who are not employees: an indemnity for waiving options paid to a non-employee mandataire social may fall into the residual "other income" article and be taxable only in the state of residence, under treaties that do not extend to officers lacking a service contract. This limitation does not apply under more recent treaties (including the 2008 Franco-British convention) that expressly include officer remuneration within employment income.

Withholding Tax for Non-Residents

For gains arising from 1 April 2011 onwards, non-French-resident beneficiaries are subject to a specific withholding tax on the French-source portion of their acquisition gain and on the excess discount, under CGI Art. 182 A ter. The disposal gain (the appreciation between exercise and sale) is not caught by this specific withholding — it falls under the general capital gains withholding regime.

The excess discount

The excess discount is subject to withholding at the time of exercise, if the beneficiary is not domiciled in France at that date. The withholding is calculated by applying the salary withholding scale of CGI Art. 182 A (0%, 12%, 20%) to the net amount of the excess discount. The 12% tranche is liberatory for the fraction of taxable income not exceeding the threshold below which the 20% rate applies. Income above that threshold is included in the income tax return and the corresponding withholding is creditable.

The acquisition gain for options attributed from 20 June 2007

The acquisition gain is subject to withholding at the date of disposal of the shares (not at the date of exercise), if the beneficiary is not French-domiciled in the year of that disposal. The withholding is applied only to the French-source fraction determined by the reference period apportionment.

For options attributed before 28 September 2012, the withholding rates are those of the old preferential regime: 30% on the portion of the acquisition gain not exceeding €152,500; 41% on the surplus. These rates fall to 18% and 30% if the two-year portage period was observed. The withholding is not liberatory: it is credited against income tax. For options attributed from 28 September 2012, the withholding is always calculated and regularised on the salary scale basis.

The rate rises to 75% where the beneficiary is domiciled in a non-cooperative territory (ETNC, CGI Art. 238-0 A), unless the payer demonstrates that the gain relates to genuine transactions whose principal purpose is not to locate income in a non-cooperative territory. This 75% withholding is liberatory and non-refundable. Options attributed before 20 June 2007 are not subject to the specific acquisition-gain withholding.

The PEE exception

The specific withholding does not apply to gains from options exercised using funds from a PEE under C. trav. Art. L 3332-25, provided the five-year minimum holding period from exercise is respected.

Exit Tax: Considerations for Departing Holders

French residents who transfer their fiscal domicile abroad must consider the exit tax rules in CGI Art. 167 bis. The exit tax applies to latent capital gains on securities held by individuals who have been French tax residents for at least six of the ten years preceding departure, provided they hold either a participation of at least 50% in the profits of a company or a portfolio whose total value exceeds €800,000 at departure.

However, gains attributable to the exercise-price advantage on unexercised options — the acquisition gain component that has not yet been crystallised — are expressly excluded from the exit tax base. The exit tax therefore applies only to the appreciation in the value of shares already acquired through prior exercises (the disposal gain component), not to the latent benefit on unexercised options. For employees whose compensation consists primarily of unvested or unexercised options, this exclusion is materially significant.

For employees approaching departure who hold both exercised and unexercised options, the practical planning question is whether to exercise before or after leaving France. Exercising before departure captures all French-source days during the vesting period, and the acquisition gain will be taxable in France when the shares are eventually sold (assessed at the residence at exercise). Exercising after departure means the country of new residence will be the primary taxing state for the post-attribution French-source fraction — subject to treaty allocation.

Donation Before Sale: Purging the Acquisition Gain

The tax treatment of a donation of shares acquired through option exercise depends critically on the attribution date of the underlying options. The rules differ in three distinct phases.

Options attributed before 20 June 2007

A donation made after the fiscal availability period does not constitute a disposal for the purposes of the acquisition gain or the disposal gain. Both are permanently purged. The donee takes over the shares at their donation value; any future gain they realise on a subsequent sale is taxed as an ordinary securities capital gain from that date. Inheritance tax or gift duty applies to the value of the shares at the donation date, and the acquisition debt may be charged to the donee to reduce the taxable gift base (CGI Art. 776 bis).

Two exceptions narrow the purge. First, where the donation triggers an IFI reduction under CGI Art. 978 (gifts of listed company shares to qualifying public-benefit foundations), the donor cannot simultaneously benefit from the acquisition gain purge and the IFI reduction — the 75% IFI reduction extinguishes the purge entitlement for the fraction of the gift that generated the tax reduction. Second, where the shares are subject to a latent gain in an ongoing exit tax deferral period and the donor is resident outside the EU/EEA, the donation purges the deferred gain only if the donor can demonstrate the donation was not made primarily for tax purposes.

Options attributed from 20 June 2007 to 27 September 2012

A donation triggers the acquisition gain at the donor's level in the year of the donation (CGI former Art. 200 A, 6). The gain is taxed at the preferential proportional rates applicable under the old regime (18%/30% with portage, or 30%/41% without). The disposal gain — the appreciation from exercise value to donation value — continues to be purged. This creates a planning opportunity: exercising when the share price is low and then donating when the price has risen substantially generates the most efficient outcome.

Options attributed from 28 September 2012

Donation triggers the acquisition gain as salary income in the year of donation. There is no preferential rate. The full progressive income tax scale applies, without the 10% professional expense deduction. The disposal gain (from exercise value to donation value) remains purged, as for prior-period options.

The démembrement (split-ownership) strategy

Where the donor gives only the nue-propriété (bare ownership) and retains the usufruit (life interest), the purge of the acquisition gain applies only proportionally — to the fraction of the acquisition gain attributable to the nue-propriété transferred. The acquisition gain on the usufruit retained by the donor is not purged; it becomes taxable when the usufruit is eventually disposed of or when the full ownership reconstitutes on the donor's death. The Conseil d'État confirmed that the bare owner of the transferred nue-propriété is solely liable for the tax on both portions where there is a subsequent sale of full ownership with reinvestment of the split sale proceeds (CE 17-4-2015 n° 371551).

Contributing Shares to a Holding Company

Options attributed before 20 June 2007

Where the fiscal availability conditions were satisfied, the full gain — both the acquisition gain and any disposal gain — can benefit from the roll-over on contribution to a company subject to corporate tax: automatic deferral under CGI Art. 150-0 B (sursis d'imposition) or elective deferral under CGI Art. 150-0 B ter (report d'imposition). On a subsequent disposal of the receiving company's shares, the acquisition gain will be taxed at the rates applicable under the old preferential regime, by reference to whether portage conditions were met at the date of the original exchange.

An important limitation: contributing the shares to a holding company does not have intercalary status for the portage period. The two-year portage clock does not continue to run after the contribution. If the portage period had not yet run when the shares were contributed, the reduced rates (18%/30%) will not be available on the subsequent disposal of the receiving company's shares. If the receiving company's shares are later transmitted by inheritance, both the deferred gain and any additional appreciation since the contribution are definitively purged. If transmitted by donation, provided the donee holds the shares for at least five years from the donation, both the gain in sursis and the additional gain are also purged.

Options attributed from 20 June 2007

Contributing shares from these options to a holding company triggers the acquisition gain at the contributor's level — at the preferential rates for options attributed before 28 September 2012, or as salary income for post-2012 options. Only the disposal gain component (the appreciation from the share value at exercise to the share value at the date of contribution) benefits from the automatic roll-over under CGI Art. 150-0 B. The exception is a contribution to a société de rachat d'entreprise par les salariés (RES) constituted under CGI Art. 220 nonies: this specific buyout vehicle has intercalary status and does not trigger the acquisition gain even for options attributed from 20 June 2007.

Funding the Exercise Price Through a PEE

C. trav. Art. L 3332-25 allows employees to use their blocked savings within a plan d'épargne entreprise to fund the exercise of options — without this being treated as an early release of the PEE. It is instead a change of investment within the plan. The resulting shares must remain in the PEE for a minimum of five years from the date of exercise. During this five-year period, the shares cannot be withdrawn in the ordinary early-release cases (other than death of the beneficiary). For group structures, the shares may be contributed to a company or FCPE whose assets consist entirely of securities of the group, with intercalary status preserving the five-year clock and the associated fiscal regime.

The key fiscal consequence: after the full five-year holding period, the entire net gain on disposal — including the acquisition gain — is exempt from income tax. Only social charges remain due. The 10% specific employee contribution (CSS Art. L 137-14) applies at the time of disposal of the PEE shares. This exemption makes the PEE route materially advantageous for post-2012 options, where the acquisition gain would otherwise be taxable as salary income at the progressive scale.

Stock Options and Divorce

Under French matrimonial property law, the rights resulting from the attribution of options during a marriage are biens propres par nature — personal property of the holder — regardless of whether the couple is subject to a community property regime. This position rests on C. com. Art. L 225-183 al. 2, which provides that the rights arising from options are non-assignable until the option is exercised. The Cour de cassation confirmed this as a matter of principle in 2014 (Cass. 1ère civ. 9-7-2014 n° 13-15.948).

Once the option is exercised during the marriage, the resulting shares enter the community — in kind and in value. Where shares acquired through exercise remain in the community at the time of its dissolution, the value to be taken into account for the purpose of the community settlement is the price achieved on their disposal during the post-community indivision period — not the value at the date of dissolution or exercise.

The practical consequence for contested divorces is that options need never be valued for the purpose of the community settlement. However, their economic value is very real, and the non-holder spouse will typically factor that value into their overall demands. A holder who refuses to share the economic benefit may find their spouse delaying agreement to the divorce until the last possible exercise date.

Stock Options and Death

Unexercised options at death: legal and fiscal position

Options that have not been exercised at the date of the holder's death do not form part of the estate and are not subject to inheritance tax. This avoids a double taxation that would otherwise arise: if options were included in the taxable estate, they would be taxed once at their value for inheritance purposes and again — without any basis step-up — when the heirs exercised them and the acquisition gain was subsequently taxed.

Despite the fiscal exclusion from the estate, heirs do inherit the right to exercise the options. Under C. com. Art. L 225-183 al. 3, the heirs must exercise the options within six months of death. This is a strict forfeiture deadline that begins at death and runs even against legally incapacitated heirs and minor children (Cass. com. 10-12-2013 n° 12-17.724). If the deadline passes without exercise, the options lapse entirely.

Shares already acquired through exercise before death

• Options attributed before 20 June 2007: Transmission by death definitively purges both the acquisition gain and the disposal gain. The heirs take over the shares at death value; any subsequent gain they realise is taxed as a capital gain from that value.
• Options attributed from 20 June 2007: Death is a taxable event for the acquisition gain. The acquisition gain is triggered at death and taxed in the estate — using the value of the shares at the date of death as the reference. However, any further appreciation between the exercise value and the death value (the disposal gain) remains purged. If the value of the shares at death is below their value at the date of exercise, the difference reduces the taxable acquisition gain.

Inheritance tax applies to the value of the shares included in the estate under ordinary succession rules, regardless of whether the acquisition gain is also triggered. The taxable base for inheritance tax is the value of the shares at death. Where the acquisition gain is triggered, the inheritance tax and the income tax on the gain are separate — one does not reduce the other, though both are calculated on the same underlying asset value.

This article should be read in conjunction with Stock Options in France: Fiscal Treatment, which covers the domestic income tax and social charges rules. The international apportionment rules described here follow the OECD commentary as applied by French administrative doctrine and case law; specific bilateral treaty provisions may vary from the model convention approach, and specialist advice is required for any particular cross-border situation. The exit tax thresholds and deferral conditions are subject to change; readers should verify the current figures. References are correct to the best of the author's knowledge as of the date of publication.