A Chief Executive Officer acquires preference shares in a leveraged buyout holding company at market value. He holds the securities for four years, then sells for €1.6 million. He declares the gain under the new 2025 regime. The DGFiP (French tax authorities) reclassifies the entire gain as employment income: the financial performance coefficient was miscalculated, the genuine capital-at-risk condition is undocumented, and the good leaver clause reveals a direct link to continued employment. Additional tax assessed in France: €420,000, before interest and penalties. A coordinated URSSAF audit adds social security contributions, bringing the total above €600,000.
This type of case has become the most common tax dispute in French LBO transactions since 2021. The 2025 reform, completed in 2026, did not put an end to it. It changed the rules - it did not eliminate the risk.
A management package - or ManPack - refers to the financial instruments made available to key executives and managers in a leveraged buyout (LBO), allowing them to co-invest alongside the fund and participate in exit proceeds.
The most commonly used instruments in France are:
Each instrument has its own legal characteristics, eligibility conditions and, since 15 February 2025, a specific tax and social security regime in France codified under article 163 bis H CGI.
Before article 163 bis H CGI came into force, management package gains were in principle taxed in France as capital gains at the flat tax rate (PFU) of 31.4% in France.
The DGFiP challenged this treatment on the basis that the gain does not remunerate capital risk but constitutes consideration for the functions performed. It claimed taxation in France under the progressive income tax scale up to 45%, plus the exceptional contribution on high income (CEHR) at a marginal rate of 4% in France.
The Conseil d'État set the framework in three plenary decisions on 13 July 2021 (nos. 428506, 435452 and 437498), then extended it to share sale options on 5 June 2023 (no. 467546). The Cour de cassation aligned on the social security side on 23 September 2023, opening the way to coordinated DGFiP and URSSAF assessments.
For cases predating 15 February 2025, reclassification as employment income triggers a dual assessment. The DGFiP claims income tax at the progressive scale plus CEHR. URSSAF, in a separate but coordinated procedure, claims standard social security contributions - approximately 22-23% in employee contributions and 40-45% in employer contributions on the reclassified amount, depending on the manager's status (executive or non-executive) and remuneration level.
These two categories are distinct: social levies (CSG/CRDS) apply to investment income, not to salaries. On a gain reclassified as employment income, it is social security contributions that are due - not social levies. The manager bears income tax and employee contributions, while the company faces employer contributions on a benefit it had not identified as salary. URSSAF audits covering these periods are still ongoing.
The Finance Act for 2025 (loi n° 2025-127 of 14 February 2025, art. 93) introduced article 163 bis H CGI, applicable to disposals from 15 February 2025 regardless of when the instruments were acquired. The Finance Act for 2026 (art. 24) and the Social Security Financing Act for 2026 (LFSS 2026, loi n° 2025-1403 of 30 December 2025, art. 17) supplemented this framework with retroactive effect to 15 February 2025.
The DGFiP's commentary is available in the draft BOFiP: BOI-RSA-ES-20-60 (public consultation of 23 July 2025). No equivalent commentary has been published on the BOSS (boss.gouv.fr) for the social security side post-LFSS 2026.
The previous regime presumed capital gain treatment unless the DGFiP successfully challenged it. Article 163 bis H reverses this: the gain is now presumed to constitute employment income in France. The taxpayer must demonstrate that the conditions for capital gain treatment are met.
Practical note: the employment income fraction is excluded from withholding at source for French tax residents and from non-resident withholding tax. The employer is not required to calculate or report this fraction at the time of payment - taxation occurs when the manager files their income tax return.
The financial performance coefficient determines the boundary between the fraction of the gain taxed as a capital gain and the fraction reclassified as employment income in France.
The statutory formula (BOFiP, BOI-RSA-ES-20-60, § 250):
Threshold = (3 × P × F) − P
Where P = acquisition price of the securities by the manager, and F = financial performance = fair value of the company at disposal date / fair value at acquisition date.
Example: P = €100,000, F = 5 → Threshold = (3 × 100,000 × 5) − 100,000 = €1,400,000. The fraction of the net gain below €1,400,000 is taxable as a capital gain. The excess is taxed as employment income.
The 2026 Finance Act introduced two technical adjustments:
Meet both cumulative conditions under article 163 bis H, II CGI: genuine capital loss risk on the price paid, and held for at least two years. For these securities:
Do not meet these conditions. Standard social security regime applies: approximately 22-23% in employee contributions and 40-45% in employer contributions on the reclassified amount. The employer remains liable for employer contributions.
The 2026 Finance Act clarified that the risk of loss must relate to the price actually paid. The draft BOFiP specifies that this condition is not met where the manager benefits from a contractual mechanism guaranteeing repurchase at a price at least equal to the acquisition price - for example, a floor put option.
The minimum two-year holding period must be documented. The 2026 Finance Act clarified that intercalary transactions without consideration - mergers, demergers, splits or consolidations - do not interrupt this period.
Since the reform, the link between the securities and the functions is acknowledged by statute. Good leaver and bad leaver clauses are back in practice. But their drafting remains critical: a clause depriving the manager of the gain on voluntary departure can reveal that the gain is tied to continued employment rather than capital risk - causing the entire gain in France to be treated as employment income, including the fraction theoretically eligible for capital gain treatment.
A nominal investment, company-funded acquisition, a floor put option, or absence of traceable personal bank payment does not satisfy the genuine risk condition. The security becomes non-qualifying - with the resulting employer social security consequences.
Only the fraction of the gain taxed as a capital gain can benefit from deferral in France (articles 150-0 B and 150-0 B ter CGI). The fraction reclassified as employment income is immediately taxable in France - even if the manager received no cash.
The 2026 Finance Act introduced a deferral mechanism applicable to the employment income fraction in two situations: contribution to a company with a capital link to the issuing company, and merger or demerger transactions. By contrast, contribution to a personal holding company controlled by the manager or their family is expressly excluded from the deferral. Where the deferral applies, it ends on disposal of the securities received in exchange, or after three years if the securities are transferred to a controlled company.
Since 20 February 2026, the net gain is determined and taxed in France in the name of the donor in the year of the gift - not the year of the donee's disposal. The classic gift-and-sale strategy no longer works for these instruments.
Holding securities through a civil company or personal holding vehicle does not protect against reclassification if the structure has no genuine substance. The Conseil d'État confirmed this (CE, 28 January 2022, no. 433965). The administration may apply the abuse of law procedure with an 80% surcharge in France.
Where a price supplement is paid after completion, the threshold is not recalculated. If the cumulative gain - initial price and supplement combined - exceeds the threshold calculated at the date of the main disposal, the excess is taxed as employment income with no possibility of challenging the initial calculation. This mechanism can turn an earn-out into an unanticipated maximum tax charge.
Managers holding management package securities in a French equity savings plan (PEA) since before 15 February 2025 face a specific issue. The good news: withdrawing securities from the plan is tax-neutral - it triggers neither taxation of the latent gain nor automatic closure of the plan. The bad news: if the disposal takes place while the securities are still in the PEA, the income tax exemption attached to the plan does not apply to the fraction of the gain falling under article 163 bis H. The acquisition price used to calculate the gain is the value of the securities in the plan at the date of withdrawal. Planning before any liquidity event is essential.
| Instrument | Disposal gain | Social security - qualifying securities | Social security - non-qualifying securities | PEA |
| BSA (ratchet warrants) | Employment income by default - capital gain below threshold (art. 163 bis H) | 10% liberatory employee contribution - no employer contributions | Standard social security contributions (22-23% employee / 40-45% employer) | Excluded since 2014 |
| Preference shares (ADP) | Employment income by default - capital gain below threshold (art. 163 bis H) | 10% liberatory employee contribution - no employer contributions | Standard social security contributions (22-23% employee / 40-45% employer) | Excluded since Feb. 2025 |
| Sweet equity (ordinary shares) | Employment income by default - capital gain below threshold (art. 163 bis H) | 10% liberatory employee contribution - no employer contributions | Standard social security contributions (22-23% employee / 40-45% employer) | Excluded since Feb. 2025 |
Note: free shares (AGA), BSPCE and stock options are subject to their own specific statutory regimes, distinct from article 163 bis H. Their interaction with this regime on the disposal gain requires case-by-case analysis.
Management packages are among the most closely scrutinised areas of executive taxation in France. The article 163 bis H CGI reform has stabilised the legal framework - while creating new areas of uncertainty on which administrative guidance is not yet definitive.
The distinction between qualifying and non-qualifying securities, the calculation of the performance coefficient, the documentation of genuine capital risk, and the interaction with reinvestment transactions are all determined at structuring stage - not at exit. Analysis conducted after disposal cannot correct the entry price, the drafting of clauses, or the documentation of risk.
Lobe Law, a law firm specialising in executive and corporate taxation in Paris, advises managers and their counsel at every stage of the transaction. Book a consultation.