France: Law Requiring Bonuses Could Be Tax Opportunity for Multinationals
By Rick Mitchell
PARIS--A new French law that requires certain companies to pay employee bonuses in years the company raises dividends could allow employers to offer an incentive to workers and get a full tax write-off for it, a New York-based lawyer for a PricewaterhouseCoopers representative told BNA July 19.
France's Revised 2011 Law on the Financing of Social Security, passed by Parliament July 13, includes a measure that requires France-based companies that have more than 50 employees to pay bonuses to all employees for years in which the company has paid out dividends to stockholders that exceed its average dividend paid over the previous two years.
The requirement applies to dividend distributions paid on or after Jan. 1, 2011.
President Nicolas Sarkozy has said that the “bonus for valued added sharing” will allow employees to benefit from actions that companies take to increase shareholder profits.
Unions have complained, however, that they would prefer to have employee salaries raised, while the country's largest employer association, MEDEF, has criticized the measure as unwarranted government intrusion in business management.
Guillaume Glon, a New York-based partner for Landwell & Associes, PwC's correspondent law firm in France, said he is telling clients they could turn the bonus requirement to their advantage.
Full Tax Deduction
For most companies the cost of the bonuses will be manageable, Glon said, adding that “the hurdle is that companies will have to negotiate with employees each time they pay bonuses, and that could get tense.”
According to the new law, companies that are required to negotiate the bonus but fail to do so will risk a fine of 3,750 euros (U.S. $5,300) and a one-year prison sentence.
“For many, the first reaction to this law will be negative, but we see it as a possible opportunity to give an incentive to employees” and at the same time get a tax exemption, said Glon, who noted that companies will be able to claim 100 percent of the bonus payments against corporate revenues.
As for employees, the law states that they are exempted from paying certain social welfare taxes on the bonuses, up to a limit of 1,200 euros ($1,700), although they must still pay the so-called generalized social security tax, which is one of the highest-percentage taxes paid on income in France.
(Appeared July 20, 2011)
