The tax and social security treatment for termination payments was changed in 2009.  We look at the new rules.

Until recently all termination payments (whether paid to employees or executives) were subject to the same tax and social security treatment.  In summary, such payments were totally exempt from tax and social security contributions provided they did not exceed either the maximum amount provided for by law or the applicable collective agreement.

Even in relation to larger termination payments, the tax and social security exemptions could still be applied to a portion of the termination payment which did not exceed two years of remuneration or 50% of the total termination payment, subject to an overall limit (adjusted annually – for example in 2009, this maximum limit is EUR 206,000).

Following a legislative change introduced by the Social Security Financing Law for 2009, the above rules no longer apply to termination payments exceeding EUR 1,029,240 (“golden parachutes”).

Golden parachutes in excess of EUR 1,029,240 are now exempt from tax only for an amount up to EUR 205,848 but are subject to social security contributions on the full amount paid.

Listed companies

In addition, golden parachutes paid to employees or executives by listed companies do not qualify for deduction from the company’s corporate income tax base for any amount exceeding EUR 205,848.

For further information or to discuss the issues raised, please contact Pascal Ngatsing (pngatsing@soffal.fr) on +33 (0) 1 53 93 94 00.

This article was produced by, and re-produced with kind permission of, our correspondent firm in France, Société Juridique et Fiscale Franco-Allemande Selas (SOFFAL).www.soffal.fr

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