Management packages after the 2025 Finance Act: what the numbers must show

Article 163 bis H CGI caps capital-gain treatment of manager gains at three times the company's performance. That cap is built from entry and exit values, which makes the equity bridge a tax document.

The 2025 Finance Act (law no. 2025-127 of 14 February 2025, article 93) created a statutory regime for management package gains in a new article 163 bis H of the French tax code. It applies to gains realised from mid-February 2025, whatever the date the securities were granted. The legal analysis belongs to tax counsel. The point of this note is narrower: the cap that decides how much of a manager's gain is taxed as a capital gain is built from figures that transaction services produces. From now on, entry and exit values carry tax consequences, and they need to be built and documented with that in mind.

The rule in brief

Since the three Conseil d'État plenary decisions of 13 July 2021, a manager's gain could be requalified as salary when it "essentially derives" from the manager's functions. Article 163 bis H replaces that case-by-case test with a formula.

• Default: a net gain on securities acquired, subscribed or granted in consideration of functions in the issuer, its subsidiaries or its parent is taxed as employment income.
• Exception: the gain is taxed as a capital gain (flat tax of 30%, or the progressive scale on election) if the manager bore a risk of losing capital and, for securities other than BSPCE, free shares and stock options, held them for at least two years. Capital-gain treatment applies only up to a limit.
• The limit: price paid × (3 × exit real value / entry real value) − price paid.
• Above the limit: the excess is employment income. It is subject to the progressive scale, the high-income contribution and a specific 10% employee contribution, but not to ordinary social charges. At the top bracket that is roughly 59%, against 30%.

The market asked for a multiple of five and got three. In a mid-market where Argos put the median EV/EBITDA at 9.8x in Q4 2024, a sponsor that triples its equity over five years is a good outcome. A ratchet that gives managers far more than that will now push part of their gain above the limit.

The cap is a transaction services number

The text defines "real value" as the real value of the issuer's equity plus its debts to any shareholder or related company (article 39, 12 CGI). Three consequences for the numbers:

1. Shareholder loans and bonds held by the sponsor count. Third-party bank debt does not. The bridge has to split net debt between external debt and shareholder debt, and that split has to be the same at entry and at exit.
2. Look-through for ManCos. If the issuer is a vehicle whose main purpose is to hold managers' stakes, its value is ignored. The real value used is the value of the underlying company. The ManCo's balance sheet is not the reference.
3. Debt cannot raise the limit. Shareholder debt that arises after entry is deemed to exist at entry. Adding it cannot increase the cap.

A simplified example shows the stakes. At entry, the sponsor funds the holding company with €20m of shares and a €40m shareholder loan with 8% PIK interest. A manager invests €1m in sweet equity. Five years later, the equity is sold for €110m and the loan has grown to €58.8m. Through the ratchet, the manager receives €11m.

The manager's €10m gain is the same in both columns. Whether the shareholder loan sits in the bridge is what moves €2.6m from 30% to about 59%. How capitalised PIK interest should be treated under the deemed-at-entry rule is a question for counsel. We present the loan both ways.

The entry value has to be documented when the securities are issued

The entry value is set at the date of acquisition or subscription, or at grant for free shares. In practice that date is closing. Most of the time the price has not yet settled on that day: the completion accounts are still open, the net debt is still being argued, and an earn-out or a vendor loan is still pending.

In the example above, suppose the entry value is documented at €57m because someone took the headline equity price before a €3m completion-accounts adjustment. The ratio rises to 2.96 and the limit to €7.9m. About €0.44m of gain moves from salary treatment into capital-gain treatment. If the tax authorities later rebuild the entry value at €60m, the manager owes roughly €0.13m of extra tax per €1m invested, plus interest.

So we recommend three things:

• One entry value, reconciled to the SPA. The entry real value should come out of the same equity bridge that the price used, after the completion accounts are agreed. Every difference should be explained in writing.
• A separate value for each date and each instrument. Practitioners read the text as computing gain and limit per acquisition date. Ordinary shares at closing, preference shares issued six months later, and shares warehoused by the sponsor for future managers each need their own entry value.
• A grant-date valuation of ratchets and sweet equity. A price below real value at subscription is excluded from the capital gain and may be taxed separately as a benefit. For preference shares that requires a documented valuation of the instrument, not of the company alone. Where the stakes are significant, an independent valuation at issue is worth its cost.

Exit: the same bridge, five years later

At exit, the exit real value comes from the sale price. The risk is a bridge built differently from the entry one: a shareholder bond reclassified as quasi-equity, accrued interest left out, a leasing liability treated one way in 2020 and another way in 2025. Each inconsistency moves the ratio.

Two other mechanics matter. The text adjusts real value for capital operations between the two dates (article L. 225-181 of the commercial code). Dividends and capital reductions received by the manager reduce the limit. An earn-out received after the sale is taxed when it is received, so the final split may not be known on day one.

On the sell side, we now add a schedule to the VDD or the vendor assistance work that reconciles entry and exit real values on the same definitions, line by line. It costs a few days. It avoids a manager discovering, after closing, that the cap was computed on a different base from the one the lawyers assumed.

Where TS stops and counsel starts

We give figures and their audit trail, not an opinion on the tax regime. Managers should receive both documents together, and they should agree with each other.

What to do now

1. Packages already in place: rebuild the entry real value from the closing documents, including shareholder debt, before the next liquidity event. Packages granted before February 2025 are in scope too.
2. New deals: have the entry real value signed off at closing, from the agreed completion accounts, with one value per instrument and per date.
3. Sell-side: include an entry-to-exit reconciliation in the VDD scope and share it with the managers' counsel early.
4. Ratchet design: run the expected gain against the 3× limit across exit scenarios before the term sheet is signed, not after.
5. Keep the file: the valuation at issue, the bridge and the reconciliation are what will support the manager's position years later.

This note is general information, not advice on a specific transaction.