The taxation of capital gains from private equity – Boursorama

In France, like many countries in the world, gains made by private equity could now be taxed as a salary. This probability sows a wave of panic in the world of private equity. Decryption.

Capital gain or salary?

In several recent business sale cases, the Council of State has ruled: the gains made by managers within the framework of management packages should be taxed as salaries. This is what emerges from three decisions of July 13, 2021, in which the Council of State is working to define the tax rules for management packages, so far absent from the texts. The institution is thus rethinking the grid for reading the gains perceived through operations carried out within the framework of management packages. Seized by taxpayers and the tax administration, the Council of State ruled that the gains from management packages should “be taxed as salaries and wages, and not as capital gains on the sale of securities, if employees have benefited in return for the functions they perform in the company. The tax rate on these gains will thus be between 45% and 60% depending on the case, instead of 30%.

A global trend

This trend, far from being confined to France, seems to gain several other countries in the world. In the United States, which is the largest private equity market, Joe Biden’s government is paying close attention to the favorable taxation of the earnings of executives of unlisted companies. The administration could propose a revaluation of the tax rate from 20% to 39.6%.

A threat to the market?

Remember that the private equity market has experienced significant growth for more than 10 years. According to a 2019 annual report from France Invest, French private equity dominated other asset classes that year, accumulating an average annual net performance of 11.2% over the past 15 years. At the end of 2019, private equity represented 795 billion euros in Europe and more than 3.400 billion dollars worldwide. By comparison, listed equity investment funds manage around $ 7 trillion. In 2020, still according to France Invest, French investors injected 17.8 billion euros into SMEs, in large French majorities. At the start of 2021, the government made private equity one of the linchpins of the economic recovery, supporting private investments in local SMEs. If the trend continues, investors around the world, attracted by previously advantageous taxation, could gradually turn away from private equity.