Securing the taxation of carried interest during an international relocation

The situation

Our support

1. 01

   Reconstructing the rights held in each fund

   We analysed each fund and each category of rights separately, based on:

   • the Limited Partnership Agreements and fund regulations;
   • the subscription forms and side letters;
   • the price and date of acquisition of the rights;
   • the amount personally invested;
   • the vesting and leaver conditions;
   • the distribution waterfall;
   • the history of distributions already received.

   This analysis made it possible, in particular, to distinguish genuine carried-interest investment from purely notional rights or rights granted without any initial investment.

   Point of attention. The tax treatment of carried interest depends as much on the features of the fund as on the conditions under which the professional acquired his rights.
2. 02

   Checking eligibility for the carried-interest tax regime

   We examined whether the conditions set out in particular by articles 150-0 A and 163 quinquies C of the CGI were met.

   Our review focused, in particular, on:

   • the location and legal features of the fund;
   • the nature of its investments;
   • the beneficiary’s status as an employee or director;
   • the existence of an actual personal investment;
   • the subscription of the rights at their real value;
   • the investment level of the management team;
   • the duration and conditions of payment of the distributions;
   • the receipt of normal remuneration for the duties performed.

   The French regime is subject to conditions relating both to the beneficiary and to the carried-interest units or shares. For a foreign fund, it is also necessary to analyse its legal form and its equivalence to a French structure.

   Simplified example: having personally invested in a fund is not enough to secure treatment of the gain as a capital gain. The vehicle, the rights subscribed, their price and the link with the duties performed must also be analysed.
3. 03

   Coordinating taxation with international mobility

   We then reconstructed the periods during which the rights had been acquired and the countries in which the professional had carried on his activity.

   This step made it possible to identify:

   • the rights acquired before moving to France;
   • those acquired during a period of activity split between several countries;
   • the treatment of distributions received after arriving in France;
   • the reporting obligations in each State;
   • the application of the tax treaty;
   • the mechanisms available to limit any double taxation.

   Point of attention. The same gain may be regarded as a capital gain in one State and as remuneration in another. The analysis must therefore be coordinated before the first distribution.