You will not be subject to tax when the options are granted to you. Vesting
You will not be subject to tax when the options vest. Exercise
To the extent that your options are qualified options for favorable French tax and social security treatment, when you exercise your options, taxation of the spread (i.e., the difference between
the fair market value of the underlying shares at exercise and the exercise price) will be deferred until sale of the underlying shares.
However, if the exercise price is less than 95% of the average trading price of the underlying shares for the 20 trading days prior to the grant date or less than 95% of the average purchase price paid for such shares by HP, this “excess discount” will be treated as an additional taxable salary at the time of exercise. This income will be taxed at personal income tax progressive rates for the year of exercise. This amount is also subject to social security contributions.
Sale of Shares
When you subsequently sell the shares that you acquire under the SIP, your gain will be divided into two portions: the spread and any capital gain (i.e., the difference between the sale price and the fair market value of the shares at the time of exercise).
The spread will be taxed as salary at your marginal income tax rate (up to 45% for 2013 income) plus 8% additional social taxes (comprised of 7.5% CSG and 0.5% CRDS). The spread is also subject to a special employee social contribution at a rate of 10%.
Any capital gain will be subject to income tax at your progressive rate and the 15.5% additional social taxes. If you held the shares for at least two years but less than eight years, the capital gain basis for personal income tax purposes will be reduced by an allowance of 50%. If you held the shares for at least eight years, the capital gain basis for personal income tax purposes will be reduced by an allowance of 65%.
For any capital gains realized as from 2013, CSG at a rate of 5.1%3 is deducted from your taxable income for the year following the year in which such CSG was originally paid.
You may realize a capital loss if the net sale price is less than the fair market value of the shares on the date of exercise. With respect to both the income tax and the 15.5% additional social taxes, such capital loss can be offset against capital gains realized from the sale of securities during the year in which you sold the shares acquired under the SIP or the following 10 years. A capital loss cannot be offset against any other kind of income (such as salary). The French tax rules for offsetting capital loss are complex. You should review those rules with your personal tax advisor prior to filing your personal income tax return.
Dividends
If you hold HP shares and HP declares a dividend on the shares, you will be subject to income tax (after deduction allowances) on dividends that you receive. Any dividends received will also be subject to 15.5% additional social taxes. You should carefully review your situation with your personal tax advisor or your tax office, since you may have to file a tax return and to pay taxes directly to the tax office within 15 days of the month following the receipt of dividends, depending on your income in the year N-2. This would be a prepayment of the personal income tax due the year following the receipt of dividends.
In addition, the dividends will be subject to U.S. federal income withholding tax. You may be entitled to a French tax credit for the U.S. withholding taxes paid, provided certain conditions are met.
3 The 5.1% CSG is a portion of the 15.5% additional social taxes paid in the year following the year in which you sold your shares.
Surtax
An additional 3% surtax on all types of income exceeding €250,000 (for single taxpayers) or €500,000 (for married taxpayers), and a 4% surtax on income exceeding €500,000 (for single taxpayers) or €1,000,000 (for married taxpayers) is due. This surtax will apply to all types of income received during the tax year (including the spread at exercise, any capital gains at sale of the shares and the receipt of any dividends). If you may be subject to the surtax, please contact your personal tax advisor regarding the availability of a surtax reduction (especially if your income met the above mentioned thresholds in the current tax year, but not in the prior two tax years). Wealth Tax
Shares acquired under the SIP are included in your personal estate and must be declared to the tax authorities if the total amount of your taxable personal estate (including you and your household) exceeds the exempt amount (€1.3 million for 2014) for the calendar year, as valued on 1 January of each taxable year. There are specific legislative exemptions which may apply to reduce or eliminate any wealth tax otherwise due. You should consult with your personal tax advisor if you are concerned that the exercise of your options may subject you to the wealth tax.
Withholding and Reporting
Your employer is not required to withhold income tax when you exercise your options or at the sale of the shares pursuant to qualified options (except if there is an excess discount, as discussed in the “Exercise” section above), provided you remain a French tax resident and work continuously in France from grant to sale. If you cease to be a French tax resident after grant, income tax withholding will apply to the French-source income.
Your employer will send you a statement setting out certain details of the exercise no later than March 1stof the following year and send a copy of such statement to the local tax office for your employer. In order to benefit from French favourable tax and social security treatment, you must attach to your income tax return for the year in which you exercise options, a copy of the specific certificate delivered to you by your employer (if you file your return in hard copy) or keep a copy of the statement with your records to provide to the tax authorities upon request (if you file your return online).
It is also your responsibility to pay and report any taxes due when you exercise your options, sell shares acquired under the SIP and if dividends are paid.
Social Security
Your employer will not withhold social security contributions when you exercise your options or at the sale of the shares under the SIP pursuant to qualified options (except if there is an excess discount, as discussed in the “Exercise” section above), provided you remain a French tax resident and work continuously in France from grant to sale. If you cease to be a French tax resident after grant, social tax withholding will apply to the French-source income.
Exchange Controls
You must declare to the customs and excise authorities any cash or securities you import or export without the use of a financial institution if the value of the cash or securities is equal to or exceeds a certain amount which is set annually (€10,000 for 2014).
Foreign Accounts Reporting Requirement
You may hold shares issued under the SIP or cash outside of France provided you declare all foreign accounts (whether open, current or closed) on an annual basis on a special tax form, together with your annual income tax return. Failure to comply could trigger significant penalties. NON-QUALIFIED RESTRICTED STOCK UNITS:
Grant
You will not be subject to tax when the restricted stock units are granted to you. Vesting
You will be subject to income tax and social security contributions when the restricted stock units vest. You will be taxed on the fair market value of the shares paid to you on the date of vesting. Any accumulated dividend equivalents which are released to you with the restricted stock units at vesting will also be subject to tax.
Sale of Shares
When you subsequently sell the shares that you acquire under the SIP, any capital gain (i.e., the difference between the net sale price and the fair market value of the shares at the time of vesting) will be subject to income tax at your progressive rate and the 15.5% additional social taxes. If you held the shares for at least two years but less than eight years, the capital gain basis for personal income tax purposes will be reduced by an allowance of 50%. If you held the shares for at least eight years, the capital gain basis for personal income tax purposes will be reduced by an allowance of 65%.
For any capital gains realized as from 2013, CSG at a rate of 5.1%4 is deducted from your taxable income for the year following the year in which such CSG was originally paid.
You may realize a capital loss if the net sale price of the shares at the time of sale is lower than the fair market value of the shares at the time the restricted stock units vested under the SIP. With respect to both the income tax and the 15.5% additional social taxes, such capital loss can be offset against capital gains realized from the sale of securities during the year in which you sold the shares acquired under the SIP or the following 10 years. A capital loss cannot be offset against any other kind of income (such as salary). The French tax rules for offsetting capital loss are complex. You should review those rules with your personal tax advisor prior to filing your personal income tax return.
Dividends
If you hold HP shares and HP declares a dividend on the shares, you will be subject to income tax (after deduction allowances) on dividends that you receive. Any dividends received will also be subject to 15.5% additional social taxes. You should carefully review your situation with your personal tax advisor or your tax office, since you may have to file a tax return and to pay taxes directly to the tax office within 15 days of the month following the receipt of dividends, depending
4 The 5.1% CSG is a portion of the 15.5% additional social taxes paid in the year following the year in which you sold your shares.
on your income in the year N-2. This would be a prepayment of the personal income tax due the year following the receipt of dividends.
In addition, the dividends will be subject to U.S. federal income withholding tax. You may be entitled to a French tax credit for the U.S. withholding taxes paid, provided certain conditions are met.
Surtax
An additional 3% surtax on all types of income exceeding €250,000 (for single taxpayers) or €500,000 (for married taxpayers), and a 4% surtax on income exceeding €500,000 (for single taxpayers) or €1,000,000 (for married taxpayers) is due. This surtax will apply to all types of income received during the tax year (including the fair market value of the shares at vesting, any capital gains at sale of the shares and the receipt of any dividends). If you may be subject to the surtax, please contact your personal tax advisor regarding the availability of a surtax reduction (especially if your income met the above mentioned thresholds in the current tax year, but not in the prior two tax years).
Wealth Tax
Shares acquired under the SIP are included in your personal estate and must be declared to the tax authorities if the total amount of your taxable personal estate (including you and your household) exceeds the exempt amount (€1.3 million for 2014) for the calendar year, as valued on 1 January of each taxable year. There are specific legislative exemptions which may apply to reduce or eliminate any wealth tax otherwise due. You should consult with your personal tax advisor if you are concerned that the vesting of your restricted stock units may subject you to the wealth tax.
Withholding and Reporting
Your employer is not required to withhold income tax when you vest in the restricted stock units, provided you remain a French tax resident and work continuously in France from grant to vesting. If you cease to be a French tax resident prior to vesting, income tax withholding will apply to the French-source income.
Your employer will report the fair market value of shares at vesting to the French tax and social security authorities. It is your responsibility to pay and report any taxes due when vest in the restricted stock units, sell shares acquired under the SIP and if dividends are paid.
Social Security
Your employer will withhold social security contributions when you vest in the restricted stock units.
Exchange Controls
You must declare to the customs and excise authorities any cash or securities you import or export without the use of a financial institution if the value of the cash or securities is equal to or exceeds a certain amount which is set annually (€10,000 for 2014).
Foreign Accounts Reporting Requirement
You may hold shares issued under the SIP or cash outside of France provided you declare all foreign accounts (whether open, current or closed) on an annual basis on a special form, together with your annual income tax return. Failure to comply could trigger significant penalties.
QUALIFIED RESTRICTED STOCK UNITS: