Thibaud Forbin discusses the February 1, 2024 ruling regarding the tax and social security treatment of compensation paid to corporate officers of simplified joint-stock companies
To determine the tax and social security regimes applicable to the compensation of executives of simplified joint-stock companies, legal doctrine generally refers to the rules applicable to the compensation of executives of public limited companies. However, these regimes are not entirely comparable, which can have serious consequences and, in particular, lead to tax adjustments by Urssaf.
Rules Applicable to the Governance of Simplified Joint-Stock Companies
In simplified joint-stock companies, only the position of chairman is mandatory and defined by law (first paragraph of Article L. 227-6 of the Commercial Code).
The third paragraph of the same article further provides for the possibility of appointing one or more persons other than the chairman, holding the title of chief executive officer or deputy chief executive officer, who may exercise the powers entrusted to the chairman.
The articles of association of a simplified joint-stock company may provide for the establishment of ad hoc management bodies, whose duties, powers, and operating procedures are freely determined by the shareholders.
Rules applicable to compensation paid to the governance bodies of simplified joint-stock companies
No legal provision addresses the compensation of officers of simplified joint-stock companies. Thus, in the absence of specific statutory provisions, the positions of chairman or any other officer of a simplified joint-stock company may be unpaid or compensated. The articles of incorporation freely determine both the body authorized to decide on the allocation of compensation and the specific terms thereof (fixed, variable, indexed to certain specified parameters, or other).
From a tax perspective, the compensation of the chairman and other executives of a simplified joint-stock company is subject to the rules governing salaries and wages (BOI-RSA-GER-10-30, §180).
From a social security perspective, since Law No. 2001-1246 of December 21, 2001, on Social Security Financing for 2002, the chairpersons and executives of simplified joint-stock companies are enrolled in the general social security scheme 2.
The law does not provide an exhaustive list of who qualifies as a director of a simplified joint-stock company, simply because this is not possible given the freedom granted to shareholders to establish ad hoc governance bodies that may perform management functions.
In a very recent ruling handed down on February 1, 2024, the Second Civil Chamber of the Court of Cassation had to rule on the corporate regime applicable to compensation paid to members of the supervisory board of a simplified joint-stock company (Civ. 2nd, February 1, 2024, 21-25.175).
The Court had to determine whether members of the supervisory board of a simplified joint-stock company qualified as executives within the meaning of Article L. 311-3, 23° of the Social Security Code and, consequently, whether their compensation was subject to social security contributions under the general pension scheme.
In the aforementioned ruling, the Court first notes that the role of a supervisory board is, in principle, limited to the ongoing oversight of the management board’s operations. Consequently, members of the supervisory board are not, in principle, considered executives within the meaning of Article L. 311-3 of the Social Security Code.
The Minister of Social Security had already taken this position in a ministerial response dated December 3, 1990, stating that the remuneration allocated to the chairman and vice-chairman of a supervisory board cannot be considered wages, since Article L. 311-3 of the Social Security Code does not provide for the chairman and vice-chairman of the supervisory board to be treated as the chairman and chief executive officer of a public limited company.
However, such reasoning cannot apply when the members of the supervisory board actually perform a management function: “Since their sole mission is to oversee the company’s management bodies without assuming management responsibilities, members of the supervisory board are, in principle, not affiliated with the general social security system, unless it can be demonstrated that they actually exercise a management function” (see the aforementioned ruling).
In this case, to define the supervisory board’s management functions, the Court puts forward the following arguments: the company was initially incorporated as a public limited company, and the current chairman of the supervisory board served as its chairman and chief executive officer prior to the company’s conversion into a simplified joint-stock company; prior authorization from the supervisory board was required for certain transactions, which limited the executive board’s decision-making powers; the compensation of the chairman of the supervisory board significantly exceeded that of the members of the management board; the chairman of the supervisory board, together with his spouse, held the majority of the company’s capital.
Furthermore, the Court notes that the vice-chairman, just like the chairman of the supervisory board, continued to perform active management and leadership functions.
Consequently, the Court of Cassation upheld the appellate court’s ruling insofar as it held that the chairman and vice-chairman of the supervisory board were required to be enrolled in the general social security system.
While it excludes the nature of salary, the Court of Cassation does not specify the social security classification of remuneration paid to members of the supervisory board of an SAS who do not hold management positions.
In our view, Article L. 137-15 of the Social Security Code, which provides for the application of a 20% social security surcharge, applies only to directors and members of supervisory boards of public limited companies in a restrictive manner. It therefore does not apply to non-executive corporate officers of simplified joint-stock companies, even if such officers perform their duties on a supervisory board, a strategic committee, or any other body of the simplified joint-stock company with a purely supervisory role.
If they are not subject to this social security flat rate and do not constitute salaries, they must, in our view, be considered as services rendered by the members of the supervisory board to the company. They must therefore be invoiced by the relevant member to the company and taxed at the company level as non-business income. In our view, each member of the supervisory board who does not hold a management position must register as a self-employed individual with URSSAF and pay their social security contributions directly. It would also be possible to appoint a legal entity as a board member if the articles of incorporation so provide.
To minimise the risk of reassessment by social security and tax authorities, we believe remunerated members of the supervisory board should sign a service agreement (consulting or mandate agreement) with the company specifying the nature of the services provided and the obligation of the member concerned to register with Urssaf. This contract could also specify the conditions for performing the duties (mandatory attendance, leave, number of hours to be devoted to the duties, and remuneration, among other things).
