Swedish taxation of employee stock options and shares schemes earned abroad is in conflict with EU law

In two advance rulings, the Supreme Administrative Court has established that the taxation of EU citizens for benefits in the form of employee stock options and share schemes earned abroad constitutes a violation of the free movement of labour in the EU.

In previous editions of Tax Matters we have described two advance rulings in which citizens in other EU countries earned benefits under incentive schemes while working abroad. The employees subsequently move to Sweden, become resident here for tax purposes and, then, exercise their stock options or receive shares. They cannot invoke the six-month or one-year rule for tax exemption in Sweden as they incurred limited tax liability status prior to moving to Sweden.

The Supreme Administrative Court made a comparison with the situation of a person who is resident in Sweden, takes employment abroad for a period of time and then comes back to Sweden. In this case the person often remains resident in Sweden for tax purposes during his or her period of work abroad. The benefits earned abroad are, then, tax exempt under the six-month or one-year rule.

The court considers that this difference in treatment in usual terms can be seen to be detrimental to foreign citizens. Such taxation would constitute an unjustifiable form of negative discrimination and is, therefore, prohibited under the Treaty on the Functioning of the European Union. The benefits earned abroad should, therefore, not be taxed in Sweden.

Comment

The ruling is a welcome clarification.

As we see it, the same applies also to other income from employment, such as bonuses earned abroad which an EU citizen receives only after moving to Sweden and becoming tax resident here.

It may be advisable for employees and their employers to check whether foreign income earned during the years 2009–2015 has been taxed in contravention of EU law. An application for review in respect of income year 2009 must be received by the Tax Agency by 31 December 2015.

Author: Kristian Gustavson, former employee at PwC.