We have previously reported on the Incentive Committee’s proposal for changed regulations as regards the taxation of incentive programs. This proposal implies, in general, that employees receiving employee stock options on advantageous conditions are not to be taxed as employment income at the time of exercise of the options, but taxation should first take place when the underlying shares as sold and, then, as income from capital.
The consultation period ends on 15 August 2016 but, already now, at this point in time, a number of replies have been sent in, whereof the Tax Agency’s and SVCA’s (Swedish Private Equity & Venture Capital Association’s) responses are the most interesting.
The Tax Agency is critical of the Committee’s report and objects to the implementation of the proposal regarding qualified employee stock options. The Tax Agency believes that this proposal will result in a significant increase in costs for the Agency.
The Tax Agency also believes that
- The dual tax system in existence today in Sweden, that is whereby income from capital is taxed separately from employment income, will not be sustained should this proposal be implemented.
- The proposal will not result in it being easier for the employer, nor for the employee, to determine and pay the correct amount of tax,
- The rules will be difficult to apply by the companies, employees and Tax Agency, something that will also give rise to significant costs. The proposal is also seen to result in the risk of possible non-intended tax planning due to the fact that the benefit incurred by those utilizing these rules to achieve as low a tax level as possible increases, compared with today’s rules.
SVCA partially approves of the investigators’ proposal for certain changes as regards qualified employee stock options, but, at the same time, proposes changes to the general rules applying to the taxation of employee stock options.
SVCA believes that there is a major problem with today’s rules regarding employee stock options, namely, that taxation takes place already in conjunction with the option being exercised. This implies that taxation takes place already prior to the holder actually receiving any cash compensation. Consequently, SVCA proposes that the current rules regarding taxation of employee stock options be changed so that they follow the so-called cash principle, that is, taxation takes place first when the cash compensation has been received. The value increase from and up to the exercise of the employee stock options should be taxed as income from employment and the value increase arising thereafter should be taxed as income from capital.
In reference to the proposal regarding qualified employee stock options, SVCA believes that the proposal is entirely too limited and risks impeding the impact of the rules and, thereby, the possibility of creating economic growth. SVCA believes that the rules should be able to be applied by small and medium-sized companies similar to the regulations in effect in Great Britain. Regarding taxation, SVCA proposes that any value growth, up to and including the exercise of the options, should be taxed as income from employment, while any subsequent value growth should be tax free.
Web seminar 16 August
PwC monitors developments in this area and invites you to listen to our web seminar on 16 August during which we will review the Committee’s proposal and discuss, in detail, the consultation replies. The seminar will be held in Swedish.
- Tax matters, April 14, 2016 - The Incentive Committee’s proposal has been submitted for consultation
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