Taxation of Shareholder Options - Part 1: Fundamentals

If shareholders receive shareholder options free of charge or at a price below the fair market value, this leads to different tax consequences. The legal relationship based on which the shareholders receive the call or put options, as well as their exact design, play a large role.

Basis of Subscription Rights

‍It is important that shareholders receive the shareholder options based on their status as shareholders. If the call or put options are issued based on another legal relationship, different tax valuation principles may apply. This is the case, for example, when it comes to employee participations.

‍Design of Shareholder Options

‍In order for the principles according to Circular 39 of the ESTV to apply, it must be shareholder options that are issued free of charge or below fair market value. If the issuer is a non-listed public limited company, the facts and the fair market value calculation of the shareholder options must be submitted to the ESTV, External Audit Department, for approval. It must also be distinguished whether the issuance is in connection with an increase or decrease in capital.

‍The Various Taxes Incurred

‍If the call or put options are issued free of charge or below fair market value, then the difference between the price paid and the fair market value represents a monetary benefit, which is subject to direct federal tax. This is realized at the time of allocation and is to be taxed by the recipient. Additionally, withholding tax is due according to Art. 4 para. 1 lit b VSTG. In the event that the issue price of such options is above the fair market value, the portion above the fair market value represents a taxable grant, on which stamp duty is owed (Art. 5 para. 2 lit a StG).

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