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27.01.2011
German Tax and Legal News

BFH rules on tax consequences of employee stock option plans

The Federal Tax Court (BFH) recently decided a case relating to a German company that granted stock options to its employees (case reference I R 103/09). The stock options had been issued based on a contingent increase of the statutory capital of the German corporation and were granted free of charge to the employees, but with a vesting period of two years.

The BFH confirmed a decision of the local tax court of Munich (see Deloitte Tax-News), concluding that the issuance of stock options to employees under a contingent capital increase does not lead to tax deductible personnel expenses at the level of the entity that issued the new shares and granted the options. The court held that in such a case, it is the shareholders of the corporation who suffer a loss because their shareholdings are diluted, not the company, so that the company does not actually incur and cannot be deemed to incur any expenses; hence, the granting of the stock options should not lead to tax deductible personnel expenses.

The BFH decision clarifies what has been a controversial topic in Germany. German companies that have issued or that are planning to issue employee stock option plans should take the decision into account.

If you have any questions, please contact the authors of the article at gtln@deloitte.de or your regular Deloitte contact.

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