Employee Share Plans in Europe and the USA - Sorainen

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Employee Share Plans in Europe and the USAItalywhere the option is exercised on or after 25 June 2008. This exceptionapplies to "stock option" plans.Moreover, in its Circular Letter No. 123 issued on 11 December 2009,the Italian Social Security Agency provided its interpretation 11 on,amongst other things, the meaning of "stock option" plans for thispurpose. On the basis that (1) the exception does not require anyspecific requirements to be met and (2) the Italian legislation does notprovide a definition of "stock option", the exception, in addition toapplying to traditional stock option plans (whether broad-based or not),may also apply to all "non-general" share plans (i.e. those plans whichare not broad-based but which are instead offered to a select group ofemployees) that provide for free awards of shares. Such plans mustincorporate certain performance and/or vesting conditions, e.g. arequirement that the award holder is employed by the grantor companyat the time of vesting.4.2 Employer tax and social security contributions4.2.1 Corporation tax deduction: As a general rule, any actual cost incurredby the employer in relation to a plan offering shares to employees is taxdeductible. A case-by-case analysis is required, especially for intragroupcharges.4.2.2 Social security contributions: Employer social security contributionsare due if and to the extent employee social security contributions aredue. Employer social security contributions vary from approximately26% to 38% of the employee's gross remuneration (the exact thresholdsvary depending on the employer's industry and on the number andcategory of employees).4.3 Tax withholdingIncome tax and employee social security contributions must be withheld by therelevant employer, shown on the employee's monthly payslip and then paid tothe relevant agencies. If the salary is not sufficient, the employee is required byItalian law to provide the employer with the funds necessary to pay the taxes andemployee social security contributions which are due.11The Italian Social Security Agency's Circular Letters are not legally binding under Italian law. However,they are taken into account by the social security inspectors.UK/1729295/03 117 September 2010
Employee Share Plans in Europe and the USAItaly5. Taxation of share options5.1 Employee tax and social security contributions5.1.1 Grant: There is no tax charge on the grant of a share option, providedthe share option is not transferable.5.1.2 Exercise:Current tax regimeThere is an income tax charge on the exercise of a share option on thedifference between the market value of the shares (calculated underItalian tax law) 12 at the date of exercise and the purchase price of theshares (exercise price plus any premium payable on grant). For the2010 tax year personal income tax rates range from 23% to 43% 13 .Personal income taxes are increased by regional and municipal surtaxesapplicable at different rates depending on the region and municipality ofresidence of the employee (in general, the regional surtax rates varyfrom 0.9% to 1.4% and municipal surtax rates vary from 0% to 0.8%).Current social security contributions regimeIn accordance with new legislation 14 , the income for tax purposes on theexercise of a share option will not be subject to social securitycontributions. The reason for this exemption is to avoid the incomearising on a share option exercise from being included in the calculationof pensionable income for the year (so as to avoid distorting thecalculation of a pension which is based on such income).121314Market value for listed companies is usually defined as the average trading price of the shares duringthe one-month period immediately preceding the acquisition date. If the shares are unlisted, marketvalue must be determined by reference to the net worth of the issuing company (generally determinedby an independent expert).In accordance with new legislation introduced by Legislative Decree n.78 of 31 May 2010, as amendedby Law n. 122 of 30 July 2010, an additional tax rate of 10% applies on the portion of income derivedfrom share options and exceeding three times the fixed part of remuneration received by executivesand "co-ordinated and continuous collaborators" (which in principle includes directors not otherwiseenrolled in a professional pension scheme) in the financial services industry.The new legislation was introduced by Legislative Decree n.112 of 25 June 2008, as amended by Lawn.133 of 6 August 2008.UK/1729295/03 118 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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