Employee Share Plans in Europe and the USA - Sorainen

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Employee Share Plans in Europe and the USASpain3. Financial assistance3.1 Spanish company: A Spanish limited liability company (sociedad anónima)(SA) may provide financial assistance to facilitate the acquisition of its shares (orshares in another group company) by employees of that company. 9 However, asociedad de responsabilidad limitada (SL) 10 may not make advance payments,grant credits or loans, give guarantees or provide financing for the acquisition ofits own shares or those of companies within its group. 11 While SAs expresslybenefit from the employees’ exemption from the prohibition on financialassistance, this exemption does not appear to apply to SLs. 123.2 Spanish subsidiary of non-Spanish company: See paragraph 3.1 above.4. Taxation of share acquisitions4.1 Employee tax and social security contributions4.1.1 Tax: An employee who acquires shares in his employing company or itsparent company free of charge or at a discount to market value willnormally be liable to pay income tax. The tax charge is on the differencewhich the employee holds the shares, but they must be done by the employee if his account isopen with a non-resident entity and it constitutes a deposit abroad. Where this is the case, holdersof the securities must submit, if the foreign company is listed, Form D-6 within one month followingthe acquisition of the shares to the Registry of Investments of the General Directorate of Commerceand Investments within the Ministry of Economy (Dirección General de Comercio e Inversiones)(DGCI) only if it (i) acquires more than 10% of the share capital of the foreign company; (ii) acquiresa stake in the foreign company which allows him/her to be a member of the board of directors of thecompany; or (iii) invests more than €1,502,530.27. In addition, annually, during January of eachyear, a Form D-6 must be submitted stating, among other information, the name of the relevantparticipating employee, the number of his/her identity card, the number of shares and their value inrelation to the previous reporting period. In the case of non-listed companies, holders of thesecurities must submit Form D-5A within one month following the acquisition.9101112Article 81.2 of Ley de Sociedades Anónimas (LSA). The employee share plan exemption from theprohibition on financial assistance does not apply to a sociedad de responsabilidad limitada (SL).Article 40.5 of the Ley de Sociedades de Responsabilidad Limitada of 1995.By contrast, although, a SA may not advance funds, grant loans, extend real or personal guarantees,or provide any type of financial assistance to a third party for the purchase of its shares or those of itscontrolling company, such a prohibition will not apply to transactions aimed at facilitating the acquisitionof shares in the company or shares in a group company by employees of the company.This may create a conflict between the rules applicable to SAs and SLs where the parent company ofthe SL is an SA and the shares of the parent company are the object of the financial assistance. In thisregard, we believe that in the case of an acquisition of shares in the parent company, the rules of theparent company should apply and not the rules applicable to the subsidiary (if different). Thisinterpretation is supported by the leading commentary in this area. However, it is important to note thata case based on similar facts has yet to be heard, therefore, it is impossible to predict the final outcomeof litigation on this point.UK/1729295/03 173 September 2010
Employee Share Plans in Europe and the USASpainbetween the market value of the shares at the time of acquisition and theamount, if any, paid for the shares. For the 2010 tax year income taxrates range from 24% to 43%.4.1.2 Social security contributions: An employee will be subject to socialsecurity contributions on the amount subject to income tax at a standardrate of 6.35% for indefinite employment contracts and 6.40% for fixedtermemployment contracts for the 2010 tax year. The maximumearnings threshold for the 2010 tax year is €3,198 per month. 134.1.3 Tax exemption: The first €12,000 of taxable benefit received in theform of shares by an employee from his employer or a group companymay be exempt from tax if certain conditions are met. 14 The mainconditions are that the offer is made to current employees who mustthen hold the shares for at least 3 years. If the shares are disposed ofwithin 3 years, the previously tax free amount must be declared by theemployee as personal taxable income. 15 The employee will be taxed atthe relevant rates applicable at the time of the share acquisition (plusinterest for late payment).4.2 Employer tax and social security contributions4.2.1 Corporation tax deduction: The costs involved in the administration ofa share plan and employer social security contributions are deductible. 16When shares are purchased or a cost is incurred under a rechargearrangement with a foreign parent, the costs are also deductible. 171314Therefore, in principle, no contribution is paid on earnings over this amount. Earnings mustnevertheless be apportioned in the fiscal year in which they are received and separate additionalcontributions must be produced for any previous months.The detailed conditions are:• the offer is made to current employees;• the award of shares is made pursuant to the general remuneration policy of the company or group;• no employee, alone or jointly with his spouse or immediate relatives, holds a beneficial interest of5% or more in the share capital of any group company; and• the shares must be held for a minimum of 3 years.151617By submitting an income tax return for the tax year in which the shares were acquired.Invoices should support these costs.Provided documents to evidence the cost supports the claim (this cost will be categorised as a salarycost).UK/1729295/03 174 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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