Employee Share Plans in Europe and the USA - Sorainen

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Employee Share Plans in Europe and the USASweden5.2 Employer tax and social security contributions5.2.1 Corporation tax deduction: A Swedish subsidiary may be entitled todeduct any costs incurred or charged by the parent company. However,the position is complex and specific advice should be sought in eachcase. 135.2.2 Social security contributions: Social security contributions arise onthe exercise of an employee share option in circumstances where anemployee has been covered by Swedish social security during thevesting period 14 . The rate for employer social security contributions is,generally, 31.42% for the 2010 income year. 15 Employer social securitycontributions are not subject to any earnings caps. If the share option isa security, employer social security contributions arise at grant (seeparagraph 5.1.1.).5.3 Tax withholdingThe employer is only liable to withhold tax from the employee's cash salary (andcash benefits) in the month in which the benefit is received. Where there isinsufficient cash salary to cover the necessary withholding then the employee isrequired to pay the deficit to the Swedish Tax Agency.6. Taxation of share disposals6.1 Any gain realised on a sale of shares is taxed as capital income at a rate of 30%for the 2010 income year. Capital gains on unlisted shares are, under certaincircumstances, taxed at a rate of only 25%. The gain is the difference betweenthe sale price and the acquisition cost of the shares (calculated according to the"average method"). 16 The acquisition cost is the total of the price paid by theemployee and the value of the taxable benefit at the time of acquisition.1213141516Unless taxed under the special flat rate tax rules described in footnote 11.In a case involving an employee share option plan, The Supreme Administrative Court permitted anemploying company to claim a corporation tax deduction equal to the value of the shares acquired byits employees, less the exercise price paid by the employees.To be paid by the employer for which the employee performed the work that entitled him/her to begranted the options.The cost of employers’ social security contributions is tax deductible for the employer.This means that the acquisition cost is calculated by using the average acquisition cost for all shares ofthe same type and class.UK/1729295/03 185 September 2010
Employee Share Plans in Europe and the USASweden6.2 Alternatively, if the shares are quoted, the tax payer may choose to calculate theacquisition cost as 20% of the net sale proceeds. Special tax rules apply toholders of shares in close companies.7. Employee benefit trusts7.1 Generally, a Swedish resident who is a potential beneficiary of a discretionarytrust (but has no immediate right to any benefits and may not demand thatshares are distributed), will not be subject to any tax on property held by thetrust. This is the case provided that the trust is not deemed to be transparent forSwedish tax purposes. An employee will be subject to income tax when hereceives a benefit or when he becomes entitled to receive a benefit.7.2 It may be possible for an employer to obtain a corporation tax deduction if anemployee benefit trust can be structured as a foundation under Swedish law. 17A Swedish subsidiary may be entitled to deduct any payments it makes toestablish and/or fund the trust. However, the position is complex and specificadvice should be sought in each case.17Foundations formed under Swedish law for the benefit of employees (“profit-sharing foundations”) aresometimes used by companies in Sweden. Such foundations are established by the employees of acompany and are funded by contributions, in shares or cash, made by the company. Although profitsharingfoundations and employee benefit trusts are not synonymous, some conclusions may be drawnfrom the tax treatment of profit-sharing foundations which may be applicable to employee benefit trusts.Contributions by employers to profit-sharing foundations can be tax deductible provided that:• the object of the contribution is to reward the employees of the contributing company;• the foundation is administered in such a way that the employees' entitlement to allocations from thefund is secured; and• in the event of a liquidation of the foundation, any proceeds would be distributed among theemployees as beneficiaries of the fund.Arguably, if an employee benefit trust is structured to fulfil the above requirements, the employer mayclaim a tax deduction on payments to such a trust.The employer must pay social security contributions at a rate of 24.26% (income year 2010) on thevalue of contributions to a profit sharing foundation. No social security contributions (employees' oremployer's) are due when the foundation makes distributions to the employees, provided that thecontributions have been held on trust for not less than three years and that at least one third of theemployees are beneficiaries of the foundation (this does not apply for distributions to certainexecutives, partners or those related to such persons in close companies).UK/1729295/03 186 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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