Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USAFinland5.1.2 Exercise: On the exercise of a share option, progressive income tax islevied on the value of the option benefit, calculated as the differencebetween the market value of the shares received upon exercise and theaggregate of the exercise price paid and the price (if any) paid for theoption. For 2010, the highest rate of tax is 55.40% (including a medicalcare premium at a rate of 1.47% and daily allowance premium at a rateof 0.93%).5.1.3 Social security contributions: No pension or other social securityrelated payments other than the medical care premium at a rate of1.64% 11 are payable by the employees.5.2 Employer tax and social security contributions5.2.1 Corporation tax deduction: Expenses charged to a Finnish employeron arm's length terms are generally deductible for Finnish corporationtax purposes where market purchase shares are used. 125.2.2 Social security contributions: No statutory social securitycontributions, pension or other social security related payments arepayable by the employer.5.3 Tax withholdingThe employer must withhold advance income tax as described at paragraph 4.3above.1112The medical care premium payable on the benefit in question is increased by 0.17% (2010) incomparison to the normal amount (i.e. from 1.47% to 1.64%) (2010).Generally, computed costs incurred in relation to share-based incentive plans, such as the cost ofshare-based remuneration under IFRS 2 are not deductible, unless the costs are deemed tocorrespond to the "factual" expenses of the employer. Cash bonuses, including cash payments madeon the basis of the increase in value of the employer's shares are generally deductible. If the companyacquires own shares to be used in share-based incentive plans (e.g. employee option plans andemployee issues) in public trade, the amount paid for the own shares is a deductible expense for thecompany in the tax year the employee receives or subscribes for the shares. The deductible amountcannot exceed the fair market value of the shares at the time of grant less the subscription price paidby the employee, i.e. the value on which the employee is liable to pay tax. The deduction is availableonly for the company's existing own shares (i.e. treasury shares), not for newly issued shares. Wheretreasury shares are used, 1.6 per cent transfer tax on the subscription price is also payable by anemployee. If shares of other group companies (typically parent companies) are used in incentiveplans, the compensation paid by the employer company to the issuing company in respect of theshares may also be deductible.UK/1729295/03 51 September 2010