Employee Share Plans in Europe and the USA - Sorainen

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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
Employee Share Plans in Europe and the USAFinland6. Taxation of share disposals6.1 If an employee disposes of his shares, he will be subject to capital gains tax at afixed rate of 28% on the sale proceeds less the acquisition cost.6.2 The acquisition cost is the aggregate of the price paid for the shares (and, ifapplicable, the options) and the amount, if any, treated as taxable employmentincome at the time of acquisition/exercise. Sales related expenses can bededucted for the purpose of calculating the capital gain. 136.3 As an alternative to using the actual acquisition cost, the employee may elect toapply a so-called hypothetical acquisition cost. The hypothetical acquisition costis 20% of the sale price or, where shares have been held by the employee for aminimum of 10 years, 40% of the sale price. If the hypothetical acquisition costis used, no sales related expenses can be deducted.7. Employee benefit trustsThe concept of a trust is not recognised as such in Finland. The tax status of aforeign trust is determined on a case-by-case basis in accordance with thegeneral principles of law. 148. Data protection8.1 Employee consent is not required for the collection and processing of personaldata by the employer or companies belonging to the same group of companiesas the employer provided that the processing is necessary for the employmentrelationship.8.2 If the processing of personal data in relation to an employee share plan does notfall within the scope of processing activities that the employees have previously1314Capital income is not subject to any social security contributions or similar charges.The Finnish Employee Fund Act (FEFA) provides a framework for employees and employers tocollectively establish a fund to enable employees to, amongst other things, purchase shares in theiremploying company. A new Employee Fund Act comes into force in January 2011. Currently underFEFA, employee funds may be established where a company employs at least 30 employees, orwhere business units in that company employ at least 10 employee. Companies with 10-30 employeesmay, in certain circumstances, establish employee funds. Under the new Employee Fund Act,companies with 10 employees may establish employee funds, but there are restrictions regarding theturnover of the company. The fund established under FEFA is tax-exempt and is not liable to incometax. 80% of the income received from the fund is taxable at progressive income tax rates and 20% ofthe income is exempt from tax. The new Employee Fund Act, among other things, expands the scopeof the employers within which such fund can be established..UK/1729295/03 52 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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