Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USAGermanyapply to the West German federal states and the thresholds for the EastGerman federal states are considerably lower.4.2 Employer tax and social security contributions4.2.1 Corporation tax deduction: A German company cannot generallyclaim a corporation tax deduction for the cost of providing shares, but if itbuys shares in its foreign parent or its own shares and delivers thoseshares to its employees for less than the purchase price through anemployee share plan, it should be able to claim a tax deduction. 12 Thecorporation tax deduction would be for the difference between the pricethat the employer paid for the shares and any amount paid by theemployees. If the German employing company makes a payment to aparent company or to an employee benefit trust, that payment shouldalso be tax deductible.A German employing company can generally claim a tax deduction forany ancillary costs and expenses of establishing an employee shareplan.4.2.2 Social security contributions: Social security contributions are duewhere the employee is subject to wage tax. 134.3 Tax withholdingThe employer must withhold wage tax and social security contributions (andchurch-tax, if any) if the employer provides the shares directly or if the sharesare provided by another person (for example, the parent company or a trust)1213There is discussion whether the difference between the price paid by the employer and the price paidby the employees qualifies as tax deductible expense because according to section 8b of theCorporate Income Tax Act losses generated through a sale of shares in a corporation are not taxdeductible. Accordingly, it is disputed whether losses stemming from a sale of shares at a reducedprice to a company's employees qualify as losses generated through a sale of shares for tax purposesor a tax deductible personnel expense. There are no court decisions or guidelines from the Germantax administration in this respect.The rates in 2010 are: 19.9% for retirement benefit insurance, 2.8% (from 1 January 2011, 3%) forunemployment insurance, 1.95% (additional charge of 0.25% for childless employees born after 1January 1940 and older than 23) for nursing insurance and 14.9% for statutory health insurance whichare, in principle, borne 50/50 by the employer and the employee.However, for any income in excess of specific salary thresholds, no social security contributions haveto be paid. The applicable salary thresholds are in 2010: €66,000 for retirement benefits insurance,€66,000 for unemployment insurance, €45,000 for statutory health insurance and €45,000 for nursinginsurance. These thresholds only apply to the West German federal states and the thresholds for theEast German federal states are considerably lower.UK/1729295/03 81 September 2010