Employee Share Plans in Europe and the USA - Sorainen

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Employee Share Plans in Europe and the USAGermanyexemption may apply to options granted prior to 1 April 2009 if therelevant conditions are met and the option was not taxed at grant.Where the tax exemption applies, then an equivalent exemption fromsocial security contributions will also apply.5.1.4 Social security contributions: The same principles apply as set out atparagraph 4.1.3.5.2 Employer tax and social security contributions5.2.1 Corporation tax deduction: A German company cannot generallyclaim a corporation tax deduction for the cost of providing shares.However, if it buys shares in its foreign parent or its own shares anddelivers those shares to its employees on the exercise of a share optionand the price paid by the German company is more than the exerciseprice, the company should be able to claim a corporation taxdeduction. 16 If the employing company makes a payment to the parentcompany or to an employee benefit trust equal to the difference betweenthe price paid for the shares (paid by such parent company or employeebenefit trust) and the exercise price, a corporation tax deduction shouldbe available for the amount paid in these circumstances.5.2.2 Social security contributions: In principle, 50% of the social securitycontributions due (see paragraph 4.1.3) are borne by the employer.5.3 Tax withholdingThe employer must withhold wage tax, social security contributions (andsolidarity surcharge and church-tax if any) from the employee’s earnings. 171617There is discussion whether the difference between the price paid by the employer and the price paidby the employees qualifies as a 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.If the participant's salary for the month of exercise is not sufficient to cover his tax liability, the employerwill request the employee to provide it with additional funds (which the employer will then remit to thecompetent tax authority). If the employee does not comply with this request, the employer must notifythe tax authority. The tax authority will then pursue the employee for the wage tax due and theemployer is no longer liable for the wage tax it should have withheld.UK/1729295/03 83 September 2010
Employee Share Plans in Europe and the USAGermany6. Taxation of share disposals6.1 Shares acquired before 1 January 2009In relation to shares acquired before 1 January 2009, an employee will generallynot be subject to tax on capital gains realised upon the disposal of sharesacquired under an employee share plan provided that the employee holds theshares as private assets (Privatvermögen) and a holding period of one year fromacquisition has elapsed. 18 If the shares are sold within one year of acquisition,50% of any capital gains will qualify as income from so-called private disposals(private Veräußerungsgeschäfte); such income will be subject to income tax atthe employee's individual tax rate (which ranges from 0% to 45%) and solidaritysurcharge and church-tax, if any, provided that the sum of all capital gains fromprivate disposals in one calendar year is €750 or more. 19 Capital gains meansthe difference between (i) the sales price and (ii) the sum of the acquisition costand any income-related expenses (Werbungskosten).6.2 Shares acquired after 31 December 2008In relation to shares acquired after 31 December 2008, 100% of any capitalgains will qualify as income from capital investments (Einkünfte ausKapitalvermögen) irrespective of any holding period. 20 Income from capitalinvestments will, in general, be subject to income tax at a flat tax rate for incomefrom capital investments (25%), together with a solidarity surcharge and churchtax,if any. Such tax will be withheld and no expenses are deductible. 211860% (from 1 January 2009) of any capital gain will be subject to income tax (and solidarity surchargeand church-tax, if any) in the following circumstances:• if the shares are held by the employee as part of a business and not as a private asset; or• if the employee held more than 1% of the company’s share capital in the 5 years before the sale.1920If the sum of all capital gains from private disposals in one calendar year is less than €750, then theincome from private disposals is tax-free.60% of any capital gain will be subject to income tax (and solidarity surcharge and church-tax, if any) inthe following circumstances:• if the shares are held by the employee as part of a business and not as a private asset; or• if the employee held more than 1% of the company's share capital in the 5 years before the sale.21Withholding tax will be levied if the shares are held in a custodial account maintained with a Germanbranch of a German or foreign credit or financial services institution or with a German securities tradingbusiness (Wertpapierhandelsunternehmen) or securities trading bank (Wertpapierhandelsbank) whichpays or credits the disposal proceeds. If no withholding tax is levied, the employee is obliged to file atax return.UK/1729295/03 84 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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