Context

As part of an alternative compensation scheme, some companies offer their employees the possibility of acquiring company stock at a discounted price. The discount, which is defined as the positive difference between the market price of the shares at the purchase date and the discounted purchase price, is subject to Belgian social security contributions, whenever applicable, and ,as a rule, to Belgian progressive income taxes (of course also to the extent applicable).

Provided that certain conditions are met (e.g. the shares purchased must be blocked for at least two years from the purchase date or the company buys it’s own shares and transfers them to such an extent that a drop of the share quote can be expected), the Belgian tax authorities accept that the taxable basis for quoted shares is reduced to the positive difference between 83,33% (100/120) of the market price of the shares at the purchase date and the discounted purchase price.

A similar ’100/120 rule’ existed in situations where shares were attributed as a distribution in kind of investment income (‘roerende inkomsten/revenus mobiliers’).

News

The Belgian tax authorities recently abolished the “100/120″-rule with respect to article 267 of the Belgian Income Tax Code (BITC), which provides that withholding tax (précompte mobilier/roerende voorheffing) is due for the attribution of shares representing the payment of income (Circular Ci.RH 231/476.630). As a rule, the taxable basis is the value of the shares. For quoted shares however the tax authorities have accepted until now that in specific cases the taxable basis was valued at 100/120, because the share quotation could be overpriced due to speculation. Nothing is mentioned in the said Circular letter about the application of the 100/120 rule in the case of the sale of company stock to employees at a discounted price.

We have learned from informal contacts with the Head Office of the Belgian Tax Authorities that the “100/120″-rule with respect to the sale of shares to employees at a reduced price is also scheduled to be abolished during the second half of 2002. This decision would then have effect with respect to transactions made as from the date this decision is made public.

Conclusion

Currently the application of the ’100/120 rule’ in the context of sale of quoted shares to employees at a discounted price, is not affected by the recently published Circular letter. A change is however also to be expected in this field. The ’100/120 rule’ will remain in force until such change in administrative position has also been made public. This can be expected in the course of the second half of 2002.