Context

In our HRS headline of 25 March 2004 (*), we informed you that the tax treatment of deemed refused options (“DROs”) had been raised with the Minister of Finance by Mr. Francois Bellot (Vraag/Question no. 228 – DO 2003200410680 – QRVA 51 021 – p. 3037). We also informed you that the Minister agreed with the first thesis expressed in Mr. Bellot’s question.

News

The Minister’s answer has now been published in “Schriftelijke vragen and antwoorden/Questions et reponses” of 5 April 2004 (QRVA 027 pages 4179-4182) that you can find at the following address: http://news.hrservices.be?lk200404191.

Thus, based on the Minister’s answer, DROs (options that are accepted after the 60-day deadline or not expressly accepted at all) are effectively taxed at exercise because the purchase of the shares as provided for under DRO agreements is, from a tax perspective, to be regarded as a mere acquisition of shares at a discounted price. The taxable amount will thus be the difference between the stock’s fair market value upon exercise and the exercise price (the spread at exercise) and will be taxed as earned income.

Though the social security treatment of DROs has not yet, to the best of our knowledge, been addressed by the RSZ/ONSS authorities, it is likely that they will also treat the exercise of DROs as a mere purchase of shares at a discounted price. If they take that position, social security contributions (employer’s rate 35%, employee’s rate 13.07%) would also be due on the spread at exercise for beneficiaries subject to Belgian social security.

(*) http://news.hrservices.be?200403251531