Context

As you may know, the OECD issued a report on cross-border income tax issues arising from employee stock option plans on 23 August 2004. Article 15 of the OECD Model Convention regarding the tax treatment of salaries has been amended accordingly.

In short, benefits from stock options should be considered as remuneration falling within the scope of article 15 of the OECD Model. As a general guideline, stock option income should be sourced in the different countries to which it can be linked and taxed accordingly (i.e. split of taxation between the different countries). However, the question to know which country is empowered to tax capital gains realised upon the sale of the shares underlying the options should still be answered based on article 13 of the OECD Model (Capital Gain Article).

News

In the practice note of 25 May 2005 referred to in our headline of 3 June 2005, the Belgian tax authorities have also included comments on how they intend to address cross-border taxation issues arising from employee stock options. Their guidelines are grounded in those of the OECD.

Based on the practice note, individuals who are taxable in Belgium on employment income will also be taxed on their employee stock option income according to Belgian domestic law. Belgium will however grant relief at the time of exercise of the option provided that the option remunerates employment activities carried out outside Belgium and that the option is taxable in the other State of income as employment income.

The relief will be granted in the form of a pro rata temporis adjustment of the Belgian income taxes paid on the stock options. Employees who believe that Belgium should grant relief from stock option tax, have to inform their tax authorities before the option has been exercised (i.e. as soon as it becomes clear that the option does not exclusively remunerate employment activities that are taxable in Belgium).

The Practice Note:
FR http://news.hrservices.be?lk200506031
NL http://news.hrservices.be?lk200506032