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Memorandum
on Stock Option plans
Individual
tax treatment
Taxable
moment
Stock options offered as of 1 January 1999 till 9 January 2003,
are taxed to the beneficiary on the 60th day following the offer
of the options, except if he refused the options
in writing before that date.
Stock options offered as
of 10 January 2003 are taxed to the beneficiary on the 60th
day following the offer of the options provided the beneficiary
has accepted the stock option offer in
writing not later than the 60th day following the offer.
In case the beneficiary would not accept the stock option offer
in writing prior to the expiration of the 60-day deadline, he would
be deemed, from a tax point of view, having refused the stock options
- see in this respect the Deemed Refused
Options section.
The offer date is the date at which the employee is notified of
the grant of the options. Based on the tax authorities' administrative
note, the offer date is the date on which the participant is provided
with all information allowing him to make up a decision to accept
or refuse the option with full knowledge of the terms and conditions
of the stock option agreement.
No further tax is in principle due on the spread at exercise (see
however below) or later on when the shares are subsequently sold.
Taxable
basis - quoted stock options (may be reduced by any contribution
paid by the employee)
The taxable income arising by reason of the granting of a stock
option that is rated on a Stock Exchange is the last closing of
the stock option on the Stock Exchange prior to the offer date.
Taxable
basis - unquoted stock options
For options not listed on a Stock Exchange, the taxable option value
is calculated to be the sum of:
| 1. |
Taxable
Time Value |
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15% of the stock fair market value at the time of the offer
for options that have a life of 5 years maximum. For options
that have a life of more than 5 years, the value will be increased
by 1% for each year or part of a year in addition to the 5 years.
Thus, the taxable time value of the stock option is determined
to be 20% of the value of the underlying stock at offer date
in the case of 10-year options. Provided certain conditions
are met, the percentages of 15% and 1% may be reduced by half
so as to be respectively 7.5% and 0.5% (see below). |
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| 2. |
Taxable
Intrinsic Value |
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The positive
difference between the fair market value of the stock at offer
date and the exercise price, after deduction of possibly applicable
Belgian employee’s social security contributions. |
For the purpose
of applying this valuation method, the fair market value
of the stock is:
For stocks listed on a Stock Exchange:
As the offering entity chooses:
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The last closing rate of the share on the Stock
Exchange prior to the offer date or, |
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The average closing rate of the stock on the Stock Exchange
over the last 30 days prior to the offer date |
For stocks not listed on a Stock Exchange:
The actual value of the underlying stock at offer date as determined
by the person who offers the option in accordance with the advice
of the statutory auditor or chartered accountant of the company
issuing the stocks to which the options relate (or for foreign companies,
the advice of the person who in accordance with foreign law has
to control the company's accounts). The value may in any case not
be lower than the net equity of the company divided by the number
of outstanding stock (i.e. the book value of the stock) as per the
last closed annual accounts as approved by the empowered body of
the company (e.g. General Meeting of Stockholders, Board of Directors,
etc.).
Tax
favoured treatment
Belgian legislation provides the possibility to reduce by half the
15% and 1% rates taken into consideration for valuing the benefit
in kind (please note that the positive difference between the fair
market value of the underlying stock and the exercise price may
never be reduced). Consequently, the taxable time value of an option
with a 10-year life, would result in a taxable amount of 10% of
the market value of the stock at offer date.
To benefit from the reduced percentage of 7.5% and 0.5%, 6 conditions
must be met. Those conditions are:
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The exercise price is definitively set at offer
date; |
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The option contains the following regulations, or the beneficiary
commits himself to the following:
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the option may not be exercised before the
end of the third calendar year following the year during
which the offer was made, |
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nor may it be exercised after the end of the 10th year
following the year during which the offer was made; and |
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the option may not be transferred (except by reason
of death). |
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The downside risk of the option (capital loss on the shares)
may not be hedged, directly or indirectly, by the person offering
the option, nor by a person with whom a relation of mutual (inter)dependence
exists; |
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The option relates to shares of the company for whom the beneficiary
works or the option relates to shares of a group company that
from a Belgian accounting law perspective has a direct or indirect
holding in the company for whom the beneficiary works. |
The participant will be taxed on an additional benefit in kind
in the case where he does not abide by his personal commitment.
The additional taxable benefit is measured as the difference between
the standard 15% (1%) taxable percentage and the 7.5% (0.5%) on
which the employee already paid tax. There are no penalties or late
interest applicable.
According to the Belgian tax authorities, this additional benefit
in kind is taxable in the income year during which the beneficiary
does not abide by his personal commitment.
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