Memorandum on Stock Option plans
DEEMED REFUSED OPTIONS (DRO)

COMMENT REGARDING OPTIONS OFFERED AS FROM 10/1/2003 THAT HAVE BEEN ACCEPTED OTHER THAN IN WRITING BY THE 60th DAY FOLLOWING THE OFFER DATE, SO CALLED “DEEMED REFUSED OPTIONS” (DRO)


On 2 April 2004 the Minister of Finance confirmed that stock options that have not been accepted in writing by the 60th day following the offer date, are deemed from a tax perspective never to have been attributed to the beneficiary. Therefore they cannot be taxed as an option.

As a result, the purchase of shares as provided by DRO agreements will, from a tax perspective, be regarded as a purchase of shares operated outside the scope of a stock option agreement. The operation is therefore regarded as a mere acquisition of shares at a discounted price. The taxable amount is then the difference between the stock fair market value upon exercise and the exercise price, after deduction of possibly applicable Belgian employee’s social security contributions (see below) and will be taxed as earned income.

It may be worthwhile to note that the position of the Minister of Finance is contested in fiscal doctrine. However, if the Minister’s position is followed, it is not very likely to have subsequently a problem with the tax inspector.

The social security treatment of DRO has not been addressed yet by the social security (RSZ/ONSS) authorities. It is likely that they will also treat the exercise of deemed refused stock options as a mere purchase of shares at a discounted price. If they take that position, Belgian social security contributions will, in principle, be due on the spread at exercise for beneficiaries subject to Belgian social security.

Appropriate advice should be sought with PricewaterhouseCoopers for the purpose to address the social security treatment, and withholding and reporting requirements (for employer and employee).