Stock options and management companies - Direct grant of stock options to the director of the management company (2)

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Date:
20 Apr 2017

It is confirmed, in a published ministerial circular, that stock options that are granted by a company directly to the director of a management company which performs services to such company fall within the scope of application of the Act of 26 March 1999, so that this grant can be qualified, for tax purposes, as a lump-sum benefit in kind. However, it is no longer possible to benefit from the halving of the tax valuation rates in order to valuate the taxable benefit!         
  
In our newsflash dated 29 November 2016 , we informed you about the position of the tax authorities according to which a company that is collaborating with a management company can grant stock options directly to the director of the management company, in the frame of the Act of 26 March 1999. According to the tax authorities, this grant does not undermine the structure of the management company. Moreover, the tax authorities considered that the taxable benefit in kind resulting from the grant of the stock options could be valued at the rate reduced by half, namely 9% of the real value of the underlying shares (plus 0.5% per started year from the fifth year following the offer) on the following conditions: 

  • the conditions provided for by the Act of 26 March 1999 are fulfilled (among other things, the stock option must relate to shares of the company for which the management company provides the services or an affiliated company);
  • the management company performs a company mandate within the issuing company;
  • the beneficiary is the permanent representative of the management company.

Early December, the Minister of Finance announced in the press that he did not agree with this position. He  announced that a circular would be published that would set out the correct interpretation.

Today, this long-awaited circular was published. In this circular, it is implicitly confirmed that it is possible, as a company, to grant stock options to the director of the management company with which one is collaborating.

However, the circular gives a negative answer to the question whether the director of the management company can benefit from taxation on the basis of a halving of the lump-sum valuation of the stock options, as the stock options are not related to shares of the ‘employer-company’. Whether the management company performs a company mandate within the issuing company or not is no longer considered relevant.

> Action point
In the future, the company, for which a management company provides services, can grant stock options directly to the director of such management company. However, it will no longer be possible to benefit from a halving of the tax valuation rates in order to valuate the taxable benefit.