Stock options in management companies - Guarantee of a benefit equal to the income tax payable at grant

In a ruling of 25 August 2015 that was published only on Monday, 1 February 2016, the Ruling Office has confirmed that it is possible to guarantee to the grantee of stock options, with tax neutrality, a gain equal at least to the income tax due on the taxable benefit upon the granting of options. In such situation, the grantee would incur no risk of loss since he is guaranteed an amount equal at least to the income tax incurred upon the granting. 

The request submitted to the Ruling Office concerns the tax treatment of an allocation of stock options by a management company or by a single-member company to its manager. The allocation is regulated by the Law of 26 March 1999.

The options on shares, of one or several listed companies, have an exercise price corresponding to the market price of the underlying shares (“at the money” shares), so that no additional taxable benefit arises.

However, the scheme includes a clause stipulating a downward adjustment of the exercise price of the options in order to allow the beneficiary to realize a gain equal to 53.50% of the amount of the taxable benefit upon the granting of options.

In fact, this gain corresponds to the maximum tax burden payable by the beneficiary on the basis of the marginal rate of the personal income tax. Through this clause, therefore, the beneficiary is guaranteed at least an equivalent amount to the income taxes paid at granting.

In its ruling of 25 August 2015, the Ruling Service confirms for the first time that this guarantee of benefit does not constitute a taxable benefit within the meaning of Article 43, §8 of the Law of 26 March 1999. 

The guaranteed benefit is only taxable, in accordance with the provision, as far as it exceeds the amount of the taxable benefit assessed at a flat rate upon the granting of options. However, here, it amounts only to 53.50% of that amount.

It is important to note that in this case, it concerns an independent beneficiary (Manager of a management company or of a single-member company). In the case of dependent employees, this type of clause would incur a social security risk since the guaranteed benefit within the meaning of Article 43, § 8, of the Law of 26 March 1999 is subject to social security contributions.

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Think about stock options within the framework of management and single-member companies. If stock options are granted to the self employed Manager, it is now possible to guarantee, with tax neutrality, a benefit equal at least to the amount of income taxes paid upon granting.