Time of Taxing Share Options for Employees

It goes without saying that the value of company shares differ with the mood of stock exchange. Since this value is subject to taxation, the question arises on which day shall the worth be evaluated? On the day of greatest / lowest worth? Jan 1? December 31? The Federal Tax Court gave us an answer to this question with its judgment of November 20, 2008 (re VI R 25/05).

Keith granted his employee David a contract from 1997 with the option to purchase his company's shares which are freely tradable. It was noted that David's achievements were dominant for the company's success. Such privilege was only granted to an exactly defined group among the staff who have profited the company. This option was exercised in 1999. The tax office considered this option as an inflow of a monetary advantage, or less technically, taxable income for the year 1999. Contest and the complaints in lower courts were without success. The BFH disagreed with both opinions. It held that the inflow occurred to the day that the shares were booked into David's depot and not the day David took advantage of the option.

It is beyond any question that the share has a monetary advantage within the meaning of §19 I 1 no. 1 i.c.w. §8 I EStG. All goods that have a monetary value and are received in regards to one's services as an employee are considered income - the fruit of one's work. In this case, this is especially true because the shares option was an incentive for David.

The main question of this judgment is when the monetary was received. §11 I 3 i.c.w. §38a I 3 EStG determines that income has been received when the claim has been completely fulfilled. It is insufficient to have just a chance or option or entitlement. Only when the chance realizes itself in money will an income be achieved. §8 II 1 EStG determines the time of receipt the valuation in one's depot and not the day when the option was exercised.

The taxable monetary advantage is the difference between the end price at the day of booking and the costs for obtaining the shares.