AMSTERDAM — To reduce administrative hassles, the Finance Ministry in The Hague has announced that in future employee stock options will only be taxed when workers take possession of the shares.

The changes mean that stock options will no longer be taxable when they become unconditional, either when granted or the moment of vesting. As a result, the burden of deferring tax until the options are exercised will be terminated.

A spokeswoman for Ernst & Young said that the change will make stock option taxation simpler, and described the move as an important breakthrough for both companies and employees.

But because there is only one taxable moment, it does not mean that workers will pay less tax. The amount payable might be higher or lower, depending on the situation.

Currently, the government taxes people via two methods. Firstly, people are taxed when their stock options become unconditional, meaning when people are allowed to exercise them. But if people exercise (take hold or sell the obtained shares) the stock options within three years of the grant, they will be taxed again.

The second method involves one tax payment at the moment when someone exercises their shares. But to be taxed in this way, companies and employees needed to submit a joint statement before the first vesting date.

The law was designed that way because Parliament did not want workers exercising their options and cash too quickly. But the system also proved difficult in terms of administration and the Finance Ministry is hoping to streamline its stock option tax system.

The Ernst & Young spokeswoman said the tax changes might come into effect on 1 January 2005, but the consequences regarding transitional laws on new or existing options are not yet known. The effect on cost deductions is not yet known either.

[Copyright Expatica News 2004]

Subject: Dutch news