Share options from third parties are employment income

When employers grant so-called share options as a form of remuneration, employees are given the right to buy the employer's shares at a predetermined price within a certain period of time or on a certain date. If such share options are arranged and granted by a third party, such as the parent company, these shares are considered as employment income if they are related to the employment relationship. As a result of this decision, the direct employers must also pay payroll tax on share options granted by third parties.

Facts and circumstances

A German parent company granted share options to its Austrian subsidiary for its employees. During an external audit, the auditor determined that the income generated by the exercise of the share options should be considered as employment income and included in the assessment basis for the employer's contribution and the supplement to the employer's contribution. The tax office issued tax assessments for the relevant years, and the Austrian GmbH appealed. The Federal Tax Court (BFG) upheld the appeal, but the tax office then appealed to the Supreme Administrative Court.

Decision of the Austrian Supreme Administrative Court

In its decision, the Austrian Supreme Administrative Court (VwGH) held that employers are also liable for remuneration paid to their employees by third parties, if this remuneration is related to the employment relationship and the employer knows or should know about it. The remuneration received by the employees when exercising the options was therefore treated as employment income and subject to income tax. The obligation to pay the employer's contribution and the surcharge therefore lies with the employer – even if the stock options are granted by a third party.

Conclusion

Companies must now be prepared to pay employer contributions and surcharges even if share options are granted by a third party, such as a foreign parent company. This is particularly the case where the employer is aware of the options. The previous case law, according to which only payments made by the employer itself were taxable, has been superseded, so that the responsibility for paying the relevant taxes has been transferred to the employer. Furthermore, the legal position clarified in this case also applies to municipal business tax (Kommunalsteuer - KommSt).