Incentive plans typically mean employees receive an ownership stake in the company. In this way, employees participate in creating value, and at the same time a community of interests is created with the company. Its popularity is growing. A recent report by PricewaterhouseCoopers shows that 81 percent of companies listed on the Oslo Stock Exchange have some form of stock-based incentive program.
Tax authorities have found that dividends on synthetic stock to personal shareholders should be taxed as ordinary capital income, not as dividends on common stock.
Boy Wangenstein Berg. Image: RSM
Anders Ranum Ikas. Image: RSM
In a recently published statement, tax authorities expressed that certain gains from stock-based incentive plans could be taxed at a lower tax rate, that is, without the upward adjustment that applies to common stock. This statement is a very small Christmas gift for family businesses and startups.
The statement relates to an incentive plan based on so-called synthetic shares. They are “fake shares”, that is, derivatives that derive their financial content from the shares to which they are linked. By investing in synthetic stocks, investors can achieve the same financial impact as by investing in the underlying stocks, but without owning actual stocks. Tax authorities have found that gains on synthetic stock to personal shareholders should be taxed as ordinary capital income, not as gains on common stock. They also found that the exemption method still applies to the company's shareholders.
This is a win for taxpayers. It was the best possible outcome, whether the shares were owned personally or by a holding company. Synthetic stock-based incentive plans have been particularly interesting for family businesses that want to allow employees to participate in value development without allowing more people to participate on the ownership side. We believe that favorable taxes will mean that more ordinary startups will also open their eyes to this scheme.
The statement relates to a specific situation. However, similar cases must be treated equally. This argument therefore extends beyond the specific case, and we believe that significant tax savings can be achieved by properly structuring incentive plans. The outcome of the case is consistent with the legal source picture and is therefore not surprising. It is still nice to see that the tax authorities share our opinion. It provides more predictability.
This statement did not receive much publicity, and may have remained under the radar for many. We believe that synthetic equity-based incentive plans will occupy more space in the future.
In 2021, the Støre government abolished the tax deduction on employee purchases of shares in their employer, challenging some of the incentive models in place earlier this year. But what we are witnessing now should not be confused with the government's new tones. We would welcome more extensive rules in the field of creativity and business, but the statement is based only on the tax authorities' interpretation of existing tax rules.
Boy Wangenstein Berg
Anders Ranum Ikas
Lawyers at RSM Advokatfirma
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