Austrian Administrative Court on tax privileges for stock options

Jun 30, 2021 Benn-Ibler Rechtsanwälte

In the case at hand, the appellant had been granted options for the acquisition of shares ("stock options") by his employer. The appellant had the choice between two alternatives, either "exercise & sell" or "exercise & hold". The appellant opted for the alternative "exercise & sell" in which usually no actual acquisition of the shares takes place when the option is exercised, but rather the difference between the market value of the shares at the time of exercising the option and the exercise price is paid out.

When the options were exercised, the employer applied the statutory tax rate to the profit generated.

The appellant filed an appeal against the income tax assessment issued based on the employer’s treatment of the income. He argued that the exemption under section 3(1)(15)(c) of the Income Tax Act (Einkommensteuergesetz, EStG), which is no longer in force, was applicable to the exercising of the options. According to this provision, the exercising of stock options granted before 2009 was, under certain conditions, exempt from tax.

The Austrian Administrative Court (VwGH) ruled that in order to qualify for the tax exemption pursuant to section 3(1)(15)(c) EStG, it was necessary that the shares had actually been acquired, since this is what the wording of the law stipulated. According to the Court, if only a difference is paid out without an actual acquisition taking place, the tax exemption is not applicable. Of relevance for the application of the tax exemption is therefore whether the appellant actually acquired the shares by exercising the options and then sold them shortly thereafter. Consequently, the employer would have to issue shares and the appellant would have to acquire (economic) ownership of them.

VwGH Ra 2019/13/0050 (29.03.2021)