Adjustment for employee share plans



The Swiss Federal Tax Administration (SFTA) adjusts the rules for the taxation of employee shares. The changes shall ease the related taxation of start-ups and their founders. The central element of the changes are the so called founder shares. Shares acquired at the time of the founding of a company are not considered as employee shares in the sense of article 17a DBG. If an employee acquires participation rights at conditions similar to those granted to an independent third party, these securities are not regarded as employee participations within the meaning of article 17a DBG.

The simplified formula of the Swiss Tax Conference (SSK-formula) is now also mentioned as a suitable instrument for determining the formula value of a company. Although the SSK-formula is only listed as one of many possible valuation methods, this specification is surprising. After all, various courts have described the formula as too rudimentary for the calculation of taxable income. However, the tax authorities have to orientate themselves on the court practice and not on the circular letters of the SFTA. It remains to be seen whether the clocks will be turned back in this regard.

The new rules further state, that if a company is sold after more than five years after allocation of employee shares, the employee may realise a tax free capital gain, even if he or she received the shares at a formula value at the time. This provision has also been included in the relevant circular letter in favour of Swiss start-ups. It confirms the practice already in place in some cantons. Nevertheless, this rule should not tempt the tax authorities to always assume a formula value for all companies– except for listed once’s – when allocating (acquiring) shares. This is because a formula value for employee shares may trigger taxes twice: at grant and a second time at exercise. Such a twofold tax liability is contrary to the law which states in Article 17b I DBG that employee shares at grant, while only options are taxed at exercise (Art. 17b III DBG).

November 2020 | Authors: Christoph Rechsteiner, Dr. Hagen Luckhaupt, Cagla Arslan

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