Expenses related to employee shares are not deductible.
Deduction ban
This deduction prohibition can be found in Section 10(1)(j) of the 1969 Corporate Income Tax Act. Zeeland-West Brabant District Court recently had the opportunity to rule on the application of this provision. The case concerns a Dutch BV, which is part of a French group of companies. Two share participation plans were implemented in the Netherlands:
- A share participation plan aimed at all employees of the BV;
- An incentive plan for the BV executives.
Under the share participation plan, qualifying employees can acquire shares in the French parent company of the BV for a fee. These shares the employee then holds through a participation fund. Subsequently, these employees are entitled to additional shares provided they are still employed after 3 years.
After the additional shares vest, the BV receives an invoice from the parent company for the number of vested shares multiplied by the historical share price and a limited amount of bank and management fees. In its corporate income tax return, the BV includes these costs as non-deductible expenses. But the BV objects to the final corporation tax assessment imposed in accordance with the return.
Court
The BV argued that the scope of the aforementioned article of law is limited to situations where the group is impoverished by the issuance of new shares, as a result of which dilution occurs at shareholder level. However, the court considered that the aforementioned section of the law applies to the (actual) grant of the right to shares and concluded that the costs were rightly not deducted.
It is not clear whether the court's ruling will be appealed.