An employee is gifted all his employer's shares after years of loyal service. The shares are worth €7.8 million. The inspector classifies this amount as wages from employment. After all, the employee has no family relationship with the donor and owes the gift to his proven qualities as a director. The employee argued that this was a pure donation in the context of business succession. Do the shares constitute salary?
From junior to director to owner
A man starts as a junior at a concern in 2000 and works his way up to director. He has been continuously employed since 2007. The sole shareholder has no successor within the family and wants the more than 100-year-old family business to retain its character. He will gift all shares to the managing director in 2022. The value is €7.8 million. The gift contains a pass-through obligation: when the director is no longer a director, he must transfer the shares to his successor(s) for no consideration. The inspector taxes the full amount as wages in Box 1.
Remuneration or business succession?
The inspector argued that there was a causal link between the gift and the employment. The employee received the shares because he had proved himself as an employee. Without that employment, he would never have received the shares. Moreover, there is no family or other personal relationship with the donor. The employee argued that there was a genuine business succession. The donor wanted to ensure the continuity of the company and prevent it from falling prey to bigger players.
Causal link is not enough
The court stated first that the shares belonged to the donor's private assets and not to the employer's assets. The donor was not compensated for his impoverishment. A causal link between benefit and employment does not yet mean that the employer provided this benefit. It appears from the witness examination that the donor donated the shares of his own accord, out of his deep-seated desire that the company retain its character. In doing so, the donor was primarily wearing his shareholder hat, not his employer hat. Moreover, the employee did not receive the shares freely: he must pass them on to his successors. The obligation to pass on emphasises here that the continuity of the company is paramount, not the employee's remuneration. Nor is there any third-party pay or tips, as the shares do not constitute remuneration for work done.