Stock options granted by a Personal Service Company to its company director – not always tax deductible for the company

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In a judgement of 5 December 2023, the Court of appeal of Antwerp ruled on a case regarding the deductibility of costs of stock options and upholds the lower court’s decision, confirming that remunerations (stock options income in this case) may not always be treated as deductible expenses.

The dispute in this case revolves around the deductibility of costs incurred by the plaintiff in relation to a stock option plan and whether they meet the finality requirement as provided in Article 49 of the Belgian Income Tax Code (ITC). The plaintiff argues that they have met the conditions of Article 49 of ITC. They point out that their director is the only person who performs services for the company and that the allocation of stock options was mentioned in the minutes of the general meeting of the company. They also argue that their director has performed additional work outside of their regular medical activities.

The defendant, on the other hand, argues that the plaintiff has not provided any evidence that the costs related to the stock options correspond to actual services rendered. They claim that no positive and verifiable documents have been presented to demonstrate that the costs incurred by the company for granting stock options to its director are intended to obtain or maintain taxable income. The defendant emphasizes that the burden of proof lies with the plaintiff.

According to Article 49 of the Belgian Income Tax Code, only expenses incurred to obtain or maintain taxable income are deductible. The intention to obtain or maintain taxable income is sufficient, and the actual impact of the expense on obtaining or maintaining taxable income is not relevant. However, the plaintiff must demonstrate that the costs are related to actual services rendered.

The court finds that the plaintiff has not provided evidence that actual services were performed by the director in exchange for the stock options. The mention of the stock options in the minutes of the general meeting does not prove that the costs were specifically incurred as compensation for services rendered by the director. The court also notes that any additional services performed by the director for another hospital are not relevant to the income received by the plaintiff.

The court concludes that the costs related to the stock options are not deductible and upholds the lower court’s decision.

Based on this court decision, one can conclude that remunerations in cash or in kind paid by a personal service company to its company director in addition to the existing remunerations may only be deductible as per article 49 of the ITC if it can be documented that these additional remunerations were awarded in consideration of services intended to obtain or maintain taxable income at the level of the personal service company. So, remunerations may not be deemed being always treated as deductible expenses.

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