Stock options – Opinion on fiscal regime of stock options in case of a cashless exercise

Nicolas de Limbourg 9 October 2014


The Court of Appeal of Ghent confirmed in its decision of 9 September 2014 that the so-called ‘cashless exercise’ of options does not prevent the application of the tax regime as mentioned under the Stock-Option Act of 26 March 1999.

The case concerned a doctor company who attributed stock options on quoted shares to his managing director. These stock options were taxed in the hands of the managing director under the Act of 26 March 1999, i.e. progressive tax rates applied on a lump-sum valuation (15 % – now 18 % – of the value of the underlying shares). Upon exercise of the options, the stocks were not transferred into the bank account of the managing director, who could then sell the stocks, but they were directly sold by the company itself. The net surplus value, i.e. the value between the exercise price and the selling price, after deduction of any transaction costs, was paid by the company into the bank account of the managing director. This technique is the so-called ‘cashless exercise’, whereby a pre-financing agreement exists between the managing director and the doctor company.

The tax authorities argued that in this case, the net surplus value paid by the company into the managing director’s bank account qualifies as taxable remuneration, although the options have been taxed at a 15%  rate at the time of grant.

In contrast to the decision of the Court of Justice of Bruges, the Court of Appeal of Ghent now decided that a cashless exercise, whereby the company facilitates a pre-financing, does not prevent the application of the Act of 26 March 1999 (tax charge at grant). According to the Court of Appeal, no specific rules on pre-financing at exercise have been laid down  in the Act of 26 March 1999 and therefore there is no reason to apply a restrictive interpretation. However, we would like to emphasise that in order to qualify, the legal ownership of the underlying shares must nevertheless at a certain moment in time still be transferred from the company to the managing director be it for a limited time.

Up to now, no appeal has been lodged with the Court of Cassation. However, the period to lodge an appeal is still running.