Standardized stock option plan does not guarantee entitlement to cost deduction

A company offers the manager a stock option plan. It calls on a specialized institution that offers standard solutions for stock options. However, that is no guarantee for the deductibility of the costs.


A  company with only one employee, namely the manager, decides to offer that manager a stock option plan. This can be advantageously arranged for tax purposes in implementation of the law of 26 March 1999: under this system, the beneficiary is taxed on a flat-rate benefit in kind, based on the value of the options at the time they are granted. With a bit of luck, the enjoyer will be able to sell the options with a capital gain over time. The capital gain is then tax-free.

This is how it happened: the company hires an institution (hereinafter referred to as “P NV”), which arranges all this. P NV has already set up similar constructions in the past, which were also covered by a ruling. In this case, no ruling is requested, but the situation is largely the same as the previous situations for which P NV did receive a ruling. This is done: the manager is taxed in the year in which the options are granted to him, in accordance with the special regime of the 1999 law.

Subsequently, the company also wants to deduct the costs associated with the stock option plan. But then the tax authorities get in the way: in order to be tax deductible, the expenses must comply with Article 49 of the WIB 1992. And one of those conditions is that the expenses must have been incurred with a view to acquiring or retaining income. A condition on which much ink has already been spilled.

Vision of the tax authorities

The tax authorities believe that the stock option plan was not concluded with a view to earning or retaining income. A stock option plan is concluded in order to grant a benefit in kind. A benefit in kind is a form of wages and wages are deductible business expenses. But even then: wage costs are also subject to the condition that they must be linked to actual performance (so that the employer can generate income). In this case, the tax authorities established that the expenses were not paid to the employee, but to P NV. In addition, the employer does not demonstrate that there was actual performance against the benefit or remuneration.

View of the taxpayer

The taxpayer puts forward 2 counterarguments to this. According to him, the fact that the expenses were paid to P NV is irrelevant. This is an expense that was intended to provide an advantage to the manager, and it is therefore clear that it is a method of remuneration. The court also fully agrees: this argument is rejected.

The second argument is an attempt to establish that the granting of stock options is of a professional nature. But instead of demonstrating what services were provided, the taxpayer relies on the earlier rulings obtained by P NV, which referred to the same situation. And that's where it goes wrong.

Judge's view

At first instance, the rule (and this actually also applies to case law) is that prior decisions have no precedent value. A ruling only binds the tax authorities in a concrete case, with concrete data. The Preliminary Decisions Service sometimes publishes a general position (e.g. on costs specific to the employer with regard to the home office), but otherwise you cannot rely on a ruling that was concluded between other parties. Even though the rulings cited were exactly 2 rulings obtained by P NV in the same circumstances. 

The court therefore does not follow the taxpayer's last argument. The court rules as follows:

The fact that the benefit in kind was taxed as wages is entirely justified, but according to the court it is separate from the deductibility of the costs of the option plan.

The fact that a ruling has been concluded for the same 'product' of P NV is irrelevant and does not guarantee the deductibility of the costs.

The taxpayer must in any case demonstrate what services are provided against the salary.

Subsequently, the court concludes that the taxpayer does not succeed in that last proof. Not even knowing that the manager is the only person in the company who delivers.

Professional expenses?

The information in the judgment is insufficient to establish why the court considers that a benefit in kind granted to the only person working in a company should not be regarded as remuneration for performance.

This may have to do with the fact that neither the position nor the salary of the manager changed, and there are also no elements that indicate that the manager has done anything extra that would justify the granting of a stock option plan. In such circumstances, the granting of the options is actually a liberality, which is not matched by performance.

It remains of course special that on the one hand the tax authorities tax the manager on a benefit in kind, because it concerns wages, and at the same time he does not allow the company to deduct because it does not concern wages. But the main lesson here is that rulings cannot be used as a precedent.