UK: Share Option Schemes Targeted By EU Proposals

Share option schemes could be affected by future EU legislation to make it easier for companies to operate such systems throughout the single market. Changes are needed to deal with tax and legal obstacles that prevent the growth of share schemes, according to a European Commission working paper published on 2 August.

The report identifies three types of cross-border barriers to arrangements for ‘financial participation’ by employees, covering profit-sharing and employee share schemes as well as share options. These are differences between EU countries in tax rules, social security contributions, and social and cultural approaches.

The Commission proposes to address the questions of tax regimes and social security contributions, arguing that financial participation schemes help to boost productivity and competitiveness. At the same time, the differences across the EU "are beginning to weigh more heavily on companies operating in the single market. It would obviously be more logical and easier for such companies to set up one and the same financial participation scheme for all the subsidiaries in the group, with a few national adjustments," the paper says.

Designing separate schemes to suit different Member States’ systems has two disadvantages, the Commission concludes: "On the one hand, it gives rise to significant costs in administration and resources, and on the other hand, they are unable to retain their staff -- above all the high-calibre employees in whom they are most interested -- for they are ready to move and leave Europe for offers from the US."

"Gradual convergence" is suggested to minimise national differences, alongside other measures to encourage more companies to develop financial participation schemes. The Commission is seeking responses by 30 October 2001 on three aspects of the working paper: general principles for financial participation; transnational barriers; and measures at EU level.