The Government is proposing to amend the tax and contributive regime of the stock option plans (at the moment regulated by Article 3.1 (g) of the Legislative Decree no. 314 of September 2, 1997). The new provisions (due to come into force by the end of 1999) differentiate between the hypothesis in which the company freely assigns shares, even those of particular categories ( for example limited vote shares or shares with restrictions of transferability), issued in the presence of profits, to the majority of its own employees, and that in which instead only certain employees are permitted to acquire shares of the company - which no longer necessarily have to be newly issued - and to take advantage of the increase in value that these shares acquire with time, presumably also thanks to the contribution of the employees involved.

In the first instance the contributive exemption and the exclusion of an onerous taxation treatment reserved for the income from employment are allowed only if the assignation regards all the employees and if the shares will be maintained for at least three years, for a sum equal to a maximum of Itl. 3 million for every year of taxation. In the different hypothesis, in which the employee does in fact acquire the shares, the possibility for the company to avoid every contributive burden and for the employee to take advantage of the particular system of tax regarding the increase of the value of the realised share from the moment of the offer to that of the sale, can certainly give the employee an incentive to develop his own performance leading to maximum results for the company and can also act as an instrument of loyalty. The necessity remains, for the employee, to have the financial resources to be able to invest today and perhaps not reap the benefits for some years.

The difference with respect to the actual system is that the price of acquisition for the employee (even if paid in the future) should be equal at least in market value to the share at the moment of offer (it can therefore no longer be symbolic or for example be calculated on the basis of the nominal value of the shares) and therefore the employee will benefit from the contributive exemption and from the taxation discount only where the effective increase in value of the shares in the meantime is concerned and not with regards to the difference between the practically facilitated price from the employer and the value of the share at the moment of the offer. However, the final version of the new regulations could be slightly different insofar as part of the criticism to these amendments will be accepted by the Government.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Avv. Marco Maniscalco