048. Employee Stock Option Plan And Alternatives

KPMG Germany Webpage
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DATE OF TAXATION

Under German law the granting of a stock option to an employee is not a taxable event. The Federal Tax Court has consistently held that an option granted to an employee permitting the future purchase of stock at a predetermined price results in taxable income at the time the option is exercised to the extent the market value of the shares at the time of exercise exceeds the exercise price (strike price).

However, there are voices in the literature who contend that no taxable income can result from exercise of an option because any advantage derived therefrom is outside of the context of the employment relationship and, as a purely "private" event, not subject to tax under German law. To appreciate this argument one must recall that German income tax law does not define income as any increase in net worth from