The Ministerial Decree (the “Decree”) dated June 8, 2011, introducing new tax provisions for IFRS adopters, has provided new rules relating to the deductibility of stock option plan accounting charges accrued by Italian enterprises adopting IAS/IFRS.
In general, Italian resident enterprises adopting IAS/IFRS enter expenses in their profit and loss account with respect to the accounting costs incurred for stock option plans for their employees and directors. Art. 6, para. 1, of the Decree stated that such expenses may be deducted for income tax purposes in the fiscal year in which they have been booked in the relevant profit and loss account based on proper application of IAS/IFRS. The amount of the deduction coincides with the amount accrued for accounting purposes according to IFRS 2 and the deduction is granted notwithstanding the corresponding expenses are merely “virtual” and not actually incurred (at least until exercised by the employee). The corresponding increase of net equity booked under IFRS 2 is not taxable. This regime is applicable to equity settled stock option plans and other share-based compensation schemes.
No claw back of deduction on non-exercise of the stock options
In principle, employees may also decide not to exercise the stock options at the end of vesting period if the option is out of the money or ‘underwater’. In this case, based on clarifications put forward in the illustrative memorandum to the Decree, no claw-back of the deducted cost occurs and the increase of the net equity retains its qualification as a non-taxable capital contribution.
Should an holding company of a multinational group increase its equity in relation to remuneration plans issued in favour of employees of a subsidiary company which is part of the same multinational group, the relevant cost shall be treated both as an increase of its equity and as an increase in value of the shareholding in the employees’ company (Art. 6, para. 2, of the Decree).
Ministerial Decree (the “Decree”) dated June 8, 2011