On November 23, 2006, the Italian Parliament confirmed Law Decree of October 3, 2006, no. 262 which amended the tax regime applicable to stock options.
Pursuant to the new rules, the difference between the fair market value of the shares (equal to the delivered stock’s average trading price in the preceding rolling month (the ”Tax FMV”)) at delivery and the strike price of the options (the ”Gain”) is exempt from income taxation and social charges to the extent that all the following conditions are met:
(i) the strike price is not lower than the shares’ Tax FMV at the time of the grant;
(ii) the beneficiary does not hold more than 10% of vote or value of the company the equity of which is granted to him;
(iii) the delivered stock is issued by the recipient’s employer, its direct or indirect parent, subsidiary or sister company;
(iv) a minimum three-year vesting period;
(v) when the option is exercisable, the equity to be delivered shall be listed on a regulated market; and
(vi) the beneficiary shall hold an investment in the delivered shares not lower than the Gain (the ”Minimum Holding”) for at least five years from delivery; should the beneficiary sell or provide any portion of the Minimum Holding as guarantee during that period, the Gain shall be recaptured to tax and subject to social contributions at that point in time.
Should any of these requirements not be complied with, the exemption regime illustrated above would not be available. However, no social security charge would be levied on the Gain arising from plans launched prior to July 5, 2006, and complying only with the conditions set forth under (i) through (iii), above.
The new rules are effective as of October 3, 2006.
Should you have any questions regarding the above, please contact Vania Petrella in our Rome office.