New developments in the area of transfer stamp tax and employee shares

In the aforementioned ruling, the key issue was whether two transactions carried out by a Swiss company, which qualifies as a securities dealer under the Federal Act on Stamp Duties (StG), were subject to transfer stamp tax. The focus below is on Transaction B, as designated in the ruling.

Current ruling of the Federal Supreme Court

The case in question (9C_168/2023, 9C_176/2023 – scheduled for publication) concerns the issuance of shares to employees of the corporate group as part of two employee share plans, namely Restricted Stock Units (RSUs) and Performance Share Units (PSUs). Eligible employees received company shares free of charge after a three-year vesting period, or alternatively, the equivalent cash amount. The number of shares delivered to RSU beneficiaries at the end of the vesting period was determined by the company based on the provisions of the plan. For PSUs, the number of units granted to an employee depended on various criteria, including individual performance and considerations of "internal consistency." The number of shares ultimately delivered at the end of the vesting period depended on the number of PSUs held by the employee and the company's share performance criteria. If the employment relationship ended before the vesting period expired, the shares were either immediately acquired or forfeited under certain conditions.

The Swiss company argued that these allocations were made without consideration and were therefore not subject to transfer stamp tax. However, the Swiss Federal Tax Administration (ESTV) and the Federal Administrative Court (ruling BVGer A-3279/2019 of January 16, 2023) concluded that the transfers were made for consideration, as the allocations were closely linked to the work performed by the respective employees.

The Federal Supreme Court ruled that in this case, the transfer of shares was not subject to transfer stamp tax, as the employees concerned did not have to pay a purchase price or preferential price, and the allocation of shares could not be directly linked to a specific work performance. Even if it were assumed that employees provided work in exchange for the allocation, it is unclear how such work performance should be valued. Valuing work based on the stock market price of the allocated shares would imply that the value of work varies depending on the day of allocation. This impossibility of determining a fair market value for a specific work performance demonstrates that transfer stamp tax should not be levied when taxable instruments are provided to employees free of charge as part of an employee share plan.

How should this ruling be interpreted in practice?

For the first time, the Federal Supreme Court has ruled that the free issuance of shares within employee share plans should generally not be subject to transfer stamp tax. In this case, the qualification as without consideration was primarily justified by the fact that the allocation of shares could not be linked to a specific, assessable work performance. This decision contrasts with previous practice, which typically considered the free allocation of employee shares as compensation for work, equivalent to the market value of the issued securities.

Companies that qualify as securities dealers should review their employee share plans in light of the new guidelines set by the Federal Supreme Court. The key question is whether shares allocated to employees are granted for consideration or free of charge. For plans under which employees do not pay a purchase price for the shares, it must be determined whether the issuance is linked to a specific, assessable work performance or whether, as in this case, it should be classified as gratuitous and thus not subject to transfer stamp tax.

Article written by André Kuhn, Yann Waeber and Dominique Roggo