We often work with incentive program plans (primarily stock option plans), and we find that tax issues become at least as important as purely legal issues. One of the main issues is when the tax should be paid in connection with the implementation of the incentive program.
A typical stock option plan involves the individual participant joining ESOP obtaining the right to acquire a certain number of shares (vesting), the acquisition of shares by the eligible participant (employee), and the subsequent sale of the stock. Typically, ESOP assumes that the participant will acquire the stock in the company free of charge or for a price that may be below the market value of the stock at a given time.
The provisions of Polish tax law regulate in detail the moment when the tax to be paid will appear in relation to incentive programs addressed to employees and organized by joint-stock companies. In this case, with the fulfillment of the conditions indicated in the PIT regulations, the tax will appear only at the stage of the sale of the stock.
On the other hand, tax regulations are silent as regards Polish ESOP taxation in other cases. This includes in particular the case of participants in option plans who are not employees (this applies to persons cooperating on the basis of B2B contracts, what is typical set-up in Poland).
The position of the tax authorities with respect to ESOP and B2B agreements has been virtually unchanged for many years. Taxable income should appear twice i.e. at the moment of obtaining of the stock as a result of exercise of an option (if the stock is purchased for the price below its market value) as well as at the moment of sale of the stock. Here, some justification is provided by the existence of the provisions of the PIT regulations deferring the moment of taxation of employees, which we mentioned above.
Also, the position of the administrative courts has been virtually unchanged for many years and is contrary to the position presented by the tax authorities. According to the administrative courts, the free or charge (or almost free of charge) acquisition of the stock by a participant of ESOP (regardless if it is employment or B2B agreement) does not trigger an obligation to pay PIT.
The reasoning of the courts here is based on the assumption that until the shares are sold, there is no certainty whether the shares acquired under the option plan will generate any income (such a position was recently presented by the WSA in Gliwice in its ruling under I SA/Gl 1500/22 or the NSA in its January 2024 ruling under II FSK 452/21). Thus, according to the courts, the PIT to be paid should appear only at the stage of the sale of shares by a participant in an option plan.
Differences in the positions of tax authorities and administrative courts as regards Polish ESOP taxation are likely to remain unresolved for a long time to come, and entrepreneurs are left with constructing option plans to reduce tax risks as much as possible. And our team is helping them do just that.
If you need more details or need a support in drafting or preparation of ESOP for your Polish employees or B2B’s, please contact us at tomasz.rysiak@ttkraft.pl.
