Cross Border Employee Share and Option Plans: Distinguishing Employment Income from Investor Gains

Abstract:     
The tax treatment of benefits obtained under employee share and option plans is more complex than the taxation of many other forms of employee remuneration. There are at least five potential taxing points during the life cycle of the share or option and the gains realized can be characterized as either employment income or investment gains or both. When the benefits are subject to tax in more than one jurisdiction there is also the potential for double taxation or double non-taxation. The amendments enacted by Schedule 4 to the New International Tax Arrangements (Foreign-owned Branches and Other Measures) Act 2005 bring Australia's treatment closer to the OECD model which recognizes that the right to tax the employment income derived from employee shares and options is more correctly allocated on the basis of the days within the vesting period which are worked in the relevant jurisdiction.

Keywords: income tax, remuneration, expatriate employees, share plans

JEL Classifications: E62, K10, K34

Accepted Paper Series