Employee Mobility and Share Schemes: so near but yet so far – Ernst & Young Abogados

In the last few years we have seen many changes in the Spanish tax regime, due to the need to adapt to increasing internationalisation and globalisation of business.

These changes have put Spain on a level with leading countries, in particular with regards to the tax aspects of the international mobility of workers. The expansion of companies abroad has introduced specific regulation on tax issues linked to the expatriate status where there was before a legal gap or an incomplete legal framework.

Proof of that has been the introduction of new tax laws, in particular regarding personal tax, such as the exemption for work abroad or the introduction of the so-called expatriate status. That has been the most welcome reform, even though it has been one of the most controversial in recent years.

Nevertheless, I still believe that there are certain concepts within the Spanish regulation that are too basic and hard to implement, in particular in those cases when the tax payer is affected by a process of international allocation.

The clearest example, in our view, is when trying to analyse the tax aspects of one of the most extended mechanisms of remuneration, such as employee share schemes.

The spectacular growth of companies and the consequent increasing competition between them has meant the development of alternative remuneration schemes with the objective of retaining their workers.

From our experience, it is becoming more common to see companies offering shares to employees for free or at a reduced cost, or for a specific sum in cash based on the value of the shares, or a mixture of both.

Taxing these types of remuneration is complex and requires an in depth study of each particular case. But it is even harder when the beneficiary is or has been working during the period of valuation in several countries.

With regards to this issue, the OECD (Organisation for Economic Cooperation and Development) admitted in 2004 the difficulties of this situation and was asking for guidelines to be established in each country when the employee is subject to taxation in several countries.

The reaction of the European countries and the United States to the guidelines published by the OECD was quick and the tax authorities from different countries have been adopting their official positions, updating or reforming their regulations. They are also paying more attention to the international conventions to avoid double taxation.

In Spain we are still waiting. The tax authorities have not yet decided and these types of cases are everyday becoming more difficult to resolve.

In contrast to other countries, however, Spain does not have a specific regulation for employee share schemes, although their taxation is based on a few generic concepts and some reference linked to local employees or some other options published by the authorities (Dirección General de Tributos).

For expatriate taxpayers, the rules and possible solutions are unclear and insufficient. In addition, if you consider the interpretation of the treaties and the double taxation aspects, it can create many legal issues due to the lack of common guidelines from the tax authorities.

In summary, although there have been important steps forward, more reforms are still required in new and relevant areas because of personal implications, especially where repatriation is involved.