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Share options

This article explains how gains arising from the exercise of options are to be sourced on the employment exercised between grant and vest when considering a double taxation agreement (except for the US) on a workdays basis. It is concerned only with options granted under an unapproved share option plan and non-qualifying exercises of options granted under an Inland Revenue approved plan.

The UK and the Organisation for Economic Co-operation and Development (OECD) have been working to reach a common international consensus on the treatment of share option gains. In September 2004 the OECD announced that additional guidance would be in its next updated model taxation agreement and commentary scheduled for 2005.

If a comprehensive double tax agreement exists it will normally have an employment income article along the lines of Article 15 of the OECD model tax convention. Article 15(1) provides that if a resident...