Taxation of employee stock options and employee offerings in cross-border circumstances

This is an unofficial translation. The official instruction is posted on the website in Finnish and Swedish.

This guidance discusses the tax treatment under the Finnish Income Tax Act (Tuloverolaki 1535/1992) of benefits within the meaning of section 66 of the act when the beneficiary is an employee who works outside of Finland.

What is meant by employee stock option or ESO is the right given to an employee under an employment contract to receive or buy stock for a price below fair market value, based on an agreement, scheme, plan, contract, etc. For tax purposes, the ESO term refers not only to the traditional stock option schemes but also to a number of other, modified variants of share-based incentive systems, and the rules on how income tax is imposed on the benefits arising from such schemes. In situations where the employer company has offered its stock to its entire personnel or to the majority of its employees, there may be other, additional issues relating to international income taxation.

The chapter on health insurance contributions has been updated in the guidance, and examples of common situations have been added. A new chapter 9 has also been added. The chapter concerns issue of shares under section 66 a of the Income Tax Act.

1 Introduction

Under section 66, subsection 3 of the Income Tax Act, employee stock options mean the rights of an employee, by virtue of his or her employment contract, to receive or buy stock for a price below fair market value, based on an agreement, plan, scheme, contract, etc. For tax purposes, the concept of employee stock option is wide and there is a wide range of different employee stock options (ESO), and many incentive programs of various types are treated the same way as ESO schemes are treated for tax purposes, although some of the programs are greatly modified.

References to ESOs in this guidance mean all incentive schemes or programs that are treated as employee stock options for tax purposes. For further information and a further discussion of the ESO concept, see Taxation of employee stock options.

What is meant by an “employee offering” is that employees under an employment contract receive the right, as referred to in section 66, subsection 1 of the Income Tax Act, to subscribe corporate stock for a price below fair market value. The benefit arising from such issuance of shares is subject to Finnish tax for the part that reflects more than a 10% discount from the quoted stock-market price of the share. If the benefit is not available to the majority of employees, the entire discount received is regarded as income subject to tax.

In the same way as with wage income, it may be that the benefit arising from ESO and an employee offering is taxed by more than one country: this requires that the provisions of a relevant tax treaty be followed, and it also requires that the taxing rights of the countries be divided properly. Additionally, income taxation is affected by whether the beneficiary is a resident or non-resident taxpayer in Finland.

Under the provisions of the Income Tax Act, an individual who is a Finnish resident must pay taxes to Finland from his or her income received from Finland or another country (section 9, subsection 1, line 1 of the Income Tax Act). Conversely, an individual who is a non-resident must pay taxes to Finland from his or her income received from Finland only (section 9, subsection 1, line 2 of the act on income tax). For further information, see the Tax Administration’s guidance documents Tax residency and nonresidency, and residency in accordance with a tax treaty – natural persons, Taxation of work abroad (available in Finnish and Swedish, link to Finnish) and Taxation of employees from other countries.

This guidance does not discuss the taxation of employee share issues of unlisted companies. In international situations, the same principles that are applied to employee share issues under section 66, subsection 1 of the Income Tax Act may be applicable. However, the additional conditions under section 77, subsection 2 of the Income Tax Act are applied only in situations under section 66, subsection 1 of the Act, because the provision does not include a reference to section 66 a of the Act. Further information on the conditions of application of section 66 a of the Income Tax Act is provided in the Tax Administration’s guidance Taxation of employee offerings.

2 The principle of accrual

In cross-border circumstances, the extent to which the different countries can impose tax on the benefit that arises from an ESO is determined by where the income has accrued. To apply the principle of accrual means that the ESO income is divided into taxable and tax exempt part in Finland based on the working periods in Finland and abroad. This principle is also applied on other incentive schemes that are stock-based and where the vesting period is agreed upon and the stage when the benefit is received is when the stock options are fully vested; these schemes are treated the same way as ESO schemes for tax purposes.

Regarding income in the form of a benefit accrued from an ESO scheme, the Finnish Supreme Administrative Court has stated (ruling number KHO 2013:93) that the period when the recipient earns the income is the period when he or she was expected to work in order to obtain the right to exercise the options. This means that the period when the income is accrued is the period between the date when options were granted and the date when they are fully vested. If the employee has been a tax non-resident in Finland for part of the time and has not primarily worked in Finland for a Finnish employer, the ESO benefit that relates to this part of the time is not sourced to Finland.

The Supreme Administrative Court’s ruling referred to above (ruling number 2013:93) only addressed the question of how to define the period when income had accrued when applying the provisions of Finnish national legislation. However, the Court’s text explaining the reasoning for the ruling cited the OECD’s Commentary to the Model Tax Treaty. Bearing in mind the general requirement of consistency of tax systems, there are good reasons to apply the principles emanating from the Supreme Administrative Court’s ruling also if the provisions of a tax treaty restrict the country’s taxing rights with respect to a benefit received by a taxpayer from an ESO scheme.

To apply the principle of accrual, the first step is to define the start and end dates of the period of accrual, in other words, the period between when the ESO has been granted and when it is fully vested or when the employee’s employment contract has ended. The next step is to establish which part of the wages, received for the same period, is subject to Finnish tax under the provisions of the Income Tax Act and under relevant tax treaties. The part of the ESO value that relates to that period will then be treated as income subject to Finnish tax. In other words, for purposes of Finnish taxation, income in the form of benefits from ESO schemes is taxable to the extent that the wages earned when the vesting period was ongoing are taxable.

3 Benefits of a Finnish resident

3.1 Benefits accrued during a period of residency

In general, the benefit arising from an ESO scheme is subject to tax in Finland when the benefit has accrued during the employee’s Finnish tax residency. In the same way, the benefit arising from an employee offering of corporate stock is also subject to tax in Finland when the benefit has accrued during Finnish residency. The benefit is subject to Finnish tax unless part of the benefit cannot be taxed due to the six-month rule or due to the provisions of tax treaties (for more information, see chapter 3.1.2 of this guidance).

When the beneficiary is a Finnish resident when exercising an ESO, income tax is imposed on his or her receipts, as provided in the tax rules governing resident taxpayers, regardless of whether the benefit had accrued during the beneficiary’s residency or during a period when he or she was a non-resident.

3.2 The six-month rule

3.2.1 Introduction to the requirements for tax exemption

The wages received for a period when an employee works abroad can be exempt from Finnish tax if the situation meets the requirements of the six-month rule within the meaning of section 77 of the Income Tax Act. Subject to certain restrictions, the exemption also concerns the categories of income referred to in section 66 of the act (ESO schemes, employee-offering schemes).

Under section 77, subsection 1 of the Income Tax Act, the wage income received for work performed outside of Finland is not subject to Finnish tax if the employee is present in a foreign country for reasons relating to the work, and if the presence lasts for an uninterrupted period of at least six months. However, for purposes of the above provisions of the Income Tax Act, the kind of wages is excluded that the tax treaty (between the country of work and Finland) sets out as income on which the country of work cannot impose taxes primarily. Under section 77, subsection 2, tax-exempt income received for work done abroad includes the income derived from an employment-related benefit within the meaning of section 66, if:

1. There is a tax treaty between the country of work and Finland, and the income within the meaning of section 66 is taxed as wage income by the country of work; and
2. The employee presents the Finnish Tax Administration with sufficient evidence that the tax authorities in the country where he or she works have been notified of the existence of the benefit.

It may be that the employee is present and works outside of Finland in several foreign countries. When the total length of an employee’s period of work outside of Finland is determined, the times worked in different countries can be included. However, the six-month rule is applicable only on the periods of work in the countries for which both the general requirements of the six-month rule are fulfilled, and for which also the specific requirements that concern the exemption from taxes of the benefit arising from an ESO scheme or an employee offering scheme are fulfilled. All the above requirements must be fulfilled in order the income to be exemptible. A further discussion of these requirements is offered below.

3.2.2 Satisfaction of the general requirements of the six-month rule

First, it is required that the benefit (within the meaning of section 66 of the Income Tax Act) accrued during a time when the employee’s wage income was exempted by virtue of the six-month rule. In other words, the general requirements of the six-month rule must be met. If not, the benefit arising from ESO or employee-offering schemes cannot be exempted (according to the State Finance Committee’s report (report of the Parliamentary committee on finance VaVM 38/2002). For further information on the general conditions of application of the six-month rule, see the guidance on The six-month rule applied to wages earned abroad (available in Finnish and Swedish, link to Finnish).

3.2.3 Employment and work in a contracting state

The second general requirement for the exemption from taxes on a benefit within the meaning of section 66 is that there must be a tax treaty in force between Finland and the country where the employee works. For purposes of this legal rule, a treaty between Finland and that country is not a tax treaty if it is a restricted convention on taxation, on inheritance and gift tax, an agreement on information exchange, or on taxes to be imposed on savings income in the form of interest payments. The Finnish Tax Administration’s website at www.tax.fi contains a list of Finland's tax treaties in force. Another website where they are posted is www.finlex.fi.

3.2.4 Country of work must impose tax on the income as employment income

The third requirement is that the country where the employee works must impose tax on the benefit within the meaning of section 66 of the Income Tax Act and treat it as employment income. In accordance with the legislative history of the the Income Tax Act and with the established practice of tax assessment, this requirement is sufficiently fulfilled if the country treats the income as earned income, instead of treating it as income from capital (report of the Parliamentary committee on finance VaVM 38/2000).

The majority of countries impose “payroll” taxes on the income resulting from ESO and employee-offering schemes, i.e. treat it the same as wages. For this reason, employees do not usually have to enclose specific documentation to their tax returns in order to prove that their benefits are subject to earned-income tax in the other contracting state. However, if necessary, the Tax Administration may ask the employee to provide the documentation. Examples of such documentation: a statement issued by the tax authorities of the country of work, an excerpt of taxpayer guidance issued by the local tax authority, a statement written by a tax specialist or a photocopy of an assessment decision. 

For the six-month rule to be applied it is not necessary that the country of work had actually imposed tax on the employee for a received benefit within the meaning of section 66 of the Income Tax Act. This means that the requirements for exemption as explained above may be fulfilled even if the country of work had not imposed tax at all on the income consisting of the benefit, as long as the country of work generally treats the benefit as earned income subject to tax. If the country of work does not impose any tax on receipts of remuneration for work, the six-month rule cannot be applied on the employee’s income, including the income consisting of a benefit within the meaning of section 66 of the Income Tax Act.

3.2.5 Information is given to the tax authorities of the country of work on the benefit

The fourth requirement for the exemption is that the taxpayer presents sufficient proof of having informed the tax authorities of the country where the employee works. This requirement can be fulfilled in a variety of ways. For example, the employer may have submitted the tax authority a list of the people who receive the benefit, including a description of how the benefit is determined or calculated and information of the benefit’s value. In this case, an individual employee can send the Tax Administration a written statement received from the employer on which the employer confirms that such a list was submitted to the tax authority of the country. Alternatively, a document prepared by an international audit firm that contains the same information may be an acceptable confirmation as well. Employees must enclose such a statement or document to their Finnish tax return.

The information given to the authorities of the country of work must be sufficiently specific. If the taxpayer has worked in more than one foreign country, it is required that the information on the existence of the benefit is given to every country of work. To certify that this has been done, the enclosure to the tax return may contain photocopies, in English, of the documentation and information that had been given to the tax authorities of every country of work. The enclosure must contain the name and identity of the employee and the following details:

• information on which ESO scheme they are based on;
• the date when the stock options were received;
• how many of them were exercised;
• the date when they were exercised; and
• whether the employee bought the underlying shares or exercised the received benefit by selling the stock options to someone

In the case of an employee-offering scheme, the following information is required:

• the scheme on which the employee’s purchase of shares is based on (for example, X Plc, June 2018);
• the time when the employee bought them (the date of purchase);
• how many shares were bought, and the price per share
• the date and the time, the fair market value of the share (for more information, see “Taxation of employee offerings” – Työsuhteeseen perustuvan osakeannin verotus)

If necessary, the Tax Administration can require that some other method should be used in order to ascertain that the existence of the benefit has been communicated to the tax authorities of the country of work. An example of other methods is that the employee presents a document obtained from the country’s tax authority containing certification that the ESO benefit will be taxed in the country of work for a period of time corresponding to the employee’s working in the country. Another example is a tax decision issued by the country of work that indicates that the country of work has imposed taxes on the employee’s income arising from the ESO scheme.

The provision in section 77, subsection 2.2 of the Income Tax Act does not set a time limit for informing the tax authorities of the country of work on the existence of the benefit. For this reason, it is possible to inform them even after the completion of the tax assessment for the year when the employee had received the income. If an employee informs the tax authority of the country of work afterwards, he or she can then submit a claim for adjustment to the Finnish Tax Administration to ask for the taxation to be reviewed in such a way that the exemption by virtue of the six-month rule be applied on the part of the received benefit that had accrued while the employee worked outside of Finland. 

In order for the exemption under the six-month rule to be applicable, it is required that the authorities of the country of work be informed within a time frame that allows the authorities to receive and review the information on the existence of the benefit, in accordance to what the laws of that country provide. If the authorities are not informed until such a time when it is too late for them to receive and review the information, it is deemed that information on the existence of the benefit has not been given to the authorities of the country of work as required under the provisions of section 77, subsection 2.2 of the Income Tax Act. Under the circumstances, the six-month rule cannot be applied on the benefit. 

Even in the case described above, it is not a requirement of the six-month rule that the country of work actually imposes tax on a received benefit that had been reported to the country’s tax authorities afterwards. The authorities of the country of work are sufficiently informed if the information is given in a time frame that allows the authorities to receive and review it, in accordance to what the laws of that country provide, and when the other requirements of the six-month rule are fulfilled. The Finnish Tax Administration may ask the employee to present a document from the country’s tax authorities that certifies that the ESO benefit has been reported to the local authority within a time frame that allows the information to be received and reviewed there.

3.2.6 Dividing the value of the benefit into appropriate parts

If the above requirements of exemption under the six-month rule are fulfilled, the value of the benefit within the meaning of section 66 of the Income Tax Act must be divided into an exemptible part and a taxable part, in proportion to the periods of work in different countries.

The exemption provided by the six-month rule can only be applicable to a part of the period when the employee worked outside of Finland. Reasons for this may include the fact that the employee is present in Finland for an excessive number of days during the period when he or she works outside of Finland, making it impossible to apply the six-month rule on the wages received for the period. In these circumstances, the wages are subject to Finnish income tax. If employees receive wages for the same period as when the accrual of a benefit within the meaning of section 66 of the Income Tax Act is ongoing and the six-month rule cannot be applied on the wages, it cannot be applied on the income arising from the benefit, either.

3.2.7 The employee moves on to work for another employer

The period of accrual of the ESO benefit ends at the time when the employee stops working for the employer that gave the ESO benefit to them. However, if the employee changes jobs from one group company to another, the accrual does not end (for example, the ruling of the Supreme Administrative Court 21 October 1999, record no 2836, and the Central Tax Board’s preliminary ruling 57/2001). The six-month rule may be applied on benefits arising from ESO schemes in cases where an employee – a Finnish resident taxpayer – has been awarded an ESO benefit when working for a Finnish employer in Finland, and has changed jobs while the period of accrual is ongoing, moving on to work outside Finland for a foreign subsidiary of the Finnish employer.

If the employee moves on to work for a new employer that does not belong to the same group of companies and the employee’s right to the benefits of the ESO scheme continue to be in force, the end date of the benefit’s period of accrual will be the end date of the employment contract. If during the accrual of the benefit, the employee has only worked for the Finnish company in Finland that provided the ESO scheme, the exemption under the six-month rule is not applicable to the benefit. In such a case, the benefit arising from the ESO scheme is taxable income in Finland in its entirety because the benefit never accrued during the employee’s work outside of Finland.

Employees may receive employee stock options when they are working outside of Finland. The terms and conditions of the ESO scheme may indicate that the employee continues to have the right to the benefit even if the employee leaves the company or leaves the group. It may be that such an employee leaves the company during a period of work outside of Finland, and that the employee only exercises the stock options after returning to Finland. If the requirements listed in section 77, subsection 2 of the Income Tax Act are met, the benefit arising from the ESO scheme is not subject to Finnish tax because it accrues for a period when the employee works outside Finland and receives wages that are exempt from Finnish taxes under the six-month rule for that period (the preliminary ruling 55/2001 of the Central Tax Board).

Additionally, it may be that a employee has worked for the employer that grants the ESO scheme both in Finland and outside of Finland, and the six-month rule applies to the period worked outside of Finland. If the employee were to exercise the stock options only after moving on to work for the new employer that is not a member of the same group of companies, the part of the ESO benefit subject to Finnish income tax must be calculated by dividing the time when he worked in Finland during this time by the total accrual period of the benefit. The length of the time when the employee, before exercising the option, has worked for the new employer outside the group has no impact on the division. 

3.2.8 Changes to the terms and conditions of an ESO scheme

If the terms and conditions of the stock option scheme are amended before the period for exercising the options begins, the value of the benefit regarded as wages will be determined in accordance with the new, amended terms. Amendment of the terms and conditions is not regarded as exercise of the stock options, and it has no tax consequences to the employee. In circumstances where the six-month rule is applied, the days worked in various countries are relevant beginning from the original start date when the employee signed up for the ESO scheme.

3.2.9 Working in a non-tax-treaty country

Because employees must work in a country that has signed a tax treaty with Finland in order for the exemption under section 77 of the Income Tax Act to apply to their income arising from a received benefit within the meaning of section 66 of the Income Tax Act, the six-month rule cannot be invoked if the employee gets an ESO benefit from a country that does not have a treaty. If the country of work imposes taxes on the benefit, the resulting double taxation will be relieved by Finland as provided by the Act on the Elimination of International Double Taxation (Laki kansainvälisen kaksinkertaisen verotuksen poistamisesta1148/2005).

Further information on how double taxation is relieved in the guidance Taxation of work abroad.

3.2.10 Interrupted period of work abroad and the six-month rule

It is only possible for the tax exemption under section 66 of the Income Tax Act to be in force when the special requirements listed in section 77 of the act are fulfilled. The six-month rule is applicable only if the wages paid to the employee for the corresponding period also are exemptible under the six-month rule.

It may be that the employee’s work outside Finland is interrupted e.g. due to a maternity leave or other comparable family-related leave, even though the employment contract is still valid. When such a leave is ongoing and wages are being paid, the six-month rule cannot be applicable to such a wage income. The reason is that under the circumstances, the individual is not present in a foreign country due to his or her work. For further information, see chapter 4, item 3 of the guidance The six-month rule on salary for working abroad (available in Finnish and Swedish, link to Finnish).

If the employee’s contract is not terminated, the temporary interruption of work has no impact on the benefit’s period of accrual. From this follows that any periods of maternity leave or other comparable family leave cannot be left out of the count of days when determining the length of the accrual period.

3.3 Working in countries that have signed a tax treaty

3.3.1 Tax-treaty provisions on the subject of employment income

Even though a benefit within the meaning of section 66 of the Income Tax Act accrued during a time when the beneficiary has been a Finnish resident, it may be that a tax treaty restricts Finland’s taxing rights in respect of the income resulting from the benefit. From the perspective of tax treaties, the provisions applied on a benefit within the meaning of section 66 are the same as the provisions applied on wage income. According to what has been agreed by Finland in its tax treaties with other countries, employment income from work in the private sector is taxable only in the country where the individual beneficiary is resident for purposes of the treaty. Subject to certain preconditions, if he or she performed the work in another country, that country also has the taxing rights in respect of the employment income (Article 15, OECD).

There is great variation in the provisions on how employment income is taxed in different tax treaties. For this reason, the treaty with the country concerned must be studied carefully. Especially the provisions on individuals’ presence during 183 days may vary (this rule is known as "the mechanic's exception").

3.3.2 Residents who are treaty residents of the other contracting state

Generally, the provisions of tax treaties prevent Finland from imposing tax on income within the meaning of section 66 of the Income Tax Act if the period when the income accrued was a time when the beneficiary, a Finnish tax resident, worked outside Finland but the treaty defines him or her as a resident of the other Contracting State for treaty purposes.

An exception from the general rule above is the situation where a benefit within the meaning of section 66 of the Income Tax Act was accrued during a period when the employee worked in Finland. The income arising from a benefit received from a Finnish employer or from a Finnish-located permanent establishment of a foreign employer is subject to Finnish tax if during the accrual period of the benefit, the employee is a Finnish resident. It does not matter if the individual employee is simultaneously a resident of another country.

It is also treated as income subject to Finnish tax when the employee receives, during their tax residency in Finland, a benefit from a foreign employer in a situation where Finland has the taxing rights in respect of their wages due to the length of the employee’s work period in Finland (at least 183 days worked in Finland during a 12-month period or during a calendar year). It does not matter if the individual employee is simultaneously a resident of another country. 

Some of Finland's tax treaties contain separate provisions that apply to employee leasing. These provisions may give Finland the taxing rights with respect to an item of income within the meaning of section 66 of the Income Tax Act. In such a case, if the employee is a Finnish tax resident but a treaty resident of the other Contracting State during the period of accrual, Finland has taxing rights with respect to the part of the income that relates to the days when the employee was a leased employee performing work for a Finnish service recipient.

In addition to circumstances described above, a benefit that has accrued during a period of the employee’s residency in the other Contracting State can be subject to Finnish income taxation if the provisions of the tax treaty contain a three-year rule. Then Finland can impose income tax on the income of a Finnish citizen who is a resident taxpayer even for a period when he or she is a treaty resident of the other Contracting State. Income within the meaning of section 66 of the Income Tax Act is subject to Finnish taxation in these circumstances, unless the six-month rule is applicable to the employee’s work.

3.3.3 Residents who also are Finnish residents for purposes of the treaty

Tax treaties may restrict Finland's taxing rights with respect to income within the meaning of section 66 of the Income Tax Act even if the accrual period of an ESO benefit coincides with a period when the employee is a Finnish resident, and also a resident taxpayer in Finland for purposes of the treaty. Such a scenario is possible if the employee works for an employer resident in the other Contracting State and performs the work there, or stays there longer than 183 days when working for an employer resident in a third country or for an employer that has a permanent establishment in the country where the employee works. In such a case, the country of work has taxing rights in respect of the income arising from a benefit within the meaning of section 66 inasmuch that the income had accrued to the beneficiary due to his work in the country. Finland is the country having the obligation to relieve any double taxation.

3.4 Benefits accrued during a period non-residency

The period of accrual of a benefit within the meaning of section 66 of the Income Tax Act may fully or partly coincide with a period of the employee’s non-residency, although the employee receives the income when he or she is a resident taxpayer. A non-resident is only liable to pay taxes on income sourced to Finland. Under section 10.4 of the Income Tax Act the pay earned in the service of a private-sector employer is regarded as Finnish-sourced income if the location where employee worked is in Finland (or mostly in Finland) and the employer is Finnish. Examples of what kind of employers are considered Finnish include Finnish limited-liability companies and Finnish-located permanent establishments of foreign corporate entities.

In general, the benefit arising from an ESO scheme to a non-resident taxpayer is subject to Finnish tax only inasmuch as it has accrued during a time when the non-resident employee mostly works in Finland for a Finnish employer (rulings of the Supreme Administrative Court number KHO 1998:56 and KHO14.10.1998 record number 2199).  

3.5 An ESO scheme coinciding with a “key employee” taxation scheme

Under certain restrictions, an individual employee who arrives in Finland and becomes a Finnish resident can be granted treatment as a key employee, so that instead of having their income assessed as provided in the Tax Assessment Procedure Act (Verotusmenettelylaki 1558/1995), they pay a special tax at source. The legal provisions governing such a employee’s taxes are found in the act on the taxation of key employees’ income (Avainhenkilölaki 1551/1995). Employees who fall into this category do not pay the progressive income tax in accordance with the Income Tax Act. Instead, they pay a tax at source at a rate of 32 percent (section 3 of the act on the taxation of key employees’ income).

In its ruling no KHO 9.12.2011 record no 35, the Supreme Administrative Court took the view that if an ESO scheme has been received from a Finnish employer, the taxable income derived from the ESO must be regarded as part of the key employee’s total wage income that is subject to taxation at source.

If the key employee exercises the stock options or if other benefits within the meaning of section 66 are received during the period when the act on the taxation of key employees is applied on him or her, the part subject to Finnish tax of the ESO benefit must be taxed at source at 32%, instead of under the progressive schedule of income taxation. If the key employee’s status is ended during the year when the benefit is received, and if, because of the high value of the received ESO benefit, the withholding of tax at source has not been possible when the following wage payment occurs, the value must be spread out evenly, and the 32-percent tax must be withheld at source, over the months when his or her tax-at-source card continues to valid (section 8 of the act on the taxation of key employees’ income and section 9 of the Decree on withholding tax).

If during the period of accrual of a benefit within the meaning of section 66, the act on the taxation of key employees has been applied on the employee’s tax assessment, and he or she only exercises the stock options or receives the benefit at a later stage, when that act is no longer applied, no taxation at source will be applied on the employee’s wage income nor on their income resulting from the exercise of the benefit.

The Supreme Administrative Court’s ruling 9.12.2011, record 3521 did not concern the withholding of taxes or the withholding of taxes at source. For this reason, that ruling has no impact on the usual obligations of the employer concerned. If the employee has received the benefit before they start working for a Finnish employer, the Finnish employer does not have to withhold tax at source on the wages paid to them.

4 Benefits of a non-resident

4.1 Benefits accrued during the employee’s residency of Finland

If a employee is a nonresident, any received item of income within the meaning of section 66 of the Income Tax Act is subject to tax, for the accrual period that relates to a time when the employee has been a resident, for the part that such income is not exemptible by virtue of the six-month rule, and provided that the applicable tax treaty does not prevent Finland to impose income tax on the item of income (for more information, see chapter 3.1 above).

4.2 Benefits accrued during a period when the employee has been a non-resident

Employees who are non-residents must pay tax on an item of income within the meaning of section 66 if the source of the income is Finland under section 10 of Income Tax Act.

Under section 10, line 4a of  the Income Tax Act, it is Finnish-source income taxable by Finland if a fee is paid to an individual for being a member of the Board of Directors or of another governing body in a Finnish corporate entity. Such an item of income is sourced to Finland even if the beneficiary never physically worked or lived in Finland. Among the beneficiaries on whom this provision is applied on are members of a Board of Directors, etc., receiving income consisting of a benefit within the meaning of section 66 of Income Tax Act.

Pursuant to section 10, line 4c of Income Tax Act, Finnish-source income taxable by Finland includes wages paid by a foreign employer for work performed in Finland, if the foreign employer has leased the worker to a service recipient in Finland who uses this employee to perform the work. However, in the case of leased employees resident in a foreign country, the majority of the tax treaties Finland has signed with other countries prevent Finland from imposing tax on income received by a leased employee. If the provisions of the applicable tax treaty do not prevent Finland from taxing the wages paid to a non-resident leased employee who works for a service recipient in Finland, any income they may receive from an ESO scheme is sourced to Finland during the time when the leased employee works in Finland.

4.3 Income taxes of a non-resident assessed in accordance with the Finnish Act on Assessment Procedure

Non-resident employees who have income in the form of a benefit within the meaning of section 66 of Income Tax Act, can request tax treatment in accordance with the provisions of the Finnish Act on Assessment Procedure if certain conditions are fulfilled.

This tax scheme may be available to all non-residents who live in a country belonging to the European Economic Area, or in a country or region that is covered by an agreement on executive assistance and sharing of information in tax matters; and to any non-residents who are holders of a Finnish residence permit within the meaning of the EU Council Directive on Scientific Researchers (section 13, subsection 1.6, Act on the Taxation of Nonresidents' Income (Laki rajoitetusti verovelvollisen tulon verottamisesta 627/1978). 

The tax authorities can perform both pre-assessment and final assessment in accordance with the provisions of the Finnish Act on Assessment Procedure. For tax pre-assessment, it is required that the non-resident individual first ask for a non-resident’s tax card at the Finnish Tax Administration and then hands it over to the payor of the income (section 13, subsection 3, Act on the Taxation of Nonresidents' Income). During the final assessment of taxes, the tax authority will apply the provisions of the Finnish Act on Assessment Procedure if these provisions had been applied during the pre-assessment of the taxapayer’s taxes, or if he or she makes a demand that taxes must be assessed as provided in the Act on Assessment Procedure (section 13, subsection 4, Act on the Taxation of Nonresidents' Income).

5 Relief for international double taxation

The case may be that the employee is a Finnish resident taxpayer and his or her residence country for tax treaty purposes also has been Finland during a period when he or she works in a foreign country. If the exemption provided by the six-month rule is not applicable on the wage earned abroad, Finland imposes tax on a received item of income within the meaning of section 66 of Income Tax Act also for the accrual period that relates to the time when the employee worked outside Finland. In this case, the receipt of the income is subject to Finnish tax even if the employee is not a Finnish resident or a resident in Finland for treaty purposes at the stage when the employee exercises their stock options, or at the date when they were granted them. In these circumstances, it results in double income taxation if not only Finland but also the country where the work was performed imposes tax on the income within the meaning of section 66 of the Income Tax Act for the period when they work in that country. In this case, if Finland is the employee’s country of residence, the country having the obligation to relieve the resulting double taxation is Finland.

Relief for double taxation is given either by the credit method or by the exemption method. The choice between the two methods depends on the relevant provisions of the tax treaty. Further information on how double taxation is relieved in guidance Relief for international double taxation.

It may be that the country of work defines the value of the benefit within the meaning of section 66 of the Act on Income Tax in a different way from how Finland defines it. It may also be that there are differences in determining the point of time when such a benefit is regarded as received taxable income. However, this does not remove the obligation of Finland to provide relief for double taxation if the assessment of taxes by the country of work has been carried out in accordance with that country’s internal legislation and the tax treaty.

However, if the country of work has instead imposed tax on a greater part of the benefit within the meaning of section 66 of the Income Tax Act than the part accrued during the employee’s period of work in that country, Finland does not have an obligation to relieve that part of the double taxation. In such a case, the employee can turn to the authorities of the country of work to request adjustment to the assessment of taxes.

6 Employer obligations and the tax-at-source that may be imposed by the tax authority

6.1 Employer obligations during an employee’s period of work abroad

In general, the right to participate in an ESO scheme or to receive other benefits within the meaning of section 66 of the Income Tax Act, presupposes the employee’s continuous employment. However, if the employer is a group corporation, and a employee has first worked for one of the group’s subsidiaries and moves on to work for another, the right to these benefits usually remains because the employee is still an employee of the same group. In these circumstances, the benefit is deemed as received from the subsidiary for which the employee worked at the time of granting.

The above-mentioned means that if the employee’s employer was a foreign subsidiary at the time of granting, but at the time when he or she exercises the options – or receives the corporate stock in a share award scheme – the employer is a Finnish group company, the employee’s employer for tax purposes will continue to be the foreign subsidiary. In this case, the usual employer obligations under Finnish tax legislation do not concern the benefit granted by the foreign subsidiary. In other words, there is no need to withhold taxes on the benefit and there is no need to submit an earnings payment report to the Incomes Register.

In a reverse case, i.e. if the employee worked for a Finnish employer when the stock options or stock grants were granted, and worked for a foreign employer when exercising the options, the employer, being a Finnish employer for tax purposes, must abide by the usual employer obligations with regard to the employee’s income. For purposes of this rule, a foreign company’s permanent establishment in Finland is treated as a Finnish employer. However, the employer obligations do not apply to the part of the received benefit that had accrued when the employee was a non-resident and the benefit is not attributable to a Finnish source of income.

It may be that when working outside of Finland in circumstances where the six-month rule is applied, employees exercise their ESOs or receive other benefits within the meaning of section 66 of the Income Tax Act. Wages paid to a employee in such circumstances in cash are treated as tax-exempt income. For this reason, the Finnish employer cannot carry out withholding tax (except for the minimum withholding in certain cases) even if the benefit arising from ESOs were partly subject to income taxation in Finland. However, the employer must file an “earnings payment report” to the Incomes Register.

6.2 Carrying out the withholding

Benefits meant in section 66 of the Income Tax Act are taxed in the same way as wages (section 13, subsection 3, Act on Tax Prepayments (Ennakkoperintälaki 1118/1996). Unless the six-month rule is applicable on the employee’s working, the employer must withhold tax on a benefit that a resident individual taxpayer receives (section 9, subsection 1, Act on Tax Prepayments). Withholding is required even if the employee has asked for prepayments for their income within the meaning of section 66 of the Income Tax Act. The prepayments will be taken into account when the employee requests a new tax card and the withholding rate is therefore re-calculated. In order the withholding tax to be carried out, the employer must keep track of when the employee exercises their stock options.

Under section 9 of the Decree on Tax Prepayments (Ennakkoperintäasetus 1124/1996), the withholding on a non-cash benefit, not given to the employee on a regular basis, must be made during the calendar year either by adding the value of the benefit to the wages of the next pay period, or by dividing the value into equal instalments over the remaining months of the year. The first alternative is practical when the benefit is small, and a sufficient amount can be withheld all at once. If the benefit is large (in euros), it must be divided for the remaining months of the year because pre-assessment should match the employee’s final tax assessment as accurately as possible.

Withholding is carried out by subtracting an amount calculated on the basis of total remuneration (consisting of cash wages+fringe benefits+ESOs) from the employee’s cash wages. Tax is withheld (under section 11 of Act on Tax Prepayments) at the time when wages are paid in cash, or recorded in the recipient’s bank account. The amount to be withheld cannot exceed the amount of cash wage to be paid.

6.3 Applying the six-month rule on individual taxpayers’ pre-assessment

If certain prerequisites are met, the employer is allowed to apply the six-month rule already at the stage when wages are paid to the employee and tax is withheld, i.e. at the pre-assessment stage. This requires that the employer have a liable and later-verifiable proof establishing the fact that the benefit within the meaning of section 66 of the Income Tax Act is reported to the tax authorities of the country of work, and it also requires that under the legal rules of that country, the local authorities can take steps to verify the received report about the existence of the benefit.

Examples of circumstances where the employer has reliable proof: arrangements, made by the employer on behalf of the employees, to submit the necessary income tax returns to the authorities of the country of work; and circumstances where a foreign subsidiary of a group of companies provides a certificate that indicates that the subsidiary has the obligation to inform the local authorities of the existence of the benefit. In addition, it is required that the employer is aware of the other requirements pertaining to the six-month rule and that these requirements are met.

In above-mentioned circumstances the employer must make the necessary arrangements to keep track on the count of working days, and perform other checks as necessary in order to ascertain that the requirements for the exemption have been fulfilled, when preparing the employer’s reports for submittal to the Incomes Register. If it turns out that the requirements are not fulfilled, the employer must submit an “earnings payment report” to the Incomes Register that specifies the entire value of the ESO benefit as taxable wage income.

If the requirements listed above are not fulfilled (the tax authorities in the country of work are informed of the existence of the ESO benefit, other requirements of the six-month rule are met, the employer has kept track of the count of days worked in different countries, and performed the appropriate checks), the employer must submit an “earnings payment report” to the Incomes Register that specifies the entire value of the ESO benefit as taxable wage income. If the employer is not paying any cash wages to the individual employee or if the wages it pays are exempt from taxes under the six-month rule, it is not possible to carry out any withholding. For more information, see chapter 6.1 above.

For further information on the reports required from employers to be submitted to the Incomes Register, see Reporting data to the Incomes Register: rewarding employees, payments made to an entrepreneur and other special circumstances and Reporting data to the Incomes Register: International situations.

6.4 Tax to be withheld at source and deductions to be made from the tax at source

Employers that are treated as Finnish employers for tax purposes must collect tax at source on any wages they pay to a non-resident individual taxpayer for work done in Finland (section 3, subsection 1 and section 9, Act on the Taxation of Non-residents’ Income). Benefits within the meaning of section 66  of the Income Tax Act are equated to wages. For this reason, the income arising from the benefit is subject to tax at source. The rate of tax at source is 35% (section 7.1 of the Act on the Taxation of Non-residents’ Income). For purposes of this rule, a foreign company’s permanent establishment in Finland is treated as a Finnish employer. 

If the employee received the benefit under section 66 at a time when they worked for a foreign subsidiary or for another foreign company, the Finnish employer does not have an obligation to withhold tax at source. Conversely, if after receiving ESOs from their Finnish employer, the employee moves on to work outside of Finland for a foreign subsidiary of the group, the obligation to withhold tax at source and the employer obligations related to the ESO scheme remain with the Finnish employer, i.e. the company for which the employee worked first.

Before withholding the tax at source, the employer can deduct €510 per month as the ‘tax-at-source deduction’ (lähdeverovähennys; källskatteavdrag). For pay periods shorter than one month, the deduction is calculated as €17 per day. The deduction additionally requires that employee show a tax-at-source card to the employer. The card must contain an entry instructing the employer to carry out the deduction (section 6, Act on the Taxation of Non-residents’ Income). If the Finnish Tax Administration imposes tax at source, it takes account of the deduction when calculating the amount to be imposed. 

The tax-at-source deduction is allowed to be deducted all at once, for the entire period when the part subject to Finnish tax of the ESO income had accrued.  If the reason for granting the ESO scheme is that the recipient is a member of the Board of Directors or other governing body of a Finnish corporate entity, no tax-at-source deduction can be made from the income.

Because the tax at source is a final tax, it cannot be subject to other deductions than the deduction for tax at source discussed above. However, under the ruling of the Supreme Administrative Court (ruling number KHO 15.8.2006, record 1925), the tax at source to be imposed on income arising from the exercise of stock options must be based on a net amount from which the expenses caused by the exercise of stock options have been deducted. The ruling of the Supreme Administrative Court contained the following reasoning:

Because the Income Tax Act contains no specific rules on how earned income, within the meaning of section 66, subsection 3, should be taxed when applying the provisions of the Act on the Taxation of Non-residents’ Income, it is not possible to conclude, referring to the list of deductions set out in section 6 of the said act, that tax assessment would be different for non-resident taxpayers than for resident taxpayers who receive income arising from exercise of stock options.

The ruling invokes the premise that the benefit that arises from exercise falls into the category of capital-gains income, but due to a specific rule included in provisions of the Income Tax Act, the taxes to be imposed on this income are income taxes on wages.

6.5 Imposed amounts of tax at source

In some circumstances, it is not possible to withhold any tax at source. Reasons for this may include the fact that the employee left the company before exercise (he or she may have moved on to work for a foreign subsidiary within the same group of companies), or the fact that no cash wages are being paid to the particular employee on the payroll. In these circumstances, the Finnish Tax Administration imposes tax at source on the employee’s income on the Tax Administration’s initiative (section 16, subsection 2, Act on the Taxation of Non-residents’ Income). However, Finnish employers must also in this case submit “earnings payment reports” to the Incomes Register.

7 Health insurance contributions

7.1 Applicable regulations

Under chapter 18, section 5, subsection 1 of the Health Insurance Act, an individual insured in Finland according to the Act is liable to pay the insured person’s health insurance contribution. A condition for the liability is that the individual is insured in Finland when they receive the benefit. The insured person’s health insurance contribution consists of a health care contribution and a daily allowance contribution (chapter 18, section 4 of the Act). Further, the employer is liable to pay the employer's health insurance contribution in accordance with the act on the employer’s health insurance contribution (Laki työnantajan sairausvakuutusmaksusta 771/2016).

The health care contribution of health insurance is imposed based on the insured person’s income subject to municipal income tax, unless otherwise provided by the Health Insurance Act (chapter 18, section 14). The daily allowance contribution is imposed based on the insured person’s taxable wage income and work income, unless otherwise provided by the Health Insurance Act (chapter 18, section 15). Under chapter 11, section 3 of the Health Insurance Act, wages include, for example, pay, reward and compensation as referred to in section 13 of the act on tax prepayments (Ennakkoperintälaki 1118/1996), with the exceptions stated in chapter 11, section 3, subsection 3 of the Health Insurance Act.

The items that are not subject to the daily allowance contribution according to chapter 11, section 3, subsection 3 of the Health Insurance Act include, under certain conditions, the right to subscribe for shares based on an employment contract at a price below the fair market price, the ESO benefit and the stock grant in circumstances specified in the provision.

The health insurance contribution amounts are determined annually by means of a Government decree (chapter 18, sections 23 and 24 a of the Health Insurance Act).  However, if the insured person receives income that is not earned income under chapter 18, sections 15–18 of the Health Insurance Act, a raised health care contribution of health insurance is withheld on the said income (section 1, subsection 2 of the Government decree). So if the income is earned income as referred to in chapter 11, section 3, subsection 3 (3–5) of the Health Insurance Act, the insured person’s health care contribution is levied at an increased rate. For further information, see chapter 5.1 in Tax Administration’s guidance Taxation of employee stock options.

The employer pays the employer's health insurance contribution based on the total payroll. Wages here include pay, reward and compensation subject to withholding tax, referred to in section 13 of the act on tax prepayments (Ennakkoperintälaki 1118/1996). However, the items mentioned in chapter 11, section 3, subsection 3 of the Health Insurance Act are not regarded as wages (section 5 of the act on the employer’s health insurance contribution). Therefore, if the insured person’s health care contribution is not payable on the benefit received, the employer’s health care contribution is usually not payable on the benefit, either. Read more in Tax Administration’s guidance of Taxation of employee stock options, chapter 5 , and chapter 5.2 of Tax Administration’s guidance Taxation of employee offerings. 

7.2 Health insurance contribution on a benefit received by a taxpayer resident in Finland

7.2.1 Wages for insurance purposes, and benefit under section 66 of the Income Tax Act

The pension security of a Finnish employee posted to work temporarily in another country is often arranged in Finland. In this case, ‘wages for insurance purposes’ is determined for the employee for the duration of the work abroad. The wages for insurance purposes correspond to the wages paid for corresponding work in Finland (section 72 of the Employees Pensions Act).

If tax exemption under the six-month rule is applicable to the employee's work abroad, the wages for insurance purposes are used as the base for the health care contribution (instead of the income subject to municipal income tax) and as the base for the daily allowance contribution (instead of wages).  

In addition, the wages for insurance purposes replace the income subject to municipal tax and wages  as the base for the employer's health insurance contribution (section 5, subsection 4 of the act on the employer’s health insurance contribution).

In other words, the employer pays the employer's health insurance contribution based on the wages for insurance purposes if the six-month rule under section 77 of the Income Tax Act is applicable to the employee’s income. In this case, the insured person’s health insurance contribution withheld from the employee is also based on the wages for insurance purposes. If the six-month rule is not applicable, the base for the employer's health insurance contribution and for the insured person’s health care contribution withheld from the employee is the actual amount of wages paid to them. For further information, see chapter 7.1 above.

7.2.2 Employee not insured during the accrual period, or wages for insurance purposes not determined

If a resident taxpayer is not insured in Finland during the benefit accrual period or if wages for insurance purposes have not been determined for them, it is not possible to use the wages for insurance purposes as the base for the health care contribution.

In such a case, the base for the resident taxpayer’s health care contribution is the taxpayer’s income subject to municipal income tax (chapter 18, section 14 of the Health Insurance Act). If the benefit is as prescribed in chapter 11, section 3, subsection 3 of the Health Insurance Act, the rate of health care contribution withheld on the benefit is raised. However, if the six-month rule according to section 77 of the Income Tax Act applied to the employee’s income during the accrual period, the base for the health care contribution of health insurance is the wages for work abroad under section 77 of the Income Tax Act and subject to withholding under section 13 of the Prepayment Act.

7.2.3 Benefit accrued during tax non-residency

A person who is a resident taxpayer in Finland may qualify for a benefit referred to in section 66 of the Income Tax Act, that, however, accrued for a period during which they were a non-resident taxpayer in Finland. According to section 10, subsection 1, paragraph 4 of the Income Tax Act, a non-resident taxpayer is only liable to pay tax on income for work carried out mainly in Finland (For further information see chapter 2.1 of the guidance Taxation of employees from other countries). Such income is included in the income subject to municipal income tax referred to in chapter 18, section 14, subsection 1 of the Health Insurance Act, which serves as the base for the health care contribution. Where wages under chapter 11, section 3, subsection 3 of the Health Insurance Act are concerned, the health care contribution is levied at an increased rate.

If the benefit is based on work for which a non-resident is paid wages that are not regarded as income earned in Finland, the ESO benefit accrued for the said period of work is not regarded as income earned in Finland. When the income is not included in the income subject to municipal income tax and it cannot serve as the base for the contribution under chapter 18, section 17, subsection 1 or section 18 of the Health Insurance Act, then no health care contribution is withheld on the benefit.

7.3 Health insurance contribution on a benefit received by a non-resident taxpayer

If an individual is covered by the Finnish social insurance system, they must pay the insured person’s health insurance contribution to Finland. The employer, in turn, must pay the employer's health insurance contribution based on the amount of wages paid to such an individual (for further information, see chapter 5.1 in Taxation of employee stock options, and chapter 5.2 in Taxation of employee offerings).

The health care contribution must be paid if a non-resident employee is covered by the Finnish social insurance system when they exercise their employee stock option or when they receive some other benefit under section 66 of the Income Tax Act. This means that the circumstances that prevail during the accrual period have no impact on the liability to pay although they do have an impact on the base of payment. Subject to the provisions, if the employee still works for the same employer when exercising their ESO or when receiving another benefit under section 66 of the Income Tax Act, the employer must usually withhold the health insurance contribution on the cash wages paid to the employee. If the employee no longer works for the employer that granted the benefit, the Tax Administration imposes the health care contribution at the same time as the tax at source.

The health insurance contribution is usually determined based on the wages under section 4 of the act on the taxation of nonresidents' income. However, the items according to chapter 11, section 3, subsection 3 of the Health Insurance Act are not included in the wages.Such items include, for example, the right to subscribe for shares based on an employment contract at a price below the fair market price, the ESO benefit and the stock grant in circumstances specified in the provisions.  For this reason, no daily allowance contribution but only the health care contribution is usually payable on the ESO benefit (chapter 18, sections 16 and 20 of the Health Insurance Act).

If a non-resident taxpayer’s pension security during work abroad is arranged under the earnings-related pensions acts, either voluntarily or under obligation, the base for the health care contribution is the wages for insurance purposes in accordance with chapter 18, section 18, subsection 2 of the Health Insurance Act. The provisions of a tax treaty have no impact on the liability to pay the health care contribution.

Non-resident taxpayer’s tax-at-source rate does not include the insured person’s health care contribution. If the non-resident is covered by the Finnish social insurance system, they can apply for a tax-at-source card with an instruction to the employer to withhold the insured person’s health care contribution.

If an individual is a non-resident taxpayer when the benefit is granted and during the accrual period and if the income received during the accrual period is income earned in Finland under section 10 of the Income Tax Act, then under chapter 18, section 16, subsection 1 of the Health Insurance Act, the base for the non-resident taxpayer’s health care contribution is the wages as referred to in section 4 of the act on the taxation of non-residents' income (Laki rajoitetusti verovelvollisen tulon verottamisesta 627/1978). However, the items of chapter 11, section 3, subsection 3 of the Health Insurance Act are not included in the wages. The health care contribution withheld on the insured person’s ESO benefit is raised.  

If the benefit is based on work for which a non-resident is paid wages that are not regarded as income earned in Finland, the ESO benefit accrued for the said period of work is not regarded as income earned in Finland. Consequently, the benefit is not subject to the health care contribution.

8 Synthetic options and the employee’s work period in a foreign country

8.1 The synthetic option and the principle of accrual of income

The benefit arising from a synthetic option is treated in the same way as the benefit from an ESO scheme, i.e. it is wage income accrued to the employee during a period of time. From this follows that the principle of accrual determines what part of the income is subject to Finnish tax. 

The terms and conditions of the synthetic option define the vesting period. For tax purposes, the related benefit is deemed as being accrued during that period. Even if the payment of money would take place later than on the end date of vesting period, due to a delay at the employer’s payroll office, for example, the tax authorities will still regard the end date stated by the terms and conditions as the end date of accrual.

8.2 The six-month rule

The provision on ESO schemes found in section 77, subsection 2 of the Income Tax Act is not applied on synthetic options because an employment-related synthetic option is not a stock option within the meaning of section 66, subsection 3. The benefit arising from a synthetic option is considered as wages, which means that it is income exempted from tax if the general requirements of the six-month rule defined in the section 77, subsection 1 of the Income Tax Act are met.  From this follows that the benefit arising from a synthetic option is exempted income if its period of accrual is a time period for which receipts of income are exempted, based on the general requirements relevant to the six-month rule.

8.3 Effect of tax treaties

It may be that not only the exemption due to the six-month rule but also a tax treaty prevents Finland from imposing taxes on the benefit arising from synthetic options. From the perspective of tax treaties, the provisions applied on a benefit from synthetic options are the same as the provisions applied on wage income (under Article 15 of the OECD Model treaty). The majority of the cases where the provisions of an applicable tax treaty prevent Finland from imposing taxes involves employees who have been residents of the other contracting state during the vesting period of the synthetic option, and Finland has not been the country where work was done.

8.4 Benefits accrued during a period when the employee has been a non-resident

If the employee being the beneficiary has been a tax non-resident for some of the time, the synthetic option attributable to that period is treated as income subject to Finnish tax if any wage income, accrued for the corresponding period, is subject to Finnish tax.

9 Employee share issue under section 66 a of the Income Tax Act

If the employee is granted the right to subscribe for the employer company’s shares such that the subscription meets the conditions of section 66 a of the Income Tax Act and the subscription price is at least the mathematical tax value of the share referred to in the Act, no taxable benefit is generated for the employee.

However, if the employee receives shares free of charge or subscribes for shares at a price below the mathematical tax value, a taxable benefit may be generated. As a rule, the benefit is then regarded as taxable income in Finland on similar conditions as the benefit according to section 66, subsection 1 of the Income Tax Act. The conditions of section 77, subsection 2 of the Income Tax Act are not applied, however, as the provision in question applies only to income referred to in section 66 of the Act. Because of this, it has no impact on income referred to in section 66 a of the Act. Consequently, the six-month rule can be applied to the benefit granted to the employee with no regard to the additional conditions of section 77, subsection 2 of the Income Tax Act.