Legal Alerts/4 Mar 2019

New Precedent from Supreme Administrative Court on Incentive Scheme

In its recent ruling (2019:26), the Supreme Administrative Court (SAC) held that an equity based incentive scheme cannot be considered as employment income, and stated that the gain received by the employee was taxed according to its legal form (capital gains).


The case concerned a privately held company where certain key persons invested into the employer entity’s equity. The investment was made via a joint holding company, and it was financed by a loan granted by an affiliate of the employer. The employees entered into a shareholders’ agreement that included restrictions on transferability of the shares, provisions on the valuation of the shares in transfer situations, and provisions on how the investment could be realised by selling the shares.

The tax authority, State representative and the Administrative court held that, in an overall assessment, the proceeds from the investment are to be treated as employment income. The State representative also considered that the anti-avoidance provision should be applied. The SAC overturned the previous decisions and ruled that the proceeds will be treated as capital gains, and that the anti-avoidance provision cannot be applied.

Implications of the ruling

The ruling is relevant in terms of several incentive schemes. In its previous decision (2014:66), the SAC considered that the proceeds in a leveraged incentive scheme were taxed as employment income. Since then, many structures have been challenged by the tax authorities. This ruling shows that the mere use of employer-provided debt financing or a holding company does not mean that an incentive scheme can be considered as employment income.

The ruling is also relevant for the application of the general anti-avoidance provision. It continues the previous years’ line of precedents issued by the SAC where claims by the State representative for the application of the anti-avoidance provision have not been successful.

Our experts are available to assist in addressing any questions you may have relating to the topic. Please feel free to contact any of the Borenius attorneys listed in this alert or those with whom you usually work.

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Additional information

Heikki Wahlroos