This article focuses on the structure of ESOP programs based on subscription warrants. In the case of shares or equity interests, the participant typically acquires the right to actual ownership. Such incentive programs, however, represent a significant intervention in the company’s ownership structure. In practice, their implementation usually means expanding the circle of shareholders or equity holders.
In ESOPs based on subscription warrants, there are practical solutions that allow this to be avoided. A model based on subscription warrants is therefore, in this sense, less “invasive.”
Until the amendment to the Personal Income Tax Act (PIT) of October 27, 2017 came into force, the law did not regulate issues related to the implementation of incentive programs or the taxation method for both the participant and the program organizer. Unfortunately, the introduced regulations turned out to be insufficiently precise. The literal wording of the ESOP provisions allows the conclusion that they do not account for the model based on subscription warrants, which is favorable from the company’s perspective. When determining the taxation rules for such programs, the key role is played by administrative court rulings and interpretations issued by the Director of the National Tax Information Service.
Until recently, tax authorities allowed for the possibility of extending the provisions on incentive programs to include variants based on subscription warrants. They recognized that, as a result of the program, eligible individuals acquired the right to actually obtain company shares through the exercise of other property rights. Consequently, ESOP programs structured around warrants had a chance to benefit from deferred taxation, as provided for incentive programs based on shares.
However, this interpretative line has reversed in recent months. Doubts intensified following the Supreme Administrative Court (NSA) ruling of November 30, 2021 (case no. II FSK 808/19). In that judgment, the court stated that acquiring shares based on subscription warrants does not fall within the definition of an incentive program eligible for preferential treatment. According to the NSA, a warrant should be classified not as “another property right,” but as a financial instrument. The PIT Act defines an incentive program as one in which eligible individuals acquire the right to actually subscribe for or acquire company shares (equity interests) through the exercise of “financial instruments referred to in Article 3(1)(b) of the Financial Instruments Trading Act.” Subscription warrants, however, are listed in Article 3(1)(a) of that Act, meaning the provisions on incentive programs in the PIT Act do not apply to programs structured around this mechanism.
This interpretation issued by the NSA does not categorically and definitively exclude the possibility of “extending” the provisions on incentive programs in the PIT Act to programs implemented using subscription warrants. Nevertheless, it seems reasonable for taxpayers implementing such programs to analyze whether, in the absence of access to tax preferences, this variant remains beneficial for them.
