r/europe • u/paneuropeanism_ Europe • 13h ago

News Von der Leyen: €300 billion in European savings flown overseas every year, primarily to the US, will be invested in Europe from now on. All 27 EU states agreed to establish the S&I Union, a step toward the full Capital Market Union

https://streamable.com/4h43qk
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u/Hutcho12 8h ago

You do not pay on grant in Germany, only on vest which makes sense.. it is income that of course is taxed..

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u/hardolaf United States of America 8h ago

And what if it's stock in a startup with an illiquid stock, an imaginary valuation driven by investors to make it look more valuable than it is, and no OTC market willing to even entertaining buying the stock at even 1% of the imaginary valuation?

I know that Germany fixed some problems but they still haven't fixed that issue.

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u/Character-Second781 24m ago

a startup with an illiquid stock, an imaginary valuation driven by investors to make it look more valuable than it is, and no OTC market willing to even entertaining buying the stock at even 1% of the imaginary valuation?

Honestly, any country disincentivizing that is probably going to do fine in the long term. Startups don't have to be 50% scam as they can be in the US.

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u/Ingoiolo Europe 4h ago

It doesnt really, if it is a restricted security.

I run a PE fund and I cannot give traditional carry to my German team. For a 10y fund, carry vests a small % per year. So in Germany, employees would be hit by dry tax every year, for something that in 10 years might be worth a lot…. Or nothing

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u/Hutcho12 3h ago

If you can’t sell it, that’s indeed a problem.

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u/CopperSulfateII Europe 7h ago

Paying tax on vesting sucks as much as on grant. 

Just do like the american ISOs. Tax the spread on exercise and give preferential tax treatment after that, or do cashless exercise on exit (ie sale of the option)

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u/Hutcho12 7h ago

I don’t know why you think you should pay less tax on stocks when they’re given to you than cash when it’s given to you.

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u/MilkHaterNumber1 6h ago edited 5h ago

Because you can't buy groceries with stock. Instead just tax when you sell and therefore actually have cash. This isn't complicated.

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u/Hutcho12 5h ago

I'm sorry, that's a really stupid take on this. Just because there is another step in there to buy something, doesn't mean it doesn't belong to you.

Once your company releases those stocks, it is worth something, so you need to pay tax on it.

If your company gifts you a car, you think you shouldn't have to pay tax on it until you sell it?

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u/MilkHaterNumber1 5h ago

If your company gifts you a car, you think you shouldn't have to pay tax on it until you sell it?

If you want people to be able to be paid in cars then yes you shouldn't tax it until you sell. Otherwise, people would have to sell the car to have the cash for the tax. But also this isn't a real comparison obviously because a car is a tangible good.

Have you even considered what happens if the stock you've paid tax on suddenly goes to $0? Now you're out that "income" and you've paid tax on literally nothing.

Congratulations on your dumb ass plan.

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u/Infamous_Thought_189 3h ago

What happens in the US in that case? Do you pay income tax when you sell the stock? Or is it seen as 'wealth'?

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u/MilkHaterNumber1 2h ago edited 2h ago

It really depends.

So if you're paid straight up RSUs then it's taxed as ordinary income at vesting at the fair market price like in a lot of Europe. You can then hold the stock if you want and you'd only pay any capital gains taxes once you sell. This is fine for a highly liquid stock like Google's but maybe not so great for a volatile or illiquid stock.

Incentive Stock Options (ISOs) on the otherhand basically means you get a guaranteed price to buy the stock at and can choose when to buy. If you're guaranteed a $5 price and it goes to $25 then you get a $20 discount on the purchase. Then you only get taxed when you sell, generally. High earners may still owe a tax at exercise but it can sometimes then come back as a tax credit in the future... It gets complicated.

There's lots of other options too. Things like retirement accounts also impact how your taxed. The US tax code is insanity tbh, but can be taken advantage of if you know how it works.

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u/Hutcho12 5h ago

That’s the risk you take if you hold onto it, just like if you buy a stock with your paycheck. If you’re worried about this, sell them immediately.

There is no way they are going to change to a system where you pay your income tax on your stocks when you sell them. You could end up deferring it forever when in reality it is part of your compensation for a particular year.

If this worked, there would be a whole load of loopholes, eg. people get paid in “Neuros” which can be converted to euros whenever you want and you only pay tax when you convert them.

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u/TFPaulMorphy 5h ago

If you’re worried about this, sell them immediately.

What if you can't sell because its highly illiquid?

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u/CopperSulfateII Europe 5h ago

This is why you don't give stock but stock options. 

Employees get to exercise those options once vested, which costs cash because you're buying them from the company. 

The difference in value of the underlying stock between when the options were granted and what it's worth today is a spread you tax. 

So for employees it's never free. They're still paying money to the company for buying stock, but at a locked-in price on which the benefit of that lower price (if the company has grown since) is compensated by tax on the spread. 

Finally when they then sell the stock they own they pay capital gains tax. 

This is how it works in countries with good employee stock options systems. These are always limited to employees only. 

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u/MilkHaterNumber1 5h ago

Surely you can tell that relying on a strawman to make your point when we have functioning real world examples to look at makes you the idiot.

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u/Foreign_Telephone349 6h ago

Because it helps drive investment and innovation…people that owe a massive tax bill on illiquid private stock options are just going to move abroad to more business friendly countries, like they currently do.

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u/CopperSulfateII Europe 5h ago

You should ask your friendly neighborhood llm to explain: Employee Stock options (ESOP), Exercise, Strike, Tax on spread, Tax on sale, FMV, Cashless exercise on exit. 

It'll help. 

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u/Hutcho12 5h ago

Options is a different matter. I’m talking about receiving stocks as part of your compensation. This is income, and should be taxed as such as soon as the stocks become yours.

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u/CopperSulfateII Europe 5h ago

I mean this is done by options for employees. Even in countries with terribly disadvantageous tax systems for it.