Newsletter
SECURITIES TRANSACTION TAX PAYABLE ON TREASURY STOCK SALES TO EMPLOYEES
In an interpretation dated 26 June 2001, the MOF stated that when a company buys back its own stock in accordance with Article 28-2 of the Securities and Exchange Law (SEL), and sub-sequently transfers such stock to employees at the agreed stock option exercise price, the transfer is a securities trade, on which securities transaction tax is payable under the Statute of Securities Transaction Tax (SSTT).
Article 1 of the SSTT provides that securities transaction tax is payable on any trade in securi-ties other than government bonds. The MOF has consistently maintained in its legal interpreta-tions that companies' issuances of new shares are primary market transactions, not securities trad-ing, and that securities transaction tax is only payable on subsequent secondary market trading. But when a company buys back its own shares in order to honor employee stock options, as al-lowed by Article 28-2 of the SEL, and transfers such shares to an employee at the relevant exer-cise price, this is not an initial issuance of shares, but a subsequent trade, and therefore falls within the scope of transactions on which securities transaction tax is payable. Hence companies should not make the mistake of thinking that all sales by a company of its own shares are exempt from securities transaction tax.