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Rutgers Law Journal



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Stock options, employee compensation, equity price, compensatory option, global stock option


Once awarded exclusively to upper management, stock options are now granted increasingly to rank-and-file employees and are becoming a greater component of employee compensation. The expanding use of stock options is undoubtedly due in part to the large increase in equity prices over the last twenty years. Further fueling the demand was the Internet start-up boom of the late 1990s, the spectacular financial success of many technology and computer companies, notably Microsoft and Oracle, and the well- publicized lucre acquired by their employees. The collapse of the initial public offerings market for Internet start-up companies at the dawn of the twenty-first century, accompanied by the rapid decline in the stock prices of many companies in technology-related sectors, served to apprise employees that option returns are risky. Microsoft's recent announcement that it plans to replace its option program with a restricted stock program will undoubtedly cause many companies to reevaluate their use of compensatory options. Nevertheless, it appears that options will continue to be an important part of employee compensation. This Article examines the international tax issues raised by global stock option plans. It first examines the financial reasons for and unique issues raised by granting employees stock options and the U.S. accounting treatment of stock option plans. It then reviews the U.S. and tax treaty rules applicable to holders and issuers of non-qualified stock options and examines the conflicts that arise when a compensatory option holder or option income is subject to the tax jurisdiction of more than one country. Finally, it considers unilateral, bilateral, and multilateral policy options of tax administrators in the face of the global stock option plans. This Article argues that the United States should consider unilaterally amending its foreign tax credit regime to prevent the double taxation of option holders, incorporate option provisions in its income tax treaties, and support the general multilateral approach set forth in the OECD Report.