Employee stock options and the “ten-year rule”

The Swedish Supreme Administrative Court (“HFD”) has, in a ruling on 2 November 2023 (HFD 2023 ref. 53), stated that the ten-year period, for the purposes of the so-called ten-year rule, does not restart after a company initiates business operations of a certain type which is different from the type of business that was operated prior and then terminated.

The ten-year rule is a prerequisite for applying the so-called qualified employee stock option regime, under which a tax relief can be given for stock options that are offered to employees. The ten-year rule means that neither the group nor the business operated can be older than ten years.

In the case at hand, the business was terminated in 2012, and the company deregistered from the Swedish Tax Agency in 2014. The company was then dormant until 2020, when a new business was started, which was different to the business previously operated.

The intention was to transfer the new business to a newly incorporated company. HFD noted, however, that when a business is purchased, the ten-year rule must be fulfilled in respect of both the acquiring company and the transferred business. Further, the rules do not allow for the ten-year rule to be fulfilled when a new business has been ongoing for less than ten years in the same company as a previously operated business, only because the operated business is new. As such, the prerequisite under the ten-year rule was considered to not be fulfilled in the case at hand.