Under the previous regime, if certain conditions were met (eg that the underlying shares had to be listed at a stock exchange), no income tax was applicable on the difference between (a) the fair market value of the shares at the exercise date; and (b) the strike price of the option (the excess).

Under the new regime introduced in August 2008 the excess will be treated as taxable employment income subject to personal income tax (IRPE F) at progressive tax rates. IRPE F will be levied by the employer acting as withholding tax agent. As confirmed by the Italian tax authorities in early September, this new regime will apply on stock options exercised as of 25 June 2008, regardless of the date of approval of the relevant stock option plan. The new law does not provide for any ‘grandfathering’ clause for stock option plan approved before 25 June 2008.

Furthermore, the same law provides that the social contribution exemption on the excess applies on stock options exercised as of 25 June 2008, even in the absence of a tax exemption (previously, the excess was not subject to social contribution to the extent that – and only if – the tax exemption applied).