20 Oct 2021
Earlier this year, the European Commission announced its latest initiative to help start-ups. For those not familiar with it, the Startup Nations Standard aims to facilitate and encourage entrepreneurship whilst boosting the creation of start-ups across Europe.
The Standard gathers a set of best practices in different areas, from talent to finance, that signatory Member States have committed to implementing to make Europe more start-up friendly. At the time of publication, Invest Europe warmly welcomed the initiative, and continues to do so. Representing active and long-term investors in European start-ups and scale-ups, we believe these best practices have correctly identified the areas where action is needed to make Europe's own next "Silicon Valley".
|Providing the best framework conditions can help the most promising and strategic start-ups stay and flourish in Europe, and grow to compete globally.
From the “Start Up Nations declaration”
These best practices are also a clear example of good intentions from policymakers. Although experience tells us that intentions are too often just paving the way to…somewhere, we have high hopes that Member States will move from intentions to implementation quickly. We're keen to see this reflected in the progress report the new office situated in Lisbon will produce - hopefully soon?
Startup Nations Standard is not the only initiative that has emerged aiming to make Europe a more start-up friendly environment. Scale-up Europe, led by the French President Emmanuel Macron, has called all stakeholders to join forces around start-ups. In June, this group issued a report gathering 21 recommendations aiming at "reinforcing Europe's sovereignty, developing the prosperity of our economies and societies, and achieving the objectives of social cohesion and climate change transitions".
8. Establish competitive stock option schemes in European countries and then align best practices Europe-wide
From “21 initiatives for scaling European tech”
These recommendations to which Invest Europe was proud to be an active contributor cover all areas of the ecosystem and propose concrete actions that governments and other stakeholders need to implement in the upcoming months. More importantly, the forthcoming French Presidency is expected to make these recommendations part of its term priorities.
Overall, the best practices and recommendations put forward by both initiatives try to tackle similar challenges. Both have flagged the need to improve the retention and attraction of talent because the issue of tax cannot be dismissed as merely "a national issue" when the ambitions and the demands are pan-European. Both initiatives rightly agree and call for a change in the tax treatment of employee stock options.
Investors care about employee stock options in the companies we invest in because taxes are not just about gains, profits, and reductions and allowances on our investments. The right taxes can be used to incentivise recruitment and retention of talent for the companies we care about and invest in.
Employee stock options are a form of equity compensation that companies may provide to their employees as part of their remuneration package. Employee stock options represent an attractive incentive for employees, particularly those working in start-ups with huge growth potential… which is usually in the very sectors in which Europe needs to attract and retain talent.
They are also an essential tool for companies, especially those with fewer economic resources but huge growth expectations (again, in the very sectors Europe needs the most to secure transitions and growth) as it allows them to hire employees they couldn’t otherwise afford.
The problem here is not only that European talent will be unhappy with their remuneration package and hence probably be less productive. The problem is that the most talented – those Europeans we need the most for the future – will find jobs in the same crucial sectors in the same type of companies outside Europe in time, moving jobs, growth, and investments with them.
We are well aware that there a legal and political reasons for the heterogeneous treatment of personal tax issues across Europe. But the ambition, need and demand of talent are omnipresent, and the delivery on intentions should therefore be – if not harmonised – then at least synchronised moving forward rapidly on delivery across the European Union.
If we want to meet the 2030 objectives in terms of sustainability and digitalisation whilst doubling the number of European unicorns, important changes need to be implemented. In this sense, countries adopting a favourable tax regime for employee stock options should be one of many first steps to encourage entrepreneurship, job creation and innovation.
At Invest Europe, we believe innovative companies and SMEs are driving the needed transitions, and we will continue advocating for this critical challenge (and others) to be tackled.
Watch this space for further commentary on driving the tax agenda.
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