Emerging company tax issues: from startup to scale

A report on a session at the IBA’s 26th Annual US and Europe Tax Practice Trends Conference held in Rome on 16 April 2026

Session Co-Chairs

Morgan Klinzing Troutman, Pepper Locke, Philadelphia  

Amelia O’Beirne, A&L Goodbody, Dublin

Speakers

Marco Adda, Bonelli Erede Lombardi Pappalardo, Milan

Luis Cuesta, Gómez-Acebo & Pombo, Madrid

Wojciech Marszalkowski, Wardyński & Partners, Warsaw

Jennifer Migliori, Duane Morris, Philadelphia and Miami

Christian Sjöqvist, Setterwalls, Stockholm

Ioanna Barmpa, Kyriakides Georgopoulos, Athens

Reporter

Jesper Møller
BAHR, Copenhagen
jmo@bahr.com

Introduction

The panel explored tax issues arising at every stage of a high-growth company’s lifecycle.

Co-chair Amelia O’Beirne framed the discussion around the venture capital ecosystem, and fellow co-chair Morgan Klinzing Troutman provided a snapshot of the global venture market, noting that total venture capital investment in 2025 reached $469bn globally, of which 64 per cent was directed at US-based companies and 14.5 per cent at European companies.

Within Europe, the United Kingdom, France and Germany together comprised approximately 55 per cent of total European venture investment, with key sectors including artificial intelligence (AI), financial services, healthcare and life sciences.

Panel discussion

Incorporation

The panel briefly addressed the choice of jurisdiction for incorporation, framed around a hypothetical scenario in which a technology company (‘TechCo’) is founded to develop an AI-driven workflow automation platform for small to medium-sized enterprises (SMEs). The decision on where to incorporate is influenced by investor expectations, access to capital markets and the local tax environment.

Early-stage funding

Jennifer Migliori opened the discussion on early-stage funding with a focus on the US portfolio interest exemption. A foreign person can generally sell US stock without triggering US tax.

Interest on debt owed to a foreign lender by a US company may qualify for the portfolio interest exemption, resulting in no withholding tax, provided that the lender does not own ten per cent or more of the voting rights of the borrower. In the hypothetical, TechCo raises $20m from three venture capital (VC) funds – $10m of convertible debt and $10m of preferred equity – with 20 per cent equity given to investors.

A high proportion of debt can be a planning technique to ensure the lender does not become a ’ten per cent shareholder’. Convertible debt is particularly attractive: it is treated as a loan eligible for the portfolio interest exemption, while providing upside through the conversion right. Debt holders also enjoy a preferred position over equity in bankruptcy.

Marco Adda discussed the Italian regime for incentivising investment in startups. An investor making a cash contribution to a qualifying startup may deduct up to 30 per cent of the investment (maximum €1m for IRPEF (personal income tax) taxpayers). To qualify, the startup must not exceed €5m in annual turnover and must not have distributed profits. A minimum three-year holding period applies, and each participation must not exceed 25 per cent of the shareholding. The regime extends to branches and permanent establishments in Italy and may be combined with the Italian flat-tax regime for non-domiciled individuals (the ‘golden visa’). Convertible debt may qualify, but the tax benefit is only available in the year of conversion.

Luis Cuesta discussed preferred equity from a Spanish perspective. In a typical venture structure, funds hold preferred shares while founders sit lower in the distribution waterfall. The Spanish tax authorities have taken the position in certain binding rulings that creating different share classes may trigger capital gains for founders – a ‘dry tax’ charge that could discourage investment. Mitigation strategies include incorporating through a holding vehicle and relying on shareholders’ agreements (which do not alter the share class structure at the corporate law level) rather than amending the articles of association.

Migliori introduced Simple Agreements for Future Equity (SAFEs) as an alternative to traditional equity and convertible debt. A SAFE is neither debt nor equity – the investor contributes funds in exchange for the right to receive equity upon a specified milestone. SAFE holders may, under standard contractual terms, receive their investment back ahead of ordinary shareholders in a dissolution scenario, and a SAFE is not reflected as debt on the balance sheet.

Migration of TechCo

Cuesta addressed the ‘Delaware flip’ – the migration of a European startup’s holding structure to the US. Investors often demand a Delaware company, partly due to familiarity with US law.

From a Spanish perspective, there are two principal routes. First, shareholders incorporate a Delaware holding company and contribute their shares, but individual shareholders holding less than five per cent cannot benefit from the Spanish participation exemption and face capital gains tax, while those with five per cent or more may defer or exempt the gain. Second, the company may be redomiciled directly to Delaware – no capital gains tax is triggered provided Spanish assets remain in Spain, but the process is more complex and costly. Cross-border mergers are an alternative but rarely used.

Ioanna Barmpa provided the Greek perspective. The tax authorities have pursued cases on substance, applying permanent establishment (PE) and place of effective management (POEM) rules to allocate income to, or away from, Greece. Companies are increasingly moving back to Greece to mitigate tax risks, and such migration – whether through transfer of real seat or cross-border merger – can be achieved tax-exempt. Under Article 5C of the Greek Income Tax Code, individuals transferring their tax residence to Greece may benefit from a 50 per cent exemption on employment income for seven years, provided they have been non-Greek tax resident for at least five of the preceding six years.

Marco noted from an Italian perspective that moving a startup abroad may allow investors to benefit from the participation exemption on a subsequent sale. However, this must be weighed against the trend toward stricter exit tax and shareholder-level taxation rules.

Employee grants and stock-based compensation

In the hypothetical scenario, TechCo introduces an equity incentive plan in 2022, allocating ten per cent of fully diluted share capital to attract and retain key talent. The panel discussed how such programmes are treated across their respective jurisdictions.

Christian Sjöqvist discussed the Swedish regime for qualified employee stock options (QESOs), introduced on 1 January 2022 for startups with fewer than 150 employees, net revenue or balance sheet not exceeding approximately €28m and a business age of no more than ten years. Options must have a vesting period of three to ten years. No taxation or social security contributions arise at grant or exercise – the entire gain is taxed as capital income only upon sale. A further planning opportunity exists where employees transfer shares to a holding company below fair market value, deferring taxation until distributions are made.

Barmpa outlined the Greek regime. For stock options, no taxation arises at grant or exercise; the tax event is triggered upon sale. If exit occurs within 25 months of grant, the benefit is taxed as employment income (up to 45 per cent); after 25 months, a flat 15 per cent tax applies. Appreciation above the exercise value is taxed as capital gains at 15 per cent. For free shares, taxation is deferred until exit at a 15 per cent capital gains rate.

Wojciech Marszalkowski discussed the Polish position. Poland has approximately 400,000 programmers and active incentive schemes for talent. Qualified schemes (adopted by resolution of the general meeting) trigger no taxation at grant or exercise; the gain is taxed as capital gains at 19 per cent upon sale. For non-qualified schemes, the benefit at exercise is taxed as ordinary income (nil per cent, 12 per cent or 32 per cent), with capital gains at 19 per cent on subsequent sale. Self-employed individuals may benefit from three per cent lump-sum taxation at exercise, with 19 per cent capital gains on sale. A four per cent solidarity surcharge applies on income exceeding approximately €250,000.

Adda described the Italian regime, which offers two kinds of incentives for qualifying startups. Shares or financial instruments received by employees, directors or external consultants of qualifying startups are not subject to income taxation at the time of grant or exercise in respect of the ‘work income’ component, provided certain conditions are met. The subsequent sale of shares is subject to capital gains tax at 26 per cent.

Exit events

Migliori discussed US exit incentives. The qualified small business stock (QSBS) exclusion may apply where the company is a C corporation with at least 80 per cent active business, gross assets not exceeding $75m and shares held by non-corporate taxpayers. The qualified opportunity zone (QOZ) programme allows investors to defer US-source capital gains by reinvesting in a qualified opportunity fund. The portfolio interest exemption ensures that interest payments to foreign lenders and repayment of principal are not subject to US tax.

Barmpa discussed the Greek holding company regime. Non-Greek investors are generally not taxed on the sale of shares. The regime provides exemptions on dividends from qualifying subsidiaries (subject to a bank guarantee) and on capital gains after a 24-month holding period, potentially extending to third-country subsidiaries. Greece has an extensive treaty network, though the regime may be less attractive for US investors given the outdated Greece-US DTA, which provides less favourable withholding tax rates on dividends.

Sjöqvist addressed Swedish exit considerations. Capital gains on listed shares are taxed at 30 per cent (25 per cent for non-listed shares). Under the restructuring regime, shares can be transferred to a holding company tax-free, and the holding company can sell them without capital gains tax. For an initial public offering (IPO), the holding company must own at least ten per cent of the voting rights for one year to preserve the participation exemption; different share classes are often introduced to manage this threshold.

Marszalkowski discussed Polish exit structures, including holding companies (with participation exemptions subject to holding period requirements), alternative investment companies (ASI) and qualified closed-end investment funds. He highlighted the growing use of Polish family foundations – with approximately 6,500 established to date – as succession planning and tax deferral vehicles. Family foundations replacing individuals as investors in alternative investment companies benefit from non-taxation at the AIC level and a 15 per cent tax on distributions to individuals.

The final discussion concerned earn-out and holdback arrangements. In the hypothetical, TechCo is acquired at approximately $25m, with a retention holdback of 50 per cent payable to each founder over two to four years, subject to continued employment.

Adda noted that in Italy, earn-out payments may be recharacterised as employment income with social security implications, and a carried interest analysis could apply.

Sjöqvist confirmed similar issues in Sweden, where a strong connection to continued employment may lead to recharacterisation of proceeds as salary rather than capital gains.