Global equity compensation Recent legislative updates

Transcription

1 Global equity compensation Recent legislative updates Country Summaries January 2012 Edition (for a more comprehensive discussion, please see the "Country Discussions" section below) Belgium Belgian social taxes may apply to all equity award income The Belgian government recently announced the potential introduction of Belgian social taxes to all equity award income. The social taxes would be due regardless of whether the costs of the award are recharged by the parent company to the local employer and regardless of whether the local employer is involved in the administration of the equity incentive plan. These provisions are currently being discussed and it is expected that further details will be released in the coming months. Increase in taxability of stock options at grant Effective January 1, 2012, stock options, with a 10-year term, subject to tax at grant in Belgium will be taxed on 23% (up from 20%) of the share value on the grant/offer PwC Global Equity Compensation 1

2 date. If the employee agrees not to exercise the stock options for three years after the grant date and is thus eligible for tax-favored treatment, the options will be taxed on 11.5% (up from 10%) of the share value on the grant/offer date. Japan Employer reporting of offshore equity-based compensation income As part of the proposed tax reforms released by the Japan Tax Commission, beginning with the 2012 tax year, compensation income recognized by employees in Japan from equity awards granted under an offshore plan would need to be reported by the local employer to the tax authorities by March 31, Malaysia Employer reporting requirements for employee share plans In preparation for the 2011 Malaysian personal tax return filing season, PwC- Malaysia has provided information regarding the annual Form EA and E reporting requirements, as well as the periodic notification requirements via Form BT/ESOS/2005 together with Appendices A and C. United Kingdom Change in withholding tax rates for former employees From April 6, 2012, we understand there will likely be a change in withholding requirements for share based payments made to former employees. Instead of withholding tax at the basic rate of tax (currently 20%), a zero T (or "0T") code will be used instead, which generally means that more tax is deducted than would have been if only the basic rate was applied. United States GPS/ESPP launch The Certified Equity Professional Institute (CEPI) at Santa Clara University is pleased to announce the release of GPS/ ESPP which seeks to provide practical advice for companies evaluating or currently offering ESPPs. With the increased interest in ESPPs recently and the broad nature of ESPPs, it has never been more important to ensure perfectly smooth administration and financial reporting for these plans. PwC Global Equity Compensation 2

3 Country Discussions Belgium Belgian social taxes may apply to all equity award income Currently, Belgian social security taxes do not arise on equity income for Belgian employees if the costs associated with the equity award are not recharged to the local employer by the Parent, and the local Belgian employer is not involved in the administration of the equity plan. The government recently announced a measure to review the social security tax treatment of equity award benefits granted to employees and as a consequence, it may mean that social taxes could now be due regardless of whether the local employer bears the costs of the awards or is involved in administering the plan. This potential change is under discussion and further details are expected to be released in the coming months. Increase in taxability of stock options at grant Belgium taxes stock options on the 60th day following the offer date provided the employee has accepted the offer in writing no later than the 60th day following the offer. The offer date is the date when the employee receives written notification of the grant date, the exercise price and the vesting schedule. If stock options are accepted after the 60-day period following the offer, or are not explicitly accepted in writing, they will be taxed at the time of exercise. For options taxed at grant, the taxable amount is computed as the sum of (i) the "taxable percentage" of the fair market value of the shares on the offer date and (ii) the difference, if any, between the fair market value of the shares on the offer date and the exercise price. Until December 31, 2011, the taxable percentage was 15% for options that had a life of 5 years. For options that had a life of more than 5 years, the taxable percentage was increased by 1% for each additional year so that an option with a 10 year life was taxed at 20% of the value of the underlying shares on the offer date. If the employee agrees not to exercise the stock options for three years after the grant date and thus becomes eligible for tax-favored treatment, the percentages of 15% and 1% could be reduced by half to 7.5% and 0.5%, respectively. Effective January 1, 2012, the taxable percentage of the options will increase from 15% to 18% of the value of the underlying shares on the offer date. Thus, for an option with a life of 10 years, the taxable percentage will increase from 20% to 23%. For options with a 10 year life and that qualify for tax-favored treatment, the taxable value will be 11.5% of the value of the underlying shares on the offer date, up from 10% from PwC Global Equity Compensation 3

4 Japan Employer reporting of offshore equity-based compensation income Historically, Japanese employers were not required to report equity income received by an employee from an "offshore plan" provided the local employer was not involved in the delivery of cash and/or shares to the employee. Thus, where the shares underlying the equity award grants were granted by a foreign parent company and the equity incentive plan was administered outside Japan, the plan would be considered an offshore plan and there were no employer reporting requirements in relation to the income recognized by employees in Japan. On December 10, 2011, the Japan Tax Commission released their 2012 proposed tax reforms. Included in these reforms was a proposal that beginning with the 2012 tax year, equity award income recognized by employees and directors resident in Japan from an offshore plan would need to be reported to the tax authorities by March 31, 2013, by the offshore company's subsidiary or branch office in Japan. The reform proposal indicates that the requirement would apply to Japanese subsidiaries that are owned 50% or more by a foreign entity or Japan branch offices of a foreign entity that provides or pays the equity compensation. This change has not been signed into law yet and we will provide further updates as they become available. Please see the attached Global Watch (Japan) for more detailed information regarding this and other proposed changes. Malaysia Employer reporting requirements for employee share plans In preparation for the 2011 personal tax return filing season, PwC-Malaysia has provided details regarding important employer reporting requirements in relation to employee share plans. Form EA and Form E reports the income received by each employee in 2011 and includes any taxable equity income (e.g. stock options/rsu, etc.). The Form EA (2011 annual income statement) must be distributed to employees by February 29, 2012, while the Form E (Return of Remuneration by an employer) must be filed by March 31, Form BT/ESOS/2005 is the Malaysian tax authorities' employer share plan notification form. For each share plan implemented in Malaysia, the local employer is required to submit an initial notification through the Form BT/ESOS/2005, together with Appendix A, to the Tax Policy Department of the Inland Revenue Board within PwC Global Equity Compensation 4

5 30 days following the grant date, or if applicable, the expiration of the offer acceptance period. In addition to the initial notification when the plan is first launched in Malaysia, the local employer is also required to periodically submit to the Inland Revenue Board: (1) the completed Form BT/ESOS/2005 together with the list of employees who have accepted the offer (Appendix A) for grants under the Plan during the year and (2) the list of employees who have exercised options/purchased shares/vested in restricted awards during the year (Appendix C). The Internal Revenue Board recommends that this filing be completed at the beginning of each calendar year. PwC-Malaysia is happy to assist with either of these reporting requirements. Please see the attached flyer for more details regarding these reporting requirements. United Kingdom Change in withholding tax rates for former employees From April 6, 2011, cash payments made to employees after termination of employment and after the Form P45 is issued were no longer subject to withholding at the basic rate of tax of 20%. Instead, a zero T (or "0T") code must be used. This generally means that more tax is deducted than would have been if the basic rate was applied. However, this change did not affect share based payments, which continued to be subject to withholding at the basic rate. Beginning April 6, 2012, there will likely be a change in withholding requirements for share based payments made to former employees, subjecting the payments to the 0T code. While this change may be unpopular among some companies, it may be welcomed by others, as it will remove the need to run two different tax codes for former employees and may simplify things from an administrative perspective. We expect there to be a short period of consultation on the new regulations to be introduced to implement this change with a view to their being effective from April 6, United States GPS/ESPP Launch The Certified Equity Professional Institute (CEPI) at Santa Clara University is pleased to announce the release of GPS/ ESPP to provide practical advice for companies evaluating or currently offering ESPPs. With recent increased interest in ESPPs and the broad nature of ESPPs, it has never been more important to ensure perfectly smooth administration and financial reporting for these plans. PwC Global Equity Compensation 5

6 This publication is an excellent tool to understand employee stock purchase plans, both IRC Section 423 and non-423 plans, and to improve administration and financial reporting for these plans. The publication provides resources for companies to evaluate different plan designs and compare financial costs, as well as understand how to effectively offer 423 plans in non-us jurisdictions without jeopardizing favorable US tax treatment. GPS/ ESPP includes extensive coverage of design features and how different design requires different administrative processes, as well as detailed information on plan enrollment, contributions, purchase activities and tax issues. The publication is available to download at no cost at: Additional information can be obtained on CEPI News and Events page: PwC Global Equity Compensation 6

7 Contact information For more information about any of these developments, please feel free to contact any of our team members listed below. Philadelphia, PA Bill Dunn (Partner) AmyLynn Flood (Partner) Kerri McKenna Michael Shapson Stamford, CT Heather Royce Los Angeles, CA Aldona Gorman New York, NY Parmjit Sandhu Ari Solomon Chicago, IL Andrew Katsoudas Anne Roest San Jose, CA / San Francisco, CA Julie Rumberger Brad Reynolds Karolyn Sadowski* *currently seconded to Zurich, Switzerland This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. SOLICITATION 2012 PricewaterhouseCoopers LLP. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers LLP, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. PwC Global Equity Compensation 7