From Abbey Road to Sunset Boulevard The Very Best Practices in Communicating Taxation to Mobile Employees

Transcription

1 From Abbey Road to Sunset Boulevard The Very Best Practices in Communicating Taxation to Mobile Employees Ingrid Freire, Director of Stock Plan Services, Yahoo Sheila Frierson, Regional Manager, Computershare Nathalie Hellio, EALA Director, Accenture Pam Roffe, Manager Share Plans, Royal Dutch Shell

2 COMMUNICATION CHALLENGE A Complex Issue

3 Complexities For Mobile Employees Mobile Employee Assignee (Expat/Inpat/Third Country National) Business Traveler/Commuter Permanent Transferee But don t forget those who don t move, live/work situations and leavers they need communications too!

4 Complexities For Mobile Employees A mobile employee is an employee who works in more than one tax jurisdiction between the grant of an equity award and when the equity award is taxable under local law Under OECD DTT model, the host country, where the activity has been performed in the past and relevant compensation taxed, has the right to tax the income from equity vests/releases by sourcing this from grant to vest/release dates, based on days spent abroad

5 Complexities For Mobile Employees There is a significantly increasing sophistication of tax authorities in some jurisdictions, and focus on trailing liability relating to equity compensation around the world This could generate audits for the company and employees with a high risk exposure on taxes and penalties and employees dissatisfaction Filing tax returns in multiple jurisdictions creates confusion and increases risks for costly errors

6 When Is An Equity Award Taxable? Taxable event varies by tax jurisdiction: Grant Vest Exercise / delivery of vested awards Sale This mismatch can generate: tax differentials for company if tax equal employees Double taxation/planning opportunities Cash issues for non tax equal employees/permanent transfers Requires administrative work to track work days, locations and details of equity grant/delivery dates Involves several years of tax compliance assistance including trailing years post assignment/permanent transfers

7 What Are We Communicating? As employees move from one tax jurisdiction to another, each jurisdiction has the right to tax the employee on the income for the award, thus and employee can end up paying tax in multiple locations. Trailing Tax Liability owing taxes in jurisdiction where you no longer live or work.

8 Common Concerns to Consider Will he/she be tax equalized? Will they pay their own taxes in the host location? What does tax equalization mean? What components of his/her assignment are tax equalized? Will they receive assistance with preparing their taxes?

9 Tax Equalization Defined An agreement between a company and an employee that the employee will pay no more tax than would have if remained working in the Home location.

10 Accenture Challenges Accenture assignments are generally short term (an assignee may only be taxable one year for a short period of time) Equity plans have quite long vesting schedule: 3 years for performance plans 1/3 per year and 5 years cliff vest for promotion to MD grants Hence trailing liabilities taxation can occur several years after the employee was taxable in a given host country which triggers tracking complexities

11 Royal Dutch Shell Challenges Assignments generally 3-4 years but can be shorter Short Term Assignees stay on home payroll for tax purposes (don t break residency) We may have up to 5 country combinations over 3 year vesting period 3 countries is common Tax equalised with trailing liabilities for several years! Data, data, data!

12 COMMUNICATION STRATEGIES Best Practices Shared

13 Accenture Operates in 63 countries Issues equity in 56 countries 300,000 participants 40,000 mobile employees 8,000 taxable

14 Accenture IPO in 2001 SIP implementation for 10 years renewed ESPP for all employees below MD and VEIP for MD Stock option plan stop granting in 2005 (10 years) RSU performance plan for SM and MD (3 years vesting) RSU celebratory plan for promotion to MD (cliff vest year 5) French subplan for qualified stock options French subplan for qualified RSU implemented in 2005 and stopped in 2012 (except for RSU dividend equivalent attached to previous qualified RSU) Value of ACN share: at IPO: $14.5 Current: $80 Listed on NYSE (granted by Ireland plc holding company)

15 Yahoo Approx. 13,000 employees globally Headquartered in California and Incorporated in Delaware Grant types: RSUs, RSAs, NQ Options, and PSUs Issues equity in 35 Countries No. of global participants: RSUs: 10,700 PSUs: 29 ESPP: 7,000 participants Approx. 700 mobile employees with taxable equity

16 Royal Dutch Shell Operates in 90+ countries Issues performance shares in c 60 countries 17,000 awardees each year in incentive plans (excludes all employee plans) 7,000 long-term expat employees circa 3,500 tax equalised people in each vest

17 Royal Dutch Shell Executive Plans Executive Directors/Executive Committee LTIP malus+clawback / performance conditions / 3 year vesting period DBP mandatory deferral of 50% of bonus Senior Executive Group c 170 LTIP as above Others c 17,000 Performance Share Plan malus provisions / performance conditions / 3 year vesting period

18 Timing of Communication Time of Relocation Grant Date Vest Date Exercise Date

19 Communication Tools In-person discussion Equity Administration Websites Grant Notices Transaction Advices

20 Pre-assignment Communications Set expectations up front to avoid confusion and conflict at a later date Conversation can occur during the planning of a relocation Tax Advisor Matrix of tax implications Actual examples provided

21 Grant Date Upon grant date you have an opportunity to grab attention Grant Notice/Award Letter Grant Agreement

22 Grant Date Royal Dutch Shell Each grant is made subject to accepting tax equalisation policy should it ever apply i.e. at grant you might not know you will going on an expat assignment at some point in next 3 years! In all individual award s and in all award certificates.

23 Vest Date An employee has no control of the timing of the event when it comes to the vesting of an award. It is important to ensure the mobile employee understands in advance their tax liability and their options to settle said liability.

24 Exercise Date Generally an employee makes a conscious decision of when to exercise. At the time of exercise, a mobile employee must understand their unique situation and how it effects their trade.

25 Exercise/Vest Date Practices One on One Discussion Include preclearance to control trades Modeling Capabilities Via participant website Transaction Advices

26 Accenture At pre-assignment stage: Forecast of potential tax differential cost During assignment stage: Quarterly accruals booked Tax withholdings sourcing for permanent transfers At post assignment stage: only a few countries have a process in place to manage equity trailing liabilities Manual process

27 Royal Dutch Shell - General Pre assignment briefings NO equity tax calculations are done upfront International Mobility website specific items on equity Tax return support from tax provider Includes support where trailing equity liabilities arise post end of assignment Centralised team to co-ordinate management of mobility tax compliance globally

28 Royal Dutch Shell At Taxable Moment Individual equity tax calculations over 99% automated through Deloitte tool (up to 5 country moves automated) Cliff vest tax calcs for 12,000 people resulting in over 14,000 calculations, including mobiles, processed in a few hours 8 years of work to get to this point! Total transparency hypo calculation and actual tax calculation visible to participant online

29 Yahoo Pre assignment briefings We do not include equity calculations at the pre-meeting Tax return support from tax provider Includes support where trailing equity liabilities arise post end of assignment Small US team to coordinate management of mobility globally

30 Yahoo Individual tax calculations not automated...yet 1 year cliff vesting and monthly vesting for next 36 months for new hires; 48 monthly vesting for exisiting employees (both Options and RSUs) Over 6K international calculations per year In-house tool for Payroll reporting Internal equity website for explaining taxation across locations Withholding amounts viewable online by employee in USD only

31 Equity Administration Websites Partnering with your Equity Administration vendor can help automate communications and provide real time access to potential tax scenarios Grant Notifications Vesting Advice Transaction Advice Participant WEB

32 Participant Website Transaction modeling capabilities Tax matrix Tax allocation details Transaction Advice Repository

33 Transaction Advice Key Details At the time a transaction occurs, an employee should be able to understand their advice, provide it their tax preparers for inclusion in returns, and reconcile to the net proceeds they receive. Taxable income by tax jurisdiction Taxes withheld by tax jurisdiction FX details

34 Royal Dutch Shell Individual tax information online includes specific notes on relevant assumptions Generic tax information Tax FAQ (non equalised employees) Tax FAQ (equalised employees) Country tax guides for each country Interactive high level tax matrix Foreign Asset Reporting Video to show people how to find the calc and info! Query handling through tiered service delivery model in HR service centres with escalation to equity tax mailbox

35 Royal Dutch Shell - example Video

36 Best Practices Summarized Communicate upfront, preferably during the planning stages of an assignment Communicate frequently Understand your tools Lean on your vendors/consultants/service providers

37 Thank You Ingrid Freire Yahoo Nathalie Hellio Accenture Sheila Frierson Computershare Pam Roffe Royal Dutch Shell