MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

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1 Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. KPMG does not provide assistance regarding the design, implementation or modification of any employee equity plans.

2 With You for Today s Webcast Andrew Gewirtz Tax Managing Director KPMG International Executive Services (IES) Short Hills, New Jersey Achim Mossmann Principal KPMG International Executive Services (IES) New York, NY

3 Framing the Subject Global equity tax deals with the employee and employer tax and financial implications for multinational employers who grant share-based awards or other incentive compensation to international and globally mobile employees Multi-jurisdiction tax and payroll Intercompany transfer of shares in settlement of awards Corporate tax and accounting Policies for international assignees and business travelers (today s topic). Long Term Awards Mobile Employees Regulatory Activity/Tax Compliance

4 Defining Terms for Today s Discussion Types of mobile employees Globally Mobile May or may not be an international assignee International Assignees Expatriate (outbound from home country) Inpatriate (inbound to host location) TCNs (third country nationals) Domestic and International Commuters Permanent transferees Short-term assignees Business travelers

5 The Current Environment No surprises here: Broader use of equity-based awards Focus on financial reporting Long Term Awards Focus on global compliance Corporate monetary and brand risk Increased scrutiny by tax authorities Increased use of globally and domestically mobile workforces Mobile Employees Regulatory Activity/Tax Compliance

6 Settlement and Tax Compliance for Equity-based Awards Hard Harder Hardest International Assignees International Employees Globally Mobile Employees

7 Why Does it Need to be So Hard? Global tax and accounting implications Determine appropriate tax settlement rate Especially important for companies that net settle awards Complex administration Multi-country payroll obligations Global risk exposure Foreign exchange rate changes Ø Employee communications Ø Tracking employee mobility Ø Excess tax cost Ø Tax equalization policy (who, what, when, where, why and how)

8 Issues to Explore During Today s Session HR challenges and realities How do I settle equity awards for international assignees? Should the income be tax equalized? Do I deduct hypothetical or actual tax from the settlement? What if our assignment policies are silent on relevant issues about equity? What do other companies do? How was I supposed to know that? Overall HR balance

9 Today s HR Realities Incentive compensation mix is changing Migration away from traditional stock-options toward Restricted Stock Units (RSUs), Performance Stock Units (PSUs), etc. Broadening scope into more countries as compensation approaches align and globalize Improved linkages to performance management programs Organizations are demanding more from Stock Administration vendors to promote compliance and accurate reporting There s more organizational engagement with internal stock admin groups and compensation with Host Country HR Improved HQ knowledge regarding participants based on global HR systems/erp capabilities

10 Today s HR Challenges Communicating the value and performance message to global workforce Lingering confusion at the local level Perception that equity-based compensation vehicles are less valuable Tax laws on the ground may run contrary to equity compensation objectives Tax Planning and Savings Opportunities Implementation can be problematic Planning opportunities can impede award delivery Struggle to balance variable compensation objectives with cost containment Stock Performance Need to be mindful of stock price performance Performance variables will influence approaches Nimble response when performance is erratic

11 Today s HR Challenges Although globalizing and aligning Differences will linger, know them & manage them Workforce makeup and demographics can vary wildly on the ground Stock Performance Need to be mindful of stock price performance Performance variables will influence approaches Nimble response when performance is erratic

12 Tax Equalization Policy Considerations Is equity compensation personal income or company compensation? What about post assignment years compliance and trailing liabilities? Who is responsible and for how long? Should the company impose restrictions on discretionary transactions? What are implications of exit taxes? Hypo tax deduction or actual tax? What if timing of actual tax event is different than hypothetical taxation?

13 Actual Tax vs. Hypo Tax Actual tax ü Shares sold or withheld from employee to fund global tax obligations Hypo tax ü Shares sold or withheld from employee to fulfill hypo tax obligation in line with policy. ü Actual taxes are paid by the company and require a tax gross-up in most locations Often what is withheld from the assignee is less than what is actually due. Gap must come from company funds. ü What rate to use? Minimum Statutory Withholding requirements apply when net-settled

14 How long is long enough? Equalize for entire lifecycle of the award Most equitable Most costly Most administratively burdensome Limit equalization to assignment period Practical but could leave employees exposed Limit equalization to assignment period + specified number of years Practical and equitable for short cycle awards like RSUs but could leave employees exposed for longer term awards like options or hold to retirement awards No policy Ad hoc/provide assistance as requested

15 KPMG s GAPP Survey Source: KPMG s 2012 Global Assignment Policies & Practices (GAPP) Survey

16 KPMG s GAPP Survey Source: KPMG s 2012 Global Assignment Policies & Practices (GAPP) Survey

17 KPMG s GAPP Survey Source: KPMG s 2012 Global Assignment Policies & Practices (GAPP) Survey

18 And What About..? Should the company cover exit taxes? Is it an assignment expense or business opportunity cost to employee? Who gets benefit of taxes paid? Timing mismatches Tax timing mismatch Tax payment mismatch Tax filing obligations related to trailing liability Does company provide tax preparation assistance? Employees on their own ü If on their own does company provide tax information or advice?

19 HR Policies Multiple policies to consider Compensation Performance Management Tax Equalization Global Mobility Local HR/HQ or Global Policies These policies do not necessarily naturally align Are there philosophical or organizational conflicts? Will the employee be confused? How are conflicts resolved? Is there sufficient organizational engagement? How can communications and expectation-setting be managed?

20 HR Policy Conflicts (examples) More emphasis on RSUs in the overall comp mix, but expatriates will have participation frozen during assignments More emphasis on RSUs in the overall comp mix, but equity compensation is not considered company income in tax equalization Company mandate to lower assignment costs but equity compensation is considered company income and is tax equalized Company is promoting more permanent transfer assignments but equity compensation is not available in all countries Company strives to be more transparent and compliant, but no one knows award levels and employee travel patterns

21 Equity Compensation for International Assignees Weighing the balance for assignee awards Equity Philosophy Goals and Objectives Cost constraints One global plan n Ease of communication n Administrative simplicity n Cost effectiveness n Tax efficiency Local variations to address n Tax disadvantages arising to employees and Company n Local regulatory or exchange control restrictions

22 Equity issues concern the entire organization plan accordingly IT EMPLOYEES: GLOBALLY MOBILE Share Plan Admin INTERNATIONAL ASSIGNEES BUSINESS TRAVELERS

23 Questions or Comments? Andrew Gewirtz Tax Managing Director KPMG International Executive Services (IES) Short Hills, New Jersey (973) Achim Mossmann Principal KPMG International Executive Services (IES) New York City (212)

24 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).