2012 Deloitte Global Equity Plan Survey Sharing Value

Transcription

1 2012 Deloitte Global Equity Plan Survey Sharing Value Ohio Chapter NASPP Meeting Stephanie Linn, Deloitte Tax LLP Tammy Negrillo, Deloitte Tax LLP December 13, 2012

2 Agenda Introduction 2 Survey methodology and demographics 3 What types of plans are companies operating? 8 Why do companies operate specific plans? 13 Who participates in these plans? 19 How do companies manage their equity plans? 21 Country specific matters and challenges 36 Questions and contact information 40 1

3 Introduction, methodology, and participants The 2012 Deloitte Global Equity Survey provides an analysis of global equity plans operated by large multinational public or private companies. Responses received from 105 companies operating 270 equity plans Companies were headquartered in the following locations: Australia Canada Denmark Finland Germany Hong Kong Japan Luxembourg Netherlands Sweden UK U.S. As used in this document, Deloitte means Deloitte Tax LLP, a subsidiary of Deloitte LLP. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. 2

4 Introduction, methodology, and participants (cont.) The map shows the proportion of Survey participants by the region in which the companies headquarters are based. Responses were received from companies operating across a broad spectrum of industries. 17% 7% 62% 14% UK U.S. Rest of the world Europe 3

5 Introduction, methodology, and participants (cont.) The following chart demonstrates the proportion of respondents (excluding two private companies) falling into four market capitalisation brackets. USD m Greater than 16,000m 4,800m - 16,000m 1,600m 4,800m Less than 1,600m 4

6 Introduction, methodology, and participants (cont.) 50% of companies surveyed operate equity incentive plans in more than 20 countries 5

7 Polling question: Pressing issues What are your most pressing initiatives concerning your global equity plan? Determination of what types of plan to operate and where Determining award size for relevant populations Setting up/administrating tax favored plans Determining when and by which means to communicate to plan participants Implementing recharge agreements Managing compliance for mobile employees 6

8 Results of our 2012 Global Equity Plan Survey We have structured the results around five main themes: What types of plans are companies operating? How has this changed in recent years? Why do companies operate specific plans? Plan design and reasons for implementing a global equity plan Who participates in these plans? Is a global equity plan truly global, or is it sometimes too difficult or costly to offer in each country? How do companies manage their equity plans? How do companies manage the compliance and administration requirements? What forms of communications are used? How do companies respond to country specific changes? What country(s) are seeing the most change/in recent years? 7

9 What types of plans are companies operating? Free awards such as RSUs and PSPs are now the most common type of award across all regions. 8

10 What types of plans are companies operating? (cont.) There is a strong prevalence of share purchase type plans (either at a discount to market value or with a company match) in operation in the UK compared to any other type of plan. 9

11 What types of plans are companies operating? (cont.) The use of share options is strongest in the US compared to any other region. 10

12 What types of plans are companies operating? (cont.) Restricted stock plans make up 11% of broad based plans and 20% of executive plans across the rest of the world (including Europe), higher than for any other region. 11

13 Length of vesting period 12

14 Why do companies operate equity plans? We asked companies to consider a range of factors that determine the reasons why they make awards to their employees and rank these according to importance We found that equity plans meet different needs depending on whether they are broad based or executive plans For both broad based and executive plans, the following factors were considered to be the most important: align the interests of employees with those of shareholders encourage share ownership utilize as retention mechanism For executives, incentivizing employees to achieve performance targets was equally important 13

15 Why do companies operate equity plans Executive plans 14

16 Tax Favored Plans 44% of respondents operate some form of qualified plan The main reasons why companies do not take advantage of local tax benefits were: companies do not have a significant number of employees to justify the costs or administration involved (50%) it is too complex to administer (33%) 15

17 Hot topic France Increase of employee and employer social contributions on qualified stock options and free shares. An additional budget act has been voted by the French Parliament on August16 th, The employer social contribution payable on the value of an option or share at the time of grant has been increased from 14% to 30%. The new taxation rate is applicable for options and free shares granted as from July 11 th It still remains advantageous for companies to remain in the scope of a French qualified plan. 30% rate is applicable on the taxable basis determined at the grant date, whereas in case of a non-qualified plan the social security rates would range from 26,5% to 45% of the gain realized at exercise date (for options) and at vesting date (for free shares). 16

18 Hot topic France In case of increase in value of the shares between grant and exercise/vesting, qualified plans will continue to offer cost saving opportunities for companies Assessing the 30% social contribution on the fair value of the options/shares in order to reduce the basis of this social contribution will increase the cost advantage for a company to remain in the scope of a French qualified plan. This rise complements changes that have already occurred since January 1, 2012: New reporting obligations applicable to stock options, free shares and BSPCEs Application of the withholding on gains related to grants made as from June 20, 2007 and resulting from the exercise of options / from the vesting of free shares realized by nonresidents as from April 1 st, 2011(OECD principles on gains sourcing) 17

19 Equity Plan Opportunities Identifying opportunities that deliver a greater after-tax benefit to participants at a lower out-of-pocket cost to the company Three Specific Opportunities to Consider: 1) Timing of taxation to the employee 2) Plan modifications to increase benefit for employee and/or reduce cost to employer 3) Type of equity award to be provided 18

20 Who participates in equity plans? The results suggested that the majority of companies (73%) used the same participation criteria globally to determine whether employees should participate in equity incentive plans. 19

21 Polling question: Communication What forms of communication does your company use in the operation of its equity plans? Newsletters Meetings/presentations Social Media (e.g., Facebook, Twitter) Outside administrator s website Booklets Intranet Other At what point during the equity cycle does your company communicate with its employees regarding their equity Award/Grant Moment of taxation (award/grant, vest, exercise) Changes in tax or regulatory requirements No communication 20

22 How do companies communicate their equity plans? Only 1% of companies currently use social media as a method of communicating with their employees; is by far the most frequently utilized method. 21

23 How do companies manage their equity plans? 52% of all companies confirmed that they did provide high level country-specific employee tax advice, with 15% of all companies including detailed information. A fewer number of European headquartered companies (40%) confirmed that they do not provide any type of tax specific advice to their employees. 22

24 Hot topic Japan 2013 equity reporting requirement Before Before January 2013: There were no employer reporting and/or income tax withholding requirements in Japan when employees who are tax residents of Japan received income from equity awards (e.g., stock options, performance shares, restricted stock units) from the foreign parent entity if the long-term incentive plan was administered outside of Japan. Instead, the employee was responsible for reporting the income from equity awards on his or her individual income tax return for the year in which the taxable event arose (due March 15 following the tax year end, December 31). Tax audits exposed cases of significant levels of under-reporting of equity income and therefore a new reporting requirement was implemented as part of the 2012 tax reforms in Japan. 23

25 Hot topic Japan 2013 equity reporting requirement After From January 2013 forward: Japanese subsidiaries that are owned (directly or indirectly) 50% or more by a foreign entity, and Japanese branches of foreign entities, will be required to submit annual equity reporting statement(s) to the Japanese National Tax Agency (NTA) detailing any income realized from equity awards (including cash awards where the underlying value of the award is based on share value) for Japanese tax resident employees and directors. The Japanese NTA requires a separate statement for each relevant employee. The statement is due by March 31 of the year following the year of income realization, with the first statement due March 31, 2013 for income earned in

26 Hot topic Japan 2013 equity reporting requirement - Addressing risk elements Potential Penalties: Failure to submit an equity reporting statement may attract the same penalties as failure to submit a Shiharai-choshuhyou (Annual Wage statement). The maximum allowable penalty is a prison sentence for the responsible party (i.e., the CEO) of the Japanese entity. Please note that in practice, the Japanese NTA has assessed financial penalties for failure to submit a wage statement. Typical penalties which have been levied are approximately 200, ,000 JPY (2,500 USD 6,400 USD) and vary based on the degree of failure (failure to submit one form being treated less severely than failure to submit one hundred). The extent to which the authorities may prosecute for failure to comply with the new requirement is unclear. Identification of non-disclosing individuals: Upon receipt of the equity reporting statement, the Japanese NTA will cross-reference the data received against individual income tax returns and will identify individuals who have failed to make the necessary disclosures. Beginning in 2013, if the Japanese NTA identify an underpayment of tax in one year, they will be able to look back up to 5 years to recover any unpaid tax and apply interest and penalties to the individual (if no withholding requirement applies). There may also be damage to the company s reputation with the Japanese NTA if the company is seen to have failed in its duty as an employer to inform employees that equity income should be disclosed in an employee s individual income tax return. 25

27 Obtaining professional advice on compliance issues 26

28 Increasing Corporate Tax Deductions Global Intercompany Recharge A U.S. employer can generally claim a deduction for the spread on equity-based compensation delivered to its U.S. employees: Fair Market Value of Stock at Acquisition - Price Paid by Employee to Acquire Shares (if any) Spread or Bargain Purchase Element For grants made to employees of foreign subsidiaries, the spread is generally NOT deductible for the U.S. employer (no employer/employee relationship) nor the foreign subsidiary (no economic cost) For most locations, a local tax deduction can be achieved by requiring the overseas employer to reimburse the U.S. company for the value of stock-based compensation awarded to its employees 27

29 Increasing Corporate Tax Deductions Global Intercompany Recharge (cont.) A global corporate recharge program can enhance the value of a company s global equity programs by: Obtaining tax deductions in jurisdictions where otherwise they might not be available Repatriating cash from subsidiaries to the parent company in a tax efficient manner (i.e. creation of positive cash flow) Favorably impacting company expenses awards under FAS123R Reducing global corporate tax rates, and Addressing global compliance issues and thus assisting with risk management 28

30 How do companies recharge? 57% of UK companies responded that they use the IFRS2 or equivalent accounting value as the cost on which they base their recharges. 29

31 Globally mobile employees What is an equity award trailing liability? An employee may be granted an equity award in one country, vest in that award in a second country, exercise in a third country, and ultimately sell the shares in a fourth country There could be employer reporting and withholding as well as individual tax implications in each jurisdiction Grant Vest Deemed Exercise Exercise Sale Stock options Belgium South Africa Singapore United Kingdom Chile 30

32 Globally mobile employees Changing compliance environment 1 Decreased revenue bases Decreasing revenue bases, along with technological improvements, create enhanced capacity and more potential challenges by tax authorities during audits, stricter enforcement of legislation, and less leniency in the negotiation of settlements and/or assessment of penalties. Decreases in company revenues result in less resources, technological and personnel, available to monitor and facilitate compliant operations. 1 Increased audit risk 4 Continuously changing 2 regulations 4 2 Challenge to keep current on Legislative constantly changing legislation, Compliance Increased updates scrutiny which increases exponentially as mobility creates need to understand interaction of regulations across jurisdictions. Public scrutiny (media and institutional shareholders) Commercial impact of negative publicity regarding non-compliant behaviors can have greater impact than fines/penalties assessed by regulators. 3 Acceptable risk profile 3 Management s risk tolerance Changes in management accountability and disclosure requirements have changed C-suite s perspective on what constitutes acceptable risk. Changing demographics for mobile employees impacts areas of focus. 31

33 Globally mobile employees - Why focus now? An international perspective There is an increasing need for governments to find new sources of revenue. According to the CIA World Fact Book 1, government spending exceeds revenues numerous countries, including: United Kingdom 26% Netherlands 12% Russia 22% United States 60% Japan 25% Ireland 94% India 47% 1 CIA World Fact Book 2011 Venezuela 26% Israel 12% Australia 11% 32

34 Cross-border compliance and equity Tightening rules Hong Kong Germany U.K. China Created rules in 2001 to tax gains upon departure of expats from Hong Kong Passed legislation in 2003 to tax gains realized by former residents Indicated intent to tax NR gains in 2003 Form 42 added to enable tracking Penalties charged for late submission of form Initial penalty of 300 per reportable event; further penalties of up to 60 per day Late or incorrect submissions affect the tax risk profile of the company Issued Circular 35 in 2005 to enable tracking of share awards New York/ Minnesota Stuckless case, 2006 Minnesota law change, 2008 United States France Japan Withholding on payments to nonresidents designated a Tier I issue in December 2008 French Supreme Court rules on stock option sourcing Withholding on nonresidents goes into effect Announced that certain Japanese branches and subsidiaries of foreign entities will be required to submit a report detailing equity compensation of resident employees 33

35 Globally mobile employees tracking movement 9% of U.S. companies do not track the movement of their mobile employees at all. 34

36 Globally mobile employees Withholding tax calculations 35

37 Polling question: Country headaches What countries pose the greatest challenges in terms of administering your plans or monitoring legislative updates? Australia China France Ireland UK Japan Other 36

38 Country specific matters Australia Companies were asked whether they had made changes to their granting practices since the 2009 changes. 38% of U.S. companies confirmed that they no longer grant stock options in Australia, whereas 75% of the rest of the world companies have not made changes to their granting practice. 37

39 Country specific matters China Tax registration (Circular 35) 60% of companies indicated that they were in the process of registering their plans with the local Chinese tax authorities 38

40 Country specific matters China (cont.) SAFE registration 59% of companies (85% of European headquartered companies) surveyed have already or are currently seeking SAFE approval 39

41 Questions?

42 Deloitte contact information Stephanie F. Linn Global Employer Services Deloitte Tax LLP Tel/Direct: Tammy J. Negrillo Global Employer Services Deloitte Tax LLP Tel/Direct:

43 This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.

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