Global Stock Options. AUSTRALIA Clayton UtZ

Transcription

1 Global Stock Options AUSTRALIA Clayton UtZ CONTACT INFORMATION: David Landy Mark Friezer Clayton Utz 1 O'Connell Street Sydney, New South Wales, Australia / dlandy@claytonutz.com / mfriezer@claytonutz.com To understand the answers given below it is important to first read the survey scenario, which can be accessed by CLICKING HERE>>. 1. Are there any corporate actions that need to be taken by the Committee or the shareholders to establish the plan? If Company X is incorporated in Australia, typically the constitution of an Australian company vests the power to issue shares (and power to grant options over unissued shares) in the Board of the company, and would enable the board to delegate its powers to a committee. The corporate actions of the committee to establish the plan would depend on the plan rules, but would typically involve resolving that the plan be established on the terms of the plan rules and setting the commencement date. 2. Are there any requirements in your jurisdiction about the composition or authority of the Committee? There are no specific requirements for the composition or authority of the Committee. If Company X is incorporated in Australia, the composition or authority of the Committee will depend upon the constitution of Company X and the terms of the board delegation to the Committee.

2 3. What does the Committee have to publicly disclose about its Plan-related decisions and when must those disclosures be made? If Company X is incorporated in Australia, Company X will need to disclose to the Australian corporate regulator ASIC when shares are issued pursuant to the exercise of options within one month of the share issue. 4. Is a participant subject to taxation: on receipt of the option; on exercise; or otherwise? As the Participant acquires the option under an "employee share scheme", being a right acquired by the participant in respect of their employment, and as the rights are gifted (provided at a discount), the options' value will be assessable in the income year of acquisition. However, where the options are issued under a tax deferred scheme, the option will be assessable at the deferred taxing point. The deferred taxing point for options is the earliest of: seven years after the employee acquired the right when the employee ceases the employment in respect of which they acquired the right when there is no longer a real risk of forfeiting the right and the scheme no longer genuinely restricts disposal of the right when there is no longer a real risk of forfeiting the right or underlying share, and the scheme no longer genuinely restricts exercise of the right or disposal of the resulting share. 5. Does the tax treatment vary depending on where the Participant resides or habitually exercises his duties (i.e. outside your jurisdiction)? For any period in which the Participant was a non-resident, and the discount relates to the Participant's engagement in a foreign country as the holder of an office or in the capacity of an employee (foreign service), the discount on the option will not be included in the Participant's assessable income. 6. Does the tax treatment vary depending on the type of option or specific Plan provisions concerning the option? Where the options are issued under a tax deferred scheme the Participant will be assessed on the discount at the deferred taxing point (refer question 4). In order to qualify for concessional tax treatment, the conditions are broadly as follows: a) the options must be acquired under an employee share scheme; b) the options must be acquired in the employer (or holding company of the employer); c) the options must be a right to acquire ordinary shares; d) immediately after the acquisition of the options, the scheme will not lead to the employee holding an interest in more than 5% of the shares or the ability to control more than 5% of the voting power.; (e) the predominant business of the company in which the employees acquire the options must not be the acquisition, sale or holding of

3 shares, securities or other investments (directly or indirectly); and (f) the employee must have a real risk of forfeiting the options under the conditions of the scheme. Alternatively if the scheme is one where the employee is taxed upfront, the employee may be eligible for a $1,000 reduction in the assessable amount provided the scheme is widely offered to employees, there is no risk of forfeiture, and the employees taxable income (as adjusted) does not exceed $180, Is Company X entitled to claim a deduction from (or other reduction of) taxable income with respect to the option and, if so, when and how is this calculated? Where options are provided under a scheme whereby the participant is entitled to a $1,000 reduction, the employer may claim a deduction up to the amount of the upfront concession. Otherwise there is generally no deduction available. 8. Does the tax treatment under 7 vary depending on where the Participant resides or habitually exercises his duties (i.e. outside your jurisdiction?) The deduction will only be available to the extent the employee can reduce assessable amount (up to the $1,000 maximum). If services are exercised outside of Australia the income reduction amount and the deduction will all be to that extent reduced. 9. Are there special rules for significant shareholders (for example, more than 10% shareholders of the Company)? The conditions to qualify as a tax deferred scheme would not be met (see question 6 above). 10. What are the other principal tax considerations, if any, such as withholding for social insurance, employment taxes, unemployment taxes, etc., for Company X or its local subsidiary or branch office in your jurisdiction, and the participant? Where the options are exercised for shares, a later sale of the shares may lead to a taxable event for the Participant. Where the Participant receives part of remuneration as options, there may be other tax considerations such as, Pay-As-You-Go withholding obligations, state payroll tax and fringe benefits tax (though options acquired under an employee share scheme are generally excluded from Pay-As-You-Go withholding and fringe benefits tax). Employers in Australia are required to make contributions of 9% of an employee's Ordinary Time Earnings (OTE) up to an indexed maximum. Whether Plan options form part of the OTE of a Participant needs to be tested. Currently, if the Plan is not a fringe benefit under Australian tax law, a Plan option is not regarded as OTE. 11. What needs to be done, if anything, under your local law so that Participants obtain the favorable tax treatment offered by your jurisdiction? Refer questions 4 and 6 above.

4 12. What securities law, or other regulatory (or exchange) requirements are there, if any, such as: filing requirements; prospectus requirements; offering exemptions; size of offering limitations; and currency requirements? An offer of Plan options received in Australia requires an Australian compliant disclosure document, subject to exceptions for offers to: 20 or less investors raising A$2M or less in a 12 month period; certain senior managers; certain wealthy employees; and employees under employee incentive schemes of listed companies (EIS relief), subject to conditions including offer document and lodgment requirements. The issuing of Plan options or content of Plan documents may require the issuer to hold an Australian Financial Services License, subject to exceptions for: certain companies issuing own securities; certain eligible employee incentive schemes; and general advice given with specified warnings. 13. Is a cashless exercise permissible? Yes. Broadly, cost base of shares acquired from exercise of options is market value of rights on acquisition and market value of shares provided in consideration, plus costs. However, giving up shares already owned for new options may result in a taxable event. Broadly a capital gain will arise to the extent that value of options exceeds value of shares given up. If the cashless exercise is an "incidental product" it may be offered without securities regulation. If the cashless exercise is not an "incidental product" and treated as a "derivative", compliance with or relief from securities regulation would be required. 14. Are there any rules in your jurisdiction that prohibit or discourage a foreign subsidiary of Company X from granting options to acquire shares of common stock of Company X to the subsidiary's executives? No. 15. Are the rules addressed in this survey applied differently based on whether the multinational operates in a particular jurisdiction as a branch office or as a domestic subsidiary? If so, what are these differences? No, other than those referred to in questions 12 and 13.

5 16. Do executive employees in other jurisdictions need to be covered by a plan of the subsidiary or a plan separate from your Plan to comply with your jurisdiction's law? Only to the extent that Company X is relying on the conditional securities law relief for employee incentive schemes and the offer document requirements of that relief requires a disclosure to be made to particular employees (e.g. if an offer is made to employees where the exercise price of the Plan options is not expressed in A$). 17. If known, please comment on the accounting issues which are relevant for this Plan. Australia has specific accounting rules for share based incentives. 18. List any other requirements of importance in your jurisdiction. None 19. Severance Risks: Will the value of granted options legally need to be included in severance calculations? As a general proposition: no. There is no specific legislation or regulation compelling the inclusion of options in severance calculations. In certain cases, the terms of either the Plan, severance/termination policy or employment contract might provide for the value to be included in severance calculations. In such circumstances a failure to do so would give rise to a common law cause of action for breach of contract. 20. Acquired Rights: Will Plan participants become legally entitled to future grants or immediate vesting at termination of employment or service? As a general proposition, no they will not. There is no specific legislation or regulation compelling either future grants or immediate vesting at termination. In certain cases, the terms of either the Plan, severance/termination policy or employment contract might provide for future grants or immediate vesting. In such circumstances a failure to do so would give rise to a common law cause of action for breach of contract. 21. Data Privacy: Will Company X or the local subsidiary or branch office need to take any additional measures to adhere to local data privacy laws? Yes. The Privacy Act regulates personal information. There is an exemption relating to employee records but it may not apply. Information held by Company X in Australia can be transferred to a related body corporate within Australia if it is not sensitive information. However, that body must comply with the Privacy Act. The Privacy Act prohibits the transfer of information overseas unless certain requirements are met. If information is sent to an organization overseas, it may need to comply with the Privacy Act.

6 The Australian government has released an exposure draft of legislation to amend the Privacy Act. This is only an exposure draft and may change. However, if enacted, the amendments may impact upon the answer to this question.