Going Global: A Practical Survival Guide for Canadian Multinational Employers

Transcription

1 Going Global: A Practical Survival Guide for Canadian Multinational Employers Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm Baker & McKenzie LLP

2 Introduction Welcome remarks Agenda The Current Landscape for Global Expansion Getting the Structure Right, Early Tax Opportunities and Pitfalls Realities of Global Employment Equity Compensation 2015 Baker & McKenzie LLP

3 The Current Landscape for Global Expansion

4 The Current Landscape A Strong Outlook for Worldwide M&A 2015 Baker & McKenzie LLP 4 Source: Thomson Reuters M&A Review, March 2015

5 The Current Landscape Canada Global Canada Global expect to 72% 56% pursue acquisitions in the next 12 months say their 88% 77% largest deal in the next 12 months will be $250m or less 91% expect to complete more deals than in the prior year 47% 91% are focused on cross-border M&A in the next 12 84% months 2015 Baker & McKenzie LLP 5

6 The Current Landscape Companies Look Beyond Borders for Growth Domestic v. global growth rates 2015 Baker & McKenzie LLP 6

7 The Current Landscape National policies Global Markets Action Plan Trade agreements Challenges Growth outlook Financial market volatility Geopolitical tensions Greater political and regulatory scrutiny Expansion of sanctions regimes 2015 Baker & McKenzie LLP 7

8 Getting the structure right early 8

9 Traditional Growth Formation of Subsidiaries, Branches and Other Presences Subsidiary legal entity separate from parent company Branch - extension of main company, fully operational Representative / Liaison Office limited to non-income generating activities (e.g., preparatory and auxiliary ) Joint ventures 2015 Baker & McKenzie LLP 9

10 Drivers for Choice of Presence Business considerations (e.g., legal restrictions on scope of activity) Marketplace perception Management structure Ongoing cost of maintenance Timing constraints Employment / Immigration, Work Permits Tax considerations (e.g., permanent establishment, utilization of projected losses, access to Canada s foreign affiliate system, transfer pricing) 2015 Baker & McKenzie LLP 10

11 Tax Opportunities and Pitfalls 2015 Baker & McKenzie LLP

12 Three Key Phases of Going International: Tax Sales to International Customers "Boots on the Ground / Local Entity Established International Structure Get the basics right Customs compliance Sales tax compliance 2015 Baker & McKenzie LLP Get the Structure Right Minimize PE exposure for home country operating company Secondment, direct hire or hybrid arrangements for transferred employees Payroll compliance, localized equity incentive plans Canadian foreign affiliate and FAPI rules Structuring, supply chain planning, IP ownership planning Capitalization: debt and/or equity Implement More sophisticated IP and supply chain planning Monitor group compliance and exposure Cash management and financing offshore operations 12

13 An Effective Tax Strategy Gauges and Mitigates Risks Local presence but not too much local tax Start up losses and path to profitability Possible changes in tax law EU tax climate and OECD BEPS project Tax planning vs. operational flexibility Cash management and financing offshore operations 2015 Baker & McKenzie LLP 13

14 Designing a Structure Two fundamental elements guide much tax planning Canadian taxation of foreign affiliates and foreign income Taxable income follows functions, assets & risks Transfer pricing Maximize value-creating activities in appropriate places International tug of war currently underway on relative contributions of functions, assets & risks (and markets) 2015 Baker & McKenzie LLP 14

15 Realities of Global Employment 2015 Baker & McKenzie LLP

16 Key Employment Issues Hiring entity Kind of hire Onboarding questions Form of offer Key employment terms Policies 2015 Baker & McKenzie LLP 16

17 Pick the Right Engaging Entity: Key Considerations It s All Interrelated! Canadian tax consequences / local country tax consequences Taxable presence or permanent establishment Doing business requirements Employment law requirements Mandatory benefits requirements Foreign exchange control Immigration Employee benefits entitlements Local country pension issues Eligibility for equity grants 2015 Baker & McKenzie LLP 17

18 Pick the Right Engaging Entity: What are the Options? Foreign employers Canadian parent company or holding company Local employers Local subsidiary, branch or representative / liaison office Third party entity Partners, distributors, vendors Staffing agencies and PEOs Individual Independent contractors Caution! Extra-territorial application of some Canadian laws CB Baker & McKenzie LLP 18

19 Slide 18 CB3 Need to confirm _, 4/13/2015

20 Who is Being Hired / Engaged? Director / manager v. non-manager Employee v. independent contractor Ensure the nature of the relationship is properly classified, i.e., reality v. the label Continued / extensive use of independent contractors globally raises misclassification risks worldwide Employee through third party employer Employee on expatriate assignment / secondment / TCN 2015 Baker & McKenzie LLP 19

21 Setting Up: Payroll, Benefits, CBAs Local payroll and benefits provider? Do application forms comply with local requirements? Limits / requirements on pre-employment checks? Do documents require translation? National Collective Bargaining Agreements? Additional government filing requirements? Caution! Data privacy laws 2015 Baker & McKenzie LLP 20

22 Documenting the Hire: Employment Contract Offer letter v. employment contract? Must be compliant with local laws Changes may require express consent or be unenforceable, avoid binding statements re: bonus/commission or benefits Cultural differences 2015 Baker & McKenzie LLP 21

23 Documenting the Hire: Employment Contract Key Terms Identify the employer Probationary periods Duration of employment (definite v. indefinite) Compensation / benefits Hours / location Vacation / holiday Termination Choice of law / forum Arbitration 2015 Baker & McKenzie LLP 22

24 Documenting the Hire PIIAs Included in employment contracts v. free-standing Intellectual property protection Confidentiality Non competition / solicitation Enforceability of restrictive covenants Key Policies Handbooks, work rules, internal regulations, etc. Codes of Conduct Global Compensation Programs Variable compensation / commission / bonus plans 2015 Baker & McKenzie LLP 23

25 Employee Policies Key approaches: Global Policy; Local Policy; or Hybrid Approaches Advantages and disadvantages Implementation requirements Company culture and values 2015 Baker & McKenzie LLP 24

26 Plan Exit Strategy Going In Plan for flexibility in hiring Consider types of hires depending on short / long term plans Plan for notice, severance and consultation obligations Statutory notice / severance can be hidden costs Trap for the unwary nonsolicit / noncompetes Rapidly changing laws on enforceability (and costs) of noncompetes Be prepared for business change Understand compliance obligations from the outset 2015 Baker & McKenzie LLP 25

27 Equity Compensation 2015 Baker & McKenzie LLP

28 Equity Awards: Preliminary Considerations Does equity compensation make sense outside of Canada? Consider local practices and expectations Consider communication challenges Consider alternatives such as cash awards / deferred share units (DSUs) Review eligibility requirements (note if recipient is employee or contractor) Conduct compliance analysis before grant Review regulatory requirements (e.g., securities or exchange control filings) Review employer / employee tax obligations (e.g., tax withholding/reporting and social tax obligations) 2015 Baker & McKenzie LLP 27

29 Equity Awards: Types of Awards Type Canada USA Other Jurisdictions Stock Option Preferable for tax reasons 50% deduction Need to be structured as an Incentive Stock Option for favorable tax treatment Watch Belgium (potential tax at grant) Preferential tax plans in the UK and France, among others Restricted Stock Taxable at grant Generally taxable at vesting (in the absence of an election) A number of jurisdictions tax at grant and others tax at vesting Restricted Stock Units (and performance units) Taxable at vesting, Generally taxable at vesting, but need to review deferred compensation rules (Code Section 409A) Generally taxable at vesting Preferential tax plans in France, Israel among others Stock Purchase Rights Taxable at purchase Deferred taxation for qualified Code Section 423 plans Generally taxable at purchase 2015 Baker & McKenzie LLP 28

30 Equity Awards: Design Considerations Separate plan for other jurisdictions or part of global omnibus plan? Often use US subplan for tax-qualified awards Avoid Canada-centric award documents (e.g. reference to 50% deduction for tax purposes) Instead, prepare global or non-canada versions of award documents Possible to use one agreement and cover country-specific terms in appendix 2015 Baker & McKenzie LLP 29

31 Equity Awards: Best Practices Parent company (Issuer) should administer awards and minimize involvement by local employing entity Ensures consistent approach in all countries Avoids possible plan compliance violations for issuer Decreases risk of vested rights / entitlement and other labor law issues Avoid mentioning awards in employment-related documents from local employing entity Use separate equity offer letter (side letter from issuer) to communicate equity awards 2015 Baker & McKenzie LLP 30

32 Equity Awards: Securities Laws Impact of Canadian securities requirements on global awards National Instrument Insider Reporting Requirements and Exemptions requires certain insiders of reporting issuers to report their personal holdings on Sedi (System for Electronic Disclosure by Insiders) includes the CEO, CFO and CCO of a major subsidiary of the issuer also includes a person responsible for a principal business unit, division or function of the issuer catch-all for any other insider that has routine access to material or undisclosed information and exercises significant power or influence over the business, operations, capital or development of the issuer 2015 Baker & McKenzie LLP 31

33 Equity Awards: Securities Laws cont d Stock Exchange Requirements If dual-listed in the U.S., SEC Form S-8 requirement applies to equity compensation plans that have U.S. participants TSX / TSXV rules apply to security-based compensation arrangements if it involves the granting of listed securities or securities convertible into listed securities regardless of where the grantee(s) is resident Evergreen plans are subject to maximum of 10% of the issued and outstanding shares of the issuer Insider participation under all of the issuers security based compensation arrangements is limited to 10% of the issued and outstanding shares 2015 Baker & McKenzie LLP 32

34 Equity Awards: Securities Laws cont d Both TSX and TSXV require shareholder approval for any equity compensation plans or amendments if listed shares will be issued ISS and Glass Lewis Canadian Proxy Voting Guidelines not necessarily the same as the U.S. version be careful when structuring plans and check both sets of guidelines as they can differ on some points 2015 Baker & McKenzie LLP 33

35 Equity Awards: Securities Laws Other Jurisdictions Securities Laws generally territorial, usually exemption available (but understand thresholds and / or necessary disclosure) & typically applies at grant (but may be applicable at issuance) Key problem countries: Australia, Japan (options/espp), EU (ESPP), Italy (financial intermediary), Malaysia, New Zealand, the Philippines, and Saudi Arabia 2015 Baker & McKenzie LLP 34

36 Equity Awards: Exchange Controls/Foreign Asset Reporting Exchange Controls generally based on residency, may restrict funds or shares, usually an employee (not company) obligation & be careful about repatriation Key problem countries: Argentina, China, Ukraine, Vietnam; also India and Russia (repatriation) Foreign Asset Reporting mature shares and even equity awards may be reportable as foreign assets. Brokerage accounts used for plan administration may be reportable as foreign accounts. Use of trusts can also implicate local reporting requirements A few examples of countries with these requirements include: Belgium, India, Spain, US (FATCA individual reporting) 2015 Baker & McKenzie LLP 35

37 Equity Awards: Tax & Social Tax Issues Not all countries tax awards at the same time, in the same manner or based on the same value Key countries: Australia (options taxation at vesting in some cases), Belgium (options can be taxed at grant ), Denmark, India (valuation), Malaysia, United States (deferred taxation of ISOs if holding periods satisfied) Both Income and Social Taxes (at high uncapped rates) typically apply Key countries: Sweden (31.42% uncapped), UK (13.8% uncapped) Know where your withholding and reporting obligations exist Key countries: China, India, France, Germany, Malaysia, Taiwan, UK Consider application of deferred compensation rules such as Code Section 409A in the United States 2015 Baker & McKenzie LLP 36

38 Equity Awards Tax & Social Tax Issues Special annual reporting exists for equity that differs from compensation Key countries: France, Japan, Switzerland, Taiwan, UK, US (for certain plans) Tax favored plans available to avoid or minimize Social Taxes Key countries: France (New law in process), Israel, UK, US Beware of penalties and bad press related to tax on equity Key countries: France, Japan, Korea, Taiwan, UK 2015 Baker & McKenzie LLP 37

39 Equity Awards Tax Issues Although Canadian tax rules generally prohibit a corporate tax deduction for equity compensation, this is not the case in a number of other countries However, a reimbursement of the equity compensation costs by the foreign subsidiary may be required in order for the foreign subsidiary to be eligible for a corporate tax deduction Also need to consider whether such reimbursement triggers other withholding requirements or social taxes which would not otherwise apply 2015 Baker & McKenzie LLP 38

40 Equity Awards: Best Practices Revisit tax / compliance issues on regular basis and adjust award practices accordingly Create tools to manage ongoing compliance (e.g., grant checklist, compliance chart, grant document chart) Take advantage of free information on global equity NASPP Global Portal Global Equity Organization (Toronto Chapter) B&M GES website Baker & McKenzie LLP 39

41 Global Equity Matrix app now in 50 countries 2015 Baker & McKenzie LLP 40

42 Questions? 2015 Baker & McKenzie LLP 41

43 Suite of Baker & McKenzie Resources Opportunities Across High- Growth Markets: Trends in Cross-Border M&A with the Economist Intelligence Unit Cross-Border Transactions Handbook The Global Employer: Focus on Trade Unions and Work Councils Pre-Transaction Restructuring Handbook Post-Acquisition Integration Handbook The Global Employer: Focus on Termination, Employment Discrimination and Workplace Harassment Laws 2015 Baker & McKenzie LLP

44 Doing Business Guides in 33 jurisdictions 2015 Baker & McKenzie LLP 43