GLOBAL SHARE PLANS WEBINAR 13 OCTOBER 2016 Matthew Emms David Gardner Emma Welland Rachel Tucker Jessica Pancamo Edouard de Raismes
Agenda 1. Advantages /disadvantages of using an umbrella plan as opposed to a series of more localised plans 2. Common compliance / reporting issues and potential solutions when operating global share plans 3. Optimising the tax and social security position for the parent company, the employing company and participants 4. Topical tax issues, and opportunities to structure share-based awards more efficiently, in a number of key jurisdictions
Global Share Plans Why implement them? Top down plans (Umbrella) Bottom up plans (local plans) Hybrid plans
Common issues and potential solutions when operating global share plans Why implement them? What is the local tax culture? Will incentives actually be welcomed - are employees risk averse? Will awards have same treatment in each country? Can differ from country to country depending on local rules and interpretation (in particular for private companies) Some jurisdictions may have prohibitively high tax/social security cost Have exchange controls, translation requirements etc. been considered?
Common issues and potential solutions when operating global share plans Employer payroll obligations For many countries, a payroll withholding obligation is likely to arise Will awards have same timing/treatment in each country? Can differ from country to country depending on local rules, use of a recharge agreement and interpretation (in particular for private companies) Strong communication channels are needed to ensure payroll obligations are met. Eg. option exercises initiated by employee but must be payrolled by employer. How effective are the communication channels between the broker, company headquarters and local payroll teams to manage this? Solutions: - Ensure local country advice is obtained before plans implemented - Companies should review their systems to ensure they can capture, process and report through the payroll
Common issues and potential solutions when operating global share plans Employer reporting obligations Growing tax compliance risk due to increased focus from tax authorities. This can create not only reputational risk for the company but also tax costs tax benefits can be lost if filing requirements are not met Examples: - UK move to online filing since 2015 - Australia online filing from 2016 onwards - Luxembourg mandatory reporting on implementation of share plans from 2016 - France new mandatory reporting for equity through monthly payroll reporting Solution: Obtain local country specific advice and ensure it is kept up to date
Common issues and potential solutions when operating global share plans Communications Maintaining good communication channels between head office, local countries, HR and respective payroll teams is essential. This can be particularly problematic where prompt turnarounds are required and there are time zone differences. Option exercises can be especially problematic. Can lead to missed payroll and withholding obligations and end up becoming a significant company cost if unwilling/unable to recover from employees. What is the company policy on global compliance? What systems are in place to demonstrate adherence to compliance requirements?
Common issues and potential solutions when operating global share plans Internationally Mobile Employees (IMEs) What equity gains are being carried over borders? Growth of Short Term Business Travellers (Stealth Travellers) vs. more formal secondments Different between tax and social security treatments Each country may look to allocate the gain differently: Grant to vest / Grant to exercise / Location at grant / Location at vest/exercise Exit tax, e.g. Hong Kong, Israel, Singapore Impact of double taxation/implementation of double tax treaties/certificates of coverage Solution: - Company policy for assignees e.g.. tax equalisation and trailing liabilities. How is equity dealt with during/after secondment?
Global share plans and tax optimisation Make the best or most effective use of Ensure that share plans are understood and appropriate in each jurisdiction Implement a system to ensure robust tax and reporting compliance Ensure that employees understand and appreciate awards Tax efficient plans to reduce employee tax and social security costs Tax efficient plans to reduce employer social security ` Recharge agreement enhance corporation tax position
Global share plans and tax optimisation Qualifying sub-plans Tax efficient plans in local jurisdictions Managing the tax cost Typically operate under shareholder approval for main plans Level of shareholder or remuneration committee approval often key Macron free share plan in France requires specific shareholder approval
Global share plans and tax optimisation Qualifying sub-plans Generate local tax and social security savings Consider before making substantial awards In UK often used for market value share options and save as you earn plans Improve net value of equity package but consistency across jurisdictions may be an issue Growing trend for countries to offer to improve competitiveness whilst also strengthening compliance process
Global Share Plans UK The UK has an established legislative regime which provides for taxefficient share and option plans: - Enterprise Management Incentive ( EMI ) - Company Share Option Plan ( CSOP ) - Share Incentive Plan ( SIP ) - Save As You Earn Schemes ( SAYE ) Either stand-alone share plan and/or option plans or as a sub-plan to an overseas main plan Income tax and employees National Insurance contributions savings for the local employees Social security savings for the local employer
Global share plans and tax optimisation Recharge agreements Where subsidiaries are charged for share plans by the parent Typically the spread on exercise/vesting Written agreement, ideally in place when awards made Generate a local corporation tax deduction Transfer pricing & consistency Tax free receipt for US and UK parent companies
Global share plans and tax optimisation Recharge agreements Can generate local deduction in: - Argentina - Australia - France - Germany - India - New Zealand - Singapore - Spain - Switzerland Interaction with approved plans Denmark no deduction for approved plan Consider impact on payroll and social security Belgium, Brazil, Czech Republic, Korea, Mexico, Poland, Turkey UK and US deduction for certain plans without recharge
Global Share Plans US Most common forms of LTI award include: - Non-Qualified Stock Options - Incentive Stock Options - Stock Appreciation Rights - Restricted Stock - Restricted Stock Units - Performance Stock Units Incentive Stock Options (ISOs) - 10 point test for qualification including: Granted to an employee, Must be granted under ISO agreement, Exercise price must equal or exceed the FMV of the underlying stock at the time of grant, $100,000 limitation, Meet holding period, etc. - Due to the $100,000 limitation, AMT preference item status and lack of deduction for the Company, ISOs are often not the solution for every company
Global Share Plans US Section 409A - Applies to deferred compensation, including: Phantom Stock Discounted stock options (whether intentional or not) Restricted stock units Performance stock units Separation pay - Applies to any US taxpayer Private Company Equity Issues - Liquidity Alternatives: Cash-settle, Sale of Company - Valuation of shares Valuation methodologies around the globe Often revenue authorities prefer or require one methodology over another Tax valuations/book value Timing of valuations IME Issues Sourcing Trailing liabilities Timing of taxation
BDO Global Equity App 17
BDO Global Equity App 18
Global Share Plans France
Global Share Plans France Example Shares value : - Grant Date : 80 - Vesting date : 100 - Sale date (holding > 2 years after the vesting gain ) : 200 - Vesting gain : 100 - Capital gain : 100 - Total gain : 200 E M P L O Y E E EMPLOYER Income tax * Social contributions Vesting gain Gross : 100 Sale gain Gross 100 + 50% allowance Vesting gain Gross : 100 Sale gain Gross 100 Old qualified RSU Plan 45 % 45 Vesting and capital gain 22,5 % 22,5 Gross : 200 allowance of 50% 18% 18 Vesting and capital gain 15,5 % 15,5 Gross : 200 New qualified RSU Plan 22,5 % 45 15,5 % 31 Total 101 Total 76 Social contributions Gross : 80 30% 24 Gross : 100 20% 20 * Top rate used without the tax on «high income» of 3% or 4%
Review of key jurisdictions Canada Changes not going ahead to stock option deduction Background - Currently 50% tax deduction on stock option income - Proposal that it would be capped at CAD 100,000 a year Outcome - Concern that cap would lead to young professionals and entrepreneurs seeking employment outside of Canada - Most recent budget no changes to this tax deduction
Review of key jurisdictions Chile Significant changes to the corporate and personal tax regimes in Chile - Chilean Internal Revenue Service ruling - Changes take effect from 1 January 2017 Current tax treatment: Position currently uncertain for stock options, but generally tax on exercise New tax treatment: Options granted on or after 1 January 2017, tax on grant - Tax charge on the benefit value minus amounts paid on grant
Review of key jurisdictions Denmark Danish parliament has re-introduced tax advantages for employee equity awards - Effective from 1 July 2016 - Shares, conditional share awards, stock options and warrants - Up to 10% of salary Tax treatment - Capital gains tax treatment when shares are sold - Previously income tax and social security at grant or exercise/vest - Tax rate of 27% compared to up to 56% Considerations - A number of qualifying requirements - Reporting obligations for the employer
Review of key jurisdictions India Background - 2 employees of Indian sub of US parent - NR in India during vesting period; - Granted SARs over US parent - Employees resident in India at exercise Tribunal s findings - Taxable as salary Basis of the Tribunal s ruling - SARs given to the employees as a result of their employment with the Indian subsidiary - SARs cannot be treated as a capital asset given as compensation for services rendered to the Indian subsidiary - Taxpayers resident in India upon exercise, so residency status during vesting is irrelevant
Review of key jurisdictions Netherlands Supreme court delivers two judgements on the 30% ruling Background: - 30% ruling applies to employees from outside the Netherlands hired by a Dutch employer - May be entitled to tax free compensation equal to 30% of remuneration Ruling 1 - Cross border workers between Netherlands and Belgium cannot apply 30% ruling to Belgian part of wage Ruling 2 - An employee who is entitled to the 30% ruling who changes employers may be able to continue with the 30% ruling with new employer - Period between jobs must not be more than 3 months ruled that this cannot be extended
Review of key jurisdictions Russia Relaxation of exchange controls from 1 January 2018 - Russian residents can receive funds from sale of shares directly into foreign accounts - No need to repatriate funds to Russia - Shares must be listed on Russian stock exchange or specified foreign stock exchanges New foreign account reporting - Applies to foreign bank accounts held by Russian individuals - Only a short form must be completed - No supporting documents required unless there is an enquiry
Review of key jurisdictions South Africa Changes to rules for restricted stock - Currently proposed in draft legislation - Applies to awards granted to directors and employees by virtue of their employment Dividends - Dividends from restricted stock to be taxed at employees maximum marginal rate of 41% - Usual dividend rate 15% Timeline - Amendments expected to be finalised November 2016 - Likely to be effective from March 2017
Review of key jurisdictions Sweden Proposed changes to taxation of employee share incentives Restricted shares with sale restriction of 2 years or less - Currently taxable when restrictions lift - Proposed that taxable at grant - Growth following grant subject to capital gains tax Introduction of qualified stock options - Tax advantaged options proposed - No income tax on exercise and capital gains tax when shares are sold - Tax rate of 25/30% compared to 55% - Qualifying requirements
Review of key jurisdictions Vietnam Important changes for Vietnamese nationals - Can now participate in overseas employee equity plans - May hold shares in overseas entity and receive dividends - Results from change in exchange control laws Local employer will require approval from State Bank of Vietnam All money to be brought back into Vietnam Local employer has reporting obligation
Questions
Contacts MATTHEW EMMS matthew.emms@bdo.co.uk 020 3219 4315 DAVID GARDNER David.gardner@bdo.co.uk 0118 925 4468 EMMA WELLAND RACHEL TUCKER emma.welland@bdo.co.uk 0118 925 8541 rachel.tucker@bdo.co.uk 020 7893 2103 Emma.welland@bdo.co.uk 0118 925 8541 EDOUARD DE RAISMES ederaismes@djp-avocats-bdo.fr +33 (0)1 80 18 10 82 JESSICA PANCAMO jschuster@bdo.com 713-548-0895
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