Global Plan Design: Trends and Strategies October 25, 2013

Global Plan Design: Trends and Strategies October 25, 2013 Mark Miller Tax Senior Manager, Deloitte Tax LLP Peter Simeonidis Tax Senior Manager, Deloitte Tax LLP

Agenda Introductions Level Set Market Data Regulatory and Market Reactions Country Specific Updates Q&A

Level Set

Background It is essential for companies to understand the key technical updates in common locations where equity awards are offered. In recent years there have been changes for both employees & employers in areas such as timing of taxation, new informational reporting obligations, plan registration requirements, and foreign asset reporting obligations etc. Companies face challenges in trying to manage a global compensation program. In order to keep up to date constant monitoring of tax and regulatory changes in numerous locations, across various issues, is required.

What are your most pressing initiatives concerning your global equity plan? Managing compliance for mobile employees 21.7% Implementing recharge agreements 5.8% Determining when and by which means to communicate to plan participants 6.6% Setting up/administrating tax favored plans Determining award size for relevant populations 17.1% 15.5% Determination of what types of plan to operate and where 33.3% 0% 5% 10% 15% 20% 25% 30% 35% Source: February 06, 2013 Deloitte Dbriefs Session - Equity Compensation: Refining and Managing Plans on a Global Basis Votes received: 1,356

Constantly changing compliance environment 1 Decreased revenue bases Decreasing revenue bases, along with technological improvements, create enhanced capacity and more aggressive behavior by tax authorities during audits, stricter enforcement of legislation, and less leniency in the negotiation of settlements and/or assessment of penalties. Developed nations becoming more sophisticated in addressing and auditing taxation for ex residents (e.g., Canada, China, Germany, UK, US) Decreases in company revenues result in less resources, technological and personnel, available to monitor and facilitate compliant operations. 2 1 Increased audit risk 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. 4 Continuously changing regulations Challenge to keep current on constantly changing legislation, which increases exponentially as mobility creates need to understand interaction of regulations across jurisdictions. Informational filings increasingly being enacted (China, Ireland, UK) Departure and Exit Taxes (Hong Kong, Singapore) 3 4 2 Legislative Increased updates Compliance scrutiny 3 Acceptable risk profile 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.

Complex Balancing Act Tax Audits Income Allocation Tax Treaties Local Country Regulations Payroll Compliance Corp Tax Policy Mobility Policy Corp Culture Resources System Capabilities 7

Market Data

Who participated? - A truly global survey 130 companies, headquartered in 21 countries, gave us details of 340 share plans they operate in 90 countries Share plans continue to be recognised as an effective remuneration tool % of companies 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Main drivers for operating plans Drive performance Provide corporate / group identity Be competitive in the market Expand the culture of ownership in the group Executive plan Broad based plan Other Three big themes: success of broad based plans and of share purchase plans for all employees, and the regional difference in the use of performance conditions for executive plans. 66% of respondents operate a broad based arrangement. 45% of broad based plans are share purchase plans. 66% of executive plans include performance conditions globally only 48% in the US.

Participants Sectors of activity and region Media, 3% Conglomerate, 1% Consumer Goods, 10% Responses were received from companies operating across a broad spectrum of industries. Technology and Communications, 27% Consumer and Business Services, 9% Finance, 13% Region % of companies Mining, oil & gas, 11% Healthcare, 11% Asia Pacific 12% Europe (excluding UK) 28% United Kingdom 24% United States 31% Rest of World 5% Industrials, 16% The table shows the proportion of Survey respondents by the region in which the companies headquarters are based.

Key trends around types of plans What types of executive plans are companies operating? Bonus deferral plans - voluntary Bonus deferral plans - mandatory Share award plans Share option plans All companies Asia Pacific Europe (excl. UK) United Kingdom United States Rest of World Share purchase plans 0% 10% 20% 30% 40% 50% 60% 70% % of all executive plans in region

Key trends around types of plans What types of broad-based plans are companies operating? Bonus deferral plans - mandatory Share award plans Share option plans All companies Asia Pacific Europe (excl. UK) United Kingdom United States Rest of World Share purchase plans 0% 10% 20% 30% 40% 50% 60% 70% % of all broad-based plans in region

Key trends around features of the plans Performance measures or not? Executive plans Broad-based plans Share awards plan Share awards plan Share option plan Share option plan 0% 20% 40% 60% 80% 100% % of responses 0% 20% 40% 60% 80% 100% % of responses Share plan subject to performance conditions Share plan not subject to performance conditions

Comparison against the market Going global

Comparison against the market Going global

Do you feel your global stock plan is aligned with your overall business objectives and talent strategies? Polling Summary Report as of 02/07/2013 5.1% 21.9% 40.6% Highly aligned Well aligned Somewhat aligned Not aligned Don t know/not applicable 7.2% 25.2% Source: February 06, 2013 Deloitte Dbriefs Session - Equity Compensation: Refining and Managing Plans on a Global Basis Votes received: 1,048

Regulatory and Market Reactions

France: Qualified equity awards (employees) Flat 30% preferential rates will continue to apply for awards granted before September 28, 2012. New income and social surtax rates will apply to awards granted on or after September 28, 2012:

France: Proposed return of the 75% tax rate There is a new proposal for a temporary 75% aggregated tax rate as company tax not personal. Currently compensation is already subject to capped company social charges and payroll taxes at 25% and additional payroll taxes ( taxe sur les salaires ) up to 20% The new additional tax amounts to an additional 50% in taxes to be applied. This temporary tax would apply for two years Expected to start January 1, 2013..however the tax bill will not be confirmed until Fall 2013.

France: 2013 Finance Bill impact on Qualified RSUs, Options, Capital gains, & Dividends Impact on Qualified RSUs and Options: Acquisition Gain realized on Option exercise and qualified RSU vesting would be treated as salaried income for income tax purposes, taxed at the progressive rates Subject to an income-averaging provision if the shares are held for a four-year period. Start-up stock options would continue to benefit from the flat tax at the rate of 19% plus the 15.5% social surtaxes on the date the shares are sold. Impact on Capital Gains: Capital gains on shares from 1 January 2012 would be taxed at progressive rates. However 5.1% would be deductible following year Income averaging mechanism ( quotient ) would apply for fiscal year 2012 through 2014 providing deduction. The deduction percentage depend of number of years the share has been held. New rules will be adopted on capital gains treatment during 2013 last quarter for example: 5% held between 2 to 4 years 10% held between 4 to 7 years 5% for every additional year from 7 to 12 years, up to a maximum of 40%

Comparison against the market Going global

Comparison against the market Going global

Ireland - Employer withholding and year-end reporting obligations As a result of pay as you earn requirements, there is no longer a year-end employer reporting obligation for unapproved share awards (e.g. RSUs, performance shares, restricted shares). Unapproved share award schemes Unapproved share option schemes Withholding obligation Reporting obligation Irish Revenue-approved share schemes

Japan: New Employer Equity Reporting Requirement Before there was no employer reporting or withholding tax requirement if met following criteria: If resident employees received equity awards from the foreign entity, provided the plan is administered outside Japan and The foreign entity does not recharge the cost of the equity awards to the Japanese subsidiary Instead employee has been responsible for reporting the income from equity rewards on their individual income tax return due March 15 following the tax year-end. Issue: recent audits have exposed cases of significant levels of underreporting of equity income by some employees

Japan: New Employer Equity Reporting Requirement As a result of cases of underreporting of equity income: From, 2013 Japanese subsidiaries that are owned (directly or indirectly) 50% or more by a foreign entity and Japanese branches will be required to submit an annual statement to the national tax office detailing any income realized from equity income for their taxresident employees and directors This statement would be due by March 31 of the year following the year of realization With first statement due March 31, 2013 for transactions arising in 2012

Japan: New Employer Equity Reporting Requirement Action: Identify whether the Japanese entity would be a qualifying company under the 50% holding condition Review of all equity and equity based plans to identify what transactions are reportable under the new rules and the specific values that should be reported on the form Review Japanese tax residence position of all affected employees to identify those individuals for whom a report will need to be filed Care must also be taken for globally mobile employees whose tax residence may change throughout the year Correct data should then be collated on an ongoing basis for the individuals, its recommended a collated on a timely basis.

Comments from Japan For the forms submitted, several of the larger submissions went in post deadline and a couple have had substantial amendments since the initial submission. Both the late submissions and resubmissions have been accepted without comment by the tax office. As there are no penalties for late submission we are continuing to raise the matter with our clients, as and when, we identify opportunities. Regarding tax audits, it is still early although there have been a couple of cases we are aware of where the submission of the equity report has lead to the tax office approaching individuals about their tax returns. It is around this time of year that the tax office is most active with their audits, though, so it may become clearer in the next few months.

Country Specific Updates

Brazil: Social Tax Treatment Historically, view has been that where the costs are recharged to or borne by the Brazilian entity, income and social tax is due and there is withholding and reporting by the Brazilian entity; and conversely, no social tax absent a recharge. Increased audit activity in recent years regarding payment and collection of social tax with respect to compensation paid abroad. Companies local practice varies based on risk tolerance.

China - Intensive SAFE and tax registration requirements Tax and SAFE authorities have increased their scrutiny of the registration process.

Malaysia: Share Plan Update MIRB public ruling on deductibility of share plan expense. There is no corporate tax deduction available in Malaysia when newly issued shares are used to settle employee share plans However if employers settle the awards using treasury shares, it is possible to obtain a corporate tax deduction for the cost of the award Reporting: Previous filing requirement to file Form BT/ESOS/2005, but for 2013 it has changed its name to Form/MSSP/2012 and needs to be submitted 30 days after the date of grant. Documents no longer need to be furnished at the time of filing but must be kept for audit purposes SEC Filing: No securities notification requirements in Malaysia for new grants of equity if the plan has been registered with the SEC Only when a new plan is put in place or award offered under previous plan would create a SEC filing requirement

UK - OTS recommendations and Government response on the simplification of unapproved share plans HMRC bulletin May 2013: - Registration of existing and new share plans from April 2014. - - Online filing of annual returns required from April 2015.

United Kingdom Finance Bill 2013 Introduced new category of worker - Employee shareholders : 2,000 to 50,000 free shares in employing company in exchange for surrender of certain employment rights. No PAYE/NIC in respect of first 2,000 of shares. Any gains are free from CGT. Tax advantages expected to take effect from 1 September 2013. Participants provided with a written statement explaining the rights being given up. Free legal advice must be provided to employees. Clarification that it is not possible to claim corporate tax deductions for accounting charges booked in respect of lapsed share awards. Legislation intended to apply for accounting periods ending on or after 20 March 2013.

Comparison against the market Going global challenging countries

Comparison against the market Internationally mobile employees

Comparison against the market Recharge of the plan costs

Questions?

Deloitte contact information Mark Miller Tax Senior Manager Deloitte Tax LLP +1 (408) 704-4308 MaMiller@deloitte.com Peter Simeonidis Tax Senior Manager Deloitte Tax LLP +1 (212) 436-3092 PSimeonidis@deloitte.com

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.