Global equity compensation Recent legislative updates Country Summaries February 2012 Edition (for a more comprehensive discussion, please see the "Country Discussions" section below) France Changes to employer reporting obligations for qualified stock options and free share awards On January 30, 2012, the French tax authorities released two decrees which amended the employer reporting obligations following the vesting of qualified free share awards (i.e., restricted stock units) and exercise of qualified stock options. For 2012, new transition reporting rules will apply to qualified restricted stock units which vested during 2011. Beginning in 2013, further changes will apply to the reporting obligations for both qualified RSU vestings and qualified stock option exercises during 2012. PwC Global Equity Compensation 1
Netherlands Final amendments to 30% ruling included in the published 2012 Budget plan As provided in our October 2011 Global Equity Legislative Update, the Netherlands 2012 Budget Plan included proposed amendments to the 30% ruling. On December 30, 2011, the final wording of the amendments was published and became effective as of January 1, 2012. While most of the proposed amendments remained intact, there were several new important developments/clarifications that were incorporated into the final legislation. Switzerland New draft ordinance on employer reporting obligations in connection with equity compensation As provided in our June 2011 Global Equity Legislative Update, the Swiss Federal Council previously issued a new law on the taxation of equity-based compensation, which will become effective on January 1, 2013. An additional draft ordinance now deals with related employer reporting obligations. The primary goal of the ordinance is to provide clarity and Swiss-wide guidance on how to handle the implementation of the new tax law. The final version of the ordinance is expected to be issued this summer. This means that companies offering equity compensation should now start to consider the practical issues which may arise in complying with the new employer obligations, in order to be ready for implementation on January 1, 2013. United Kingdom Important UK withholding tax administration changes that are anticipated to impact on equity rewards The United Kingdom is planning on introducing Real Time Information (RTI) starting in April 2013. For most employers this will be the most fundamental change to withholding tax administration in decades. Companies need to start preparing now for these changes as significant adjustments to current processes are likely to be needed. PwC Global Equity Compensation 2
Country Discussions France Changes to employer reporting obligations for qualified stock options and free share awards New transition reporting obligations for qualified restricted stock units in 2012 Qualified restricted stock units (RSUs) are not subject to tax in France until sale, assuming the two year sale restriction from vesting until sale is satisfied. Currently, in the year following the vesting of qualified RSUs, the local French employer is responsible for providing an annual information statement to the tax authorities with details regarding the employees receiving the shares and the number of shares vested. According to a decree released by the tax authorities on January 30, 2012, these reporting obligations will changes for vestings which occurred in 2011 and required to be reported in 2012. According to the new rules, for qualified RSUs which vested during 2011, companies must provide employees with an individual statement, as well as send a copy of the statement to the French company s tax center by April 30, 2012. The following information must be included on the individual statement: Reference to application of article 80 quaterdecies of the French Tax Code; Legal name and address of the head office of the parent company granting the RSUs and, if applicable, the same information for the French employer filing the statement; Name and address of the employee receiving shares upon RSU vesting; Number of shares acquired and the fair market value per share on the vesting date (in euros); Dates of grant and vesting; Date of the expiration of the two year holding period following vesting. In general, the parent company issuing the shares or the French employing company must complete the individual statement. PwC Global Equity Compensation 3
Changes to reporting obligations for qualified stock options and restricted stock units beginning in 2013 Currently, for qualified stock option exercises, the local employer must provide an exercise statement to each employee with a copy to the tax authorities by February 15 of the year following exercise. The following information must be reported on the statement: Legal name and address of the head office of the parent company granting the options and, if applicable, the same information for the French employer filing the statement; Dates of grant and exercise; Number of shares acquired and the exercise price (in euros); If applicable, the excess discount. An "excess discount" occurs if the grant price is less than 95% (but more than 80%) of the 20-day trading average of the stock prior to the date of grant (and less than 95% of the average repurchase price of the shares in case of treasury shares). The "excess discount" is the amount in excess of 5% but less than 20%. For qualified option exercises occurring during 2011, the reporting obligations for 2012 remain the same. Beginning in 2013, the reporting obligations have been amended to have reporting obligations for qualified stock options consistent with those applicable to qualified RSUs and to also take into account the new withholding tax obligations applicable to stock option and RSU income. The reporting of any gain from these awards will have to be submitted electronically through the DADS (annual wage tax return), except in certain circumstances. The details of the new reporting obligations applicable as of 2013 are as follows: By March 1 of the year following the vesting of qualified RSUs and exercise of qualified options (i.e., March 1, 2013 for RSU vestings in 2012 and options exercised in 2012), companies will have to provide employees and the paying agent of the withholding tax an individual statement. That statement will contain, in addition to the information reported above for 2012, the portion of French source gain. An individual statement will also have to be submitted to the same parties (including the tax administration) if the applicable holding period is not respected and in case of an intermediary transaction (for example, certain changes of control). The deadline generally remains set for March 1 of the year following the year during which the transaction takes place. PwC Global Equity Compensation 4
Where income from the awards needs to be reported (for example, where an excess discount exists on qualified options) on the DADS, in addition to the social security boxes already included on the form, certain tax boxes will have to be completed for options exercises and RSUs vestings as from January 1, 2012. Based on information currently available, the tax information requested will be the same as that mentioned in the individual statement, including the portion of the French source gain. In some cases, the transfer of information to the tax authorities will still be made though the individual statement (the paper version) as opposed to the electronic submission of the DADS. Netherlands Final amendments to 30% ruling included in the published 2012 Budget plan As noted in the October 2011 Global Legislative Update, the 30% ruling may be extended to some foreign employees assigned to the Netherlands. The 30% ruling permits specific income allowances for both the employer and cross border employee, reducing the overall tax burden of an international assignment. The final amendments to the 30% ruling contain most of the proposed changes which can be summarized as follows: The "specific expertise" requirement is based upon a minimum salary norm of approximately EUR 50,000; The maximum duration period for employments beginning on or after January 1, 2012, is reduced to 8 years (previously 10 years); The look back period of the "reduction rules" that reduce the duration of the 30% ruling by previous periods of stay and/or work in the Netherlands, is extended to 25 years. This rules out almost all Dutch national employees who return to the Netherlands at some stage in their international career; and, Only employees that have lived outside a 150 km radius from the Dutch borders in at least 2/3 of a4 months prior to Dutch employment will be considered as inbound employees. While most of the proposed amendments remained intact, there were several new important developments/clarifications that were incorporated into the final legislation. These clarifications include: Salary norm is based on the income tax salary level for Dutch tax residents; No specific rules for part-time employees. Thus, there is no applicable conversion to a full-time salary; The legal wording of the basis of the application of the 30% ruling on income earned after the last day of Dutch employment leaves room for interpretation; PwC Global Equity Compensation 5
It may not be required to apply a deduction from the maximum grant period for all limited periods of previous stay/work in the Netherlands within the 25 year reference period. The legal wording is not in line with the legislator's intention; and, The transfer rules also apply in case of a change of employer. The basis of the 30% ruling is the income from current employment that is earned during the period in which the 30% ruling is applicable. This change is meant to exclude the 30% ruling applying to salary that becomes taxable after leaving the Netherlands. According to the Dutch tax authorities' view it is not possible to apply the 30% ruling anymore on bonus or equity award income that becomes taxable after the last day of Dutch employment, even when the benefit became unconditional during the Dutch employment. This new rule is less beneficial than the old legislation and would also impact employees who already had the 30% ruling in place prior to 2012. Most matters in relation to the 30% ruling amendments were clarified by the final legislation. However, there remain uncertainties in certain areas. Furthermore, employers will now be facing the challenges of implementing new policies and processes, but also will need to determine the impact of existing cases and adopt a strategy for employees impacted by the new rules. Please see the attached Netherlands Global Watch for more detailed information regarding the final legislation. Switzerland New draft ordinance on employer reporting obligations in connection with equity compensation As the tax and social security treatment currently varies between Swiss cantons and social security authorities, so do the requirements and practices regarding payroll processing and declaration. For example, some cantons require a list of awardees while other cantons require the employer to report the entire income, even if the employee has lived abroad for a large portion of the vesting period. As a result, companies with employees in different cantons currently have to comply with different tax treatment and employer reporting obligations within Switzerland for the same equity awards. Based on a recently released draft ordinance, further changes will apply to the employer reporting obligations in connection with equity-based compensation as of January 1, 2013. As opposed to existing reporting obligations, the reporting obligations under the new draft ordinance are obligations of the employer to the tax authorities. On an annual basis, the employer is required to report all relevant aspects in connection with equity compensation to the cantonal tax authorities of the employees' tax residence. For awards that are not subject to income taxation at grant, but at vesting/exercise under the new rules (e.g., share awards, non-quoted options), the employer is required to PwC Global Equity Compensation 6
report the granting of such awards as well as the income realized by the employee at vesting/exercise. In the case of internationally mobile employees, share awards, nonquoted options and similar awards are subject to Swiss income taxation based on the portion of the vesting period spent in Switzerland. The reporting to the tax authorities must now show the taxable benefit for Switzerland as well as the calculations for the pro rata approach applied. There are many aspects under this draft ordinance that will require further clarification which may be covered by further revisions during the consultation period (until March 2, 2012) or by a new circular that is expected to be issued by the Federal Tax Administration in the summer of 2012. Issues requiring clarification include, the form in which the reporting should be made, reporting for phantom (e.g., cash settled) awards, and reporting obligations following termination of employment. The tax treatment under the new tax law and draft ordinance will be applicable to all new awards granted as of January 1, 2013. However, the employer reporting obligations will apply as of January 1, 2013, to all awards regardless of the grant date with one exception: If a company has a ruling in place covering the employer reporting obligations for their equity awards, those reporting obligations will continue to remain in effect for all awards granted prior to January 1, 2013. The following actions are recommended for all companies at this stage: 1. Check what tax and social security rulings you have in place and to what extent or for how long they will remain applicable. 2. Prepare processes and documents in order to comply with the increased reporting requirements as of January 1, 2013. Please see the attached Switzerland TAXeNews for more detailed information regarding the draft ordinance. United Kingdom Important UK withholding tax administration changes that are anticipated to impact on equity rewards The introduction of Real Time Information (RTI) in the United Kingdom, from April 2013 for most employers, is the most fundamental change to withholding tax administration in decades. Currently employers make weekly or monthly payments of tax and social security to the UK Revenue Authorities with no supporting documentation until after the tax year end. However, under RTI, numerous supporting details will need to be provided in respect of every payment to each employee. The new system is to be tested and refined with a sample of volunteer employers from April 2012. RTI is likely to place more pressure on the need for quick and efficient information flows, especially in respect of equity awards, so as to ensure that tax is paid and reported in a timely manner and penalties are avoided. PwC Global Equity Compensation 7
Companies need to start preparing now as significant changes to processes are likely to be needed in particular where share awards are make by a non UK parent, for example by a US company. We will provide additional updates regarding these changes as they become available. PwC Global Equity Compensation 8
Contact information For more information about any of these developments, please feel free to contact any of our team members listed below. Philadelphia, PA Bill Dunn (Partner) 267 330 6105 AmyLynn Flood (Partner) 267 330 6274 Kerri McKenna 267 330 1723 Michael Shapson 267 330 2114 Stamford, CT Heather Royce 203 539 4210 Los Angeles, CA Aldona Gorman 213 356 6127 New York, NY Parmjit Sandhu 646 471 0819 Ari Solomon 646 471 8477 Chicago, IL Andrew Katsoudas 312 298 2831 Anne Roest 312 298 2646 San Jose, CA / San Francisco, CA Julie Rumberger 408 817 4460 Brad Reynolds 408 817 1219 Karolyn Sadowski* 267 330 1935 *currently seconded to Zurich, Switzerland This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. SOLICITATION 2012 PricewaterhouseCoopers LLP. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers LLP, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. PwC Global Equity Compensation 9