International Updates and Grant
Acceptances for Equity Plans
DC/VA/MD Chapter Meeting
National Association of Stock Plan Professionals
August 2, 2013
June Anne Burke, Partner, Baker & McKenzie LLP
Sinead Kelly, Partner, Baker & McKenzie LLP
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.
© 2013 Baker & McKenzie LLP
Argentina: New Exchange Control
Restrictions
–
On July 5, 2012, Argentine Central Bank issued Communication No
5318, suspending ability of Argentine residents to purchase foreign
currency and remit funds abroad to purchase shares
 Intercompany offsets to transfer ESPP payroll deductions may also
be considered violation
 Options with cashless exercise (or cash exercise using offshore
funds) should be fine
– Recommended Action:
 Consider suspending ESPP
 Consider restricting options to cashless exercise or notify employees
that must use offshore funds to pay exercise price
© 2013 Baker & McKenzie LLP
2
Australia: Uncertain Treatment of RSUs and
SARs under Securities Laws
–
–
–
–
–
Companies granting RSUs/SARs to Australian employees have typically
relied on self-executing exemptions (e.g., "20-in-12" exemption) or on
Class Order exemption to avoid prospectus disclosure requirement
In 2012, ASIC stated that it does not consider RSUs/SARs to fall under
Class Order exemption (unlike options and ESPP)
Also, not certain if "20-in-12" or senior manager exemption still available
for RSUs/SARs
Instead, RSUs/SARs are treated as derivatives
ASIC stated it would release draft of revised policy on treatment of
employee share schemes by end of July 2013 - now delayed until later in
2013
© 2013 Baker & McKenzie LLP
3
Australia: Uncertain Treatment of RSUs and
SARs under Securities Laws (cont’d)
–
Recommended Actions:
 Consider whether other exemptions from prospectus
disclosure requirement may apply
 Consider whether treatment as derivatives can avoid filing
requirements
 Suspend granting RSUs/SARs until ASIC issues guidance
(hope revised policy makes exemptions available)
 Seek specific relief from ASIC for RSU/SAR grants
© 2013 Baker & McKenzie LLP
4
Australia: Update on Tax-at-Grant Issue
–
Under ATO guidance, minimum initial vesting requirements
apply to time-based awards to avoid tax at grant

6 months for award that vests over 3 years or less

12 months for award that vests over more than 3 years
–
Private ruling in 2012 confirmed that tax is deferred until
vesting even if minimum initial vesting requirements not met
–
Recommended Action:

Consider obtaining similar ruling in case minimum initial
vesting requirements not met
© 2013 Baker & McKenzie LLP
5
Australia: Update on Tax Reporting
–
–
For ESS reporting to employees and to ATO (due July 14 and August 14,
respectively), ATO requires non-Australian award "providers" to prepare
ESS reports in their own name – can’t use Australian sub/employer entity
(as was previously accepted)

If using ESS Bulk Load Excel Spreadsheet – insert 0 for provider’s
ABN and explain to employees why parent is reflected as "employer"
on their ESS statements
Change in reporting for mobile employees

Previously, entire taxable amount was required to be reported

Now only pro-rated amount (based upon portion of vesting period
employee worked in Australia) to be reported, if available

Otherwise, report full amount, but if subsequently become aware of
facts, amended report should be submitted
© 2013 Baker & McKenzie LLP
6
Australia: Update on Tax Reporting (cont’d)
–
Recommended Actions:

Make sure award issuer is listed as "provider" in ESS
reporting

Review available data for mobile employees with taxable
events during the 2012 – 2013 tax year who worked in
Australia and make sure ESS statements (due July 15)
were prepared correctly
© 2013 Baker & McKenzie LLP
7
Brazil: Update on Taxation of Stock Options
–
Tax court ruled in two cases on June 21, 2013 that social security taxes apply
to stock option gains

Court considered gains to be equivalent to remuneration


–
–
–
Companies assessed taxes in excess of $22 million
At least one of the companies will appeal ruling
Currently, most companies treat equity award gains as additional incentives,
not subject to social security taxes
Employer social tax rate is up to 28% (uncapped), and employee rate is up to
11% (but capped)
Recommended Actions:

Review current practice in Brazil and potential impact of rulings on your
plan with your advisor

Stay tuned for further developments
© 2013 Baker & McKenzie LLP
8
Canada: More Stringent Foreign Asset
Reporting Requirements
–
–
On June 25, 2013, Canada Revenue Agency issued a revised Foreign
Income Verification Statement (Form T1135), effective for 2013 tax year
Form required for Canadian residents to report foreign assets/property
over C$100,000

–
Requirement applies to shares of non-Canadian companies even if
shares held in a Canadian brokerage account

Vested options appear to be subject to the Form T1135 reporting
Revised statement requires more detailed information on foreign property,
such as:



Name of the foreign institution or entity holding assets/funds outside
Canada;
Country of foreign assets/property; and
Income generated from foreign assets/property
© 2013 Baker & McKenzie LLP
9
Canada: More Stringent Foreign Asset
Reporting Requirements (cont’d)
–
In addition, extension of the normal reassessment period by
three years for a taxpayer who has failed to report income
–
Recommended Action:

Communicate these changes (and foreign asset
reporting requirements in other award countries) in
award agreement addenda, employee information
supplements or other materials
© 2013 Baker & McKenzie LLP
10
China: Update on SAFE Requirements
–
Under Circular 7, generally all SAFE offices requiring re-registration of
plans approved under Circular 78
–
Shanghai SAFE requiring annual re-registration
–
New applications are more streamlined and usually faster, but:

Beijing SAFE focused on past non-compliance – increased penalty
risk

Shanghai SAFE refuses to register cash-settled awards

Non-PRC nationals – increasing grey area:

Circular 7 requires inclusion of all "domestic individuals"


But all SAFE offices seem to view inclusion of non-PRC
nationals as optional
Beijing SAFE will not allow inclusion unless resident in China for
one year
© 2013 Baker & McKenzie LLP
11
China: Update on SAFE Requirements
(cont’d)
–
SAFE issued Circular 17 (effective May 13, 2013) in connection with
implementing a new monitoring system for foreign inbound
transactions
–
Companies with existing SAFE approvals need to obtain monitoring
system code and new business registration certificate from SAFE
–
Renewal process appears to be simple

–
Takes approximately 2-3 days in Shanghai; 1 day in Beijing
 No additional documents need be submitted
Banks may refuse to accept wire transfers without new
code/certificate
© 2013 Baker & McKenzie LLP
12
China: Update on SAFE Requirements
(cont’d)
–
Recommended Actions:



If you have SAFE approval – make sure you have
reregistered under Circular 7 and Circular 17 (to keep your
funds flowing)
If you do not have SAFE approval but need it – tread
carefully with respect to prior grants in China; consider
suspending grants and share issuances until approval is
granted
If you have/need SAFE approval, talk to your advisor about
whether you should include non-PRC nationals
© 2013 Baker & McKenzie LLP
13
EU: Status of Employee Share Plan
Exemption under EU Prospectus Directive
–
–
–
–
–
Directive amended in 2010
Expanded employee share plan exemption for non-EU issuers
listed on non-EU regulated exchanges (NYSE, NASDAQ, etc.) is
subject to determination that non-EU regulated exchange is
"equivalent" to EU regulated exchanges
EU Commission’s equivalency determination is stalled and
unlikely to be made until late 2014/2015
EU Prospectus filers should expect to continue filing through 2014
(possibly beyond that)
In the meantime, Germany and Poland confirmed non-transferable
options no longer subject to Directive
© 2013 Baker & McKenzie LLP
14
France: Changes for Qualified Awards
–
–
–
–
Both employer and employee tax liability for qualified awards significantly
increased following 2012 changes

Employer social tax now 30% (RSUs) / 7.5% (options) on value of
underlying shares at grant – effective for grants on or after July 11,
2012

Employee now subject to a maximum combined rate of approx.
61% - effective for grants on or after September 28, 2012
Has resulted in many companies ceasing to grant qualified awards
But qualified awards can continue to be beneficial (at least for company)
under certain circumstances
French government announced plans to introduce 75% employer-paid tax
on income above Euro 1 million (for single taxpayer) – may not apply to
qualified award income but will need to monitor
© 2013 Baker & McKenzie LLP
15
France: Changes for Qualified Awards
(cont’d)
–
For options, 4-year holding period requirement (currently)
not applicable for grants since September 28, 2012
–
Holding period still applies to RSUs
© 2013 Baker & McKenzie LLP
16
France: Changes for Qualified Awards
(cont’d)
–
Recommended Actions:

Consider whether grants of qualified awards make
sense

If qualified options will be granted, update
sub-plan/agreement for new rules (no holding period)

Update (or create) employee tax disclosures, including
details of foreign account reporting, as severe sanctions
apply for failure to report

Monitor proposed changes in tax law
© 2013 Baker & McKenzie LLP
17
Israel: New Guidelines for Trustee Plans
–
For Section 102 trustee plans, new guidelines issued July 24,
2012 impose additional requirements for awards to be qualified
 Provide trustee with grant details (e.g., copy of resolution
approving grants) within 45 days of grant date
 Provide trustee with hard copy of executed grant agreements
within 90 days of grant date
 Possible to use electronic acceptance but may require
ruling from tax authorities
 May be possible to obtain one-time consent that covers all
grants going forward (further guidance expected from ITA)
© 2013 Baker & McKenzie LLP
18
Israel: New Guidelines for Trustee Plans
(cont’d)
–
Prior grants also subject to 90 day notification, but may be
possible to rely on favorable tax treatment even if noncompliant (requires application to tax authorities)


"Change of Track" approach: holding period starts from
date of notification to trustee and tax treatment depends on
whether award vested or not vested as of date of
application to tax authorities – requires approval
"New Grant" approach: grants treated as made on date of
application to tax authorities, holding period restarts –
approval is automatic upon submission of application
© 2013 Baker & McKenzie LLP
19
Israel: New Guidelines for Trustee Plans
(cont’d)
–
Recommended Actions:

Check with trustee to ensure new notification
requirements can be met

Consider obtaining ruling from ITA to confirm that
electronic acceptance of grant agreement sufficient (or
rely on blanket ruling obtained by trustee)

Monitor ITA guidance to check if one-time consent
sufficient

Verify if old awards met notification requirements
© 2013 Baker & McKenzie LLP
20
Italy: Changes to Financial Intermediary
Requirements
–
Companies offering ESPP and options (not limited to cashless
exercise) were required to engage Italian broker to offer in Italy
–
Effective November 13, 2012, Italian Financial Services Act amended
to exempt offers to service providers of issuer and related entities if
offer made at companies’ offices
–
–
Not certain if offers made via email, intranet or internet exempt
Recommended Actions:

Wait for clarification on application to electronic offers before
terminating existing intermediary relationship

Alternatively, consider delivering enrollment documents in
hardcopy to avoid intermediary requirement
© 2013 Baker & McKenzie LLP
21
Philippines: Securities Law Update
–
–
–
–
New informally adopted Philippines SEC ("PSEC") policy requires
companies with Section 10.2 exemption to notify PSEC before
issuing shares to new employees in the Philippines
Requires notification letter and new HR Manager certification
PSEC will monitor compliance by comparing the names of
employees issued shares against the list of employees previously
approved by the PSEC
Recommended Action:
 If relying on a Section 10.2 exemption, determine whether
employees who were not listed in prior approval are
participating and/or whether they will be receiving awards file notice with PSEC before awards vest
© 2013 Baker & McKenzie LLP
22
Russia: Ruling on Taxation of Options
• Since January 1, 2011, options and ESPP rights taxed at grant
and again at exercise, with no step-up in basis
• Private ruling in December 2012 – held that options were
taxable only at exercise, not at grant
• Does not apply to other taxpayers but is helpful precedent for
companies granting/considering granting options or ESPP
rights in Russia
Recommended Action:
• Continue to exercise caution with option/ESPP grants in
Russia
• Consider obtaining a private ruling to confirm tax treatment
23
© 2013 Baker & McKenzie LLP
Russia: New Penalties for F/X Violation
–
Income paid to Russian nationals (including equity income)
arguably has to be paid into Russian bank account
–
Historically, no tracking by authorities or penalties
–
Effective February 13, 2013, violation of currency control
laws penalized by 75% to 100% of value of illegal currency
transaction
–
Recommended Action:

Until further guidance issued, companies may consider
paying proceeds into Russian bank account
© 2013 Baker & McKenzie LLP
24
Singapore: End of ERIS Scheme
–
–
–
–
Employee Remuneration Incentive Scheme ("ERIS") –SGD2,000
of annual gain is 100% tax exempt; 25% of the remaining annual
gain is tax-exempt, up to SGD 1M over 10 years
Applies on portion of award that vests after one year from grant if
grants are made to 25% of employees in Singapore
Exemption expires for new grants effective January 1, 2014; will
continue to apply to prior grants as long as options are
exercised/RSUs vest prior to 2024
Recommended Action:
 Companies may consider notifying employees of the change
and scheduling eligible grants prior to year-end
© 2013 Baker & McKenzie LLP
25
Spain: New Foreign Asset Reporting
–
Spanish residents required to report any shares and/or bank
accounts outside Spain if, as of December 31, the joint value of
each asset type is at least EUR 50,000
–
Deadline is March 31 of following year (extended until April 30,
2013 for first year of reporting)
Severe penalties for non-compliance
–
–
Recommended Action:
 Companies should consider notifying employees of new tax
reporting requirement
© 2013 Baker & McKenzie LLP
26
United Kingdom: Tax-Related Changes
–
–
–
–
–
Real Time Information Reporting:
 New PAYE reporting system known as "real time information"
("RTI") is in pilot stages and will be required broadly by Oct.
2013
Changes in Maximum Tax Rates:
 Effective April 6, 2013, maximum tax rate decreased from
50% to 45%
Changes to CSOP (approved option) regime (awaiting Royal
Assent) likely require changes to existing CSOPs
Employee Owner Contract
Changes to non tax-qualified awards are on the way
© 2013 Baker & McKenzie LLP
27
Grant Acceptance
© 2013 Baker & McKenzie LLP
Grant Acceptance
–
For options, acceptance of the award may be built into the
exercise process  participants must take affirmative action
to exercise options
–
No participant action is required when RSUs vest
–
Therefore, RSUs have no built-in mechanism to force
participant to accept the award prior to the vesting date
–
Same issue impacts restricted stock awards and
performance units/shares
© 2013 Baker & McKenzie LLP
29
Why is Acceptance Important?
–
Award agreements contain terms and conditions that protect
the company in case of dispute (e.g., vested rights
disclaimer, data privacy consent, governing law/venue
provision)
–
Award agreements may also include other provisions that
are beneficial to the company (e.g., restrictive covenants
such as non-compete or non-solicit)
–
Important that plan participants affirmatively agree to those
terms and conditions; the terms and conditions are more
readily enforceable
© 2013 Baker & McKenzie LLP
30
Possible Acceptance Solutions – Weigh the
Pros & Cons
1.
2.
3.
4.
5.
6.
7.
8.
Cancel the award if not accepted by first vesting date?
No new grants to participant if he/she fails to accept award within
timeframe, or at all?
Don’t issue shares until plan participant accepts the award?
Include award in income at vesting but delay release of shares until
acceptance?
Issue shares at vesting but restrict sale/transfer of shares until
acceptance?
Issue shares on the vesting date without a signed/accepted agreement?
Implied or negative acceptance?
Require acceptance of standard terms prior to making grant?
© 2013 Baker & McKenzie LLP
31
Form of Acceptance
–
–
Electronic versus written acceptance

What are the electronic acceptance procedures (e.g.,
double-click acceptance)?

Is electronic acceptance permissible/enforceable in all
countries?
Negative acceptance

Need to verify enforceability in each applicable
jurisdiction
© 2013 Baker & McKenzie LLP
32
Recap
–
One-size fits all approach may not be the best option
–
Consider using different solutions in different jurisdictions or
for different groups of participants
–
When considering any solution consider: tax, accounting,
labor law and data privacy issues – as well as company
profile
© 2013 Baker & McKenzie LLP
33
Global Equity Matrix App
Information on the key compliance issues
for equity awards. Covers tax and
securities, exchange control, labor and
data privacy issues in nearly 40 countries.
Available for free on your iPhone, iPad or
Android smartphone
More at www.bakermckenzie.com/GESAPP
© 2013 Baker & McKenzie LLP
34
Questions?
© 2013 Baker & McKenzie LLP
Contact Information
June Anne Burke
+1 212 626 4371
juneanne.burke@bakermckenzie.com
Sinead Kelly
+1 415 591 3241
sinead.kelly@bakermckenzie.com
© 2013 Baker & McKenzie LLP
36