Key International Developments in Global Employee Equity

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International Legal and Tax
Updates/Issues for Global
Employee Stock Programs
Boston NASPP Chapter Meeting
February 13, 2012
Presented by:
Jennifer George, Partner, Orrick, Herrington &
Sutcliffe, LLP
Laurie McCarthy, Global Payroll & Equity Manager,
Sensata Technologies, Inc.
1
Agenda
NEW DEVELOPMENTS AROUND THE WORLD:
 Australia
 Israel
 Belgium
 Japan
 Brazil
 Pakistan
 China
 Russia
 EU
 United Kingdom
 France
 Venezuela
 Ireland
 Vietnam
IMPORTANT ISSUES FOR GLOBAL PLANS:
— Mobile Employees
— Performance Plans
2
Australia – Tax Rules
• Not much new here, but important to keep in mind that the
taxable event is usually when there is no longer a substantial risk
of forfeiture and performance awards must have a least a 6
month initial vesting period.
• When rolling out new terms/plans/aware types, remember to
consider the tax implications to ensure that the taxable event is
not earlier than anticipated
• Be particularly careful with performance awards
3
Belgium – Taxation
• Percentages of taxable income for stock options that are taxed at
grant proposed to increase by 3% (non undertaking)/ 1½%
(undertaking)
• Proposal to start taxing capital gains
4
Brazil – Increased Tax Enforcement
• Brazilian IRS announced increased efforts to ensure employees
are paying income tax on equity awards
• Generally, no employer withholding/reporting obligation so
important to make sure that employees understand that they are
responsible for paying any and all taxes due.
5
China - Exchange Control Approval
• SAFE approval is required for all “equity plans” if PRC nationals are
offered plans
• Dedicated foreign exchange bank account through which all funds into
or out of China must be remitted
• Annual quotas have to be obtained for inward and outward remittances
(in some provinces)
• Proceeds from sale of shares must be repatriated to China
• Locally offered and paid cash only programs OK
• Many companies still “somewhere” in approval process
6
China - Exchange Control Approval
Latest Developments
• Getting more difficult to get $ into China without SAFE approval
• Shanghai SAFE reluctant to approve high annual quotas
• Most companies not converting funds in to RMB (leaving $ in US
dollars)
• Increased interest in offering ESPPs in China
7
EU Prospectus Directive Update
EU Parliament Amendments (July 2010) to Directive included following key
changes:
• €2.5 million Exclusion To Increase to €5 million – Exclusion from Directive
where total consideration to be paid is less than €5 million in the EEA over
any rolling 12 month period
• Under 100 Person Exemption To Increase to Under 150 – No prospectus
required if offer of securities is to less than 150 offerees per member state
• Extension of Employee Share Schemes Exemption to Non-EU Listed
Companies – Companies offering share plan to employees that have
securities admitted to trading on a non-EU regulated market are exempt from
the obligation to file a prospectus, provided: (i) offerees are given adequate
disclosure document; and (ii) the EU Commission deems the particular nonEU regulated market “equivalent” to EU-regulated market
• Required to be implemented in each EU country’s law by June 30, 2012.
8
• Delays expected for EU determining “equivalent” markets
France – Qualified Plans/ Other Tax
Changes
• Effective January 2011, tax favored plans cost more!
— Employer paid social charges on qualified awards will increase from 10%
to 14%
— Employee paid social charges on qualified awards will increase from 2.5%
to 8% (exception if grant value less than a certain amount)
• Plus income tax rate, investment social surtaxes and capital gains rates also
went up
• Effective April 1, 2011 withholding required on sale of shares for non-French
tax residents
• Still not clear how withholding for non-residents will be implemented
• Changes in wealth tax/exit tax
9
France – New Dividend Bonus Law
• Effective for dividends declared on or after January 2011
• Basically, if dividend declared by French company (including
French subsidiary of U.S. parent company) and company has
at least 50 employees and the dividend per share is higher
than the average amount of dividends per share distributed
during prior 2 years, all the French employees must receive a
bonus.
10
Ireland – Taxation Changes
• Finance Bill 2010 introduced mandatory employer tax reporting for all types of
equity awards
— Annual employer reporting for all equity awards now required
— New Universal Social Charge on all stock awards plus employee PRSI
— Changes in employer tax withholding obligations
— Differences between “stock awards” and stock options?
— Grandfathering for awards for which employer and employee entered into
written agreement prior to January 1, 2011 (until August amendments made;
now, no grandfathering beginning January 2012)
— No employer social charges due
11
Israel – Changes to Trustee Plan
Requirements:
• Can elect to do exchange rate conversion at date of
taxable event
• Trustee treatment only available to employees of
Israeli employers
• Supervisory trust application changes
• Proposal to cut back on tax savings available under
these plans
12
Japan – Securities Law Changes
• Exemption to filing requirements (which generally
apply to grants of options or ESPPs offered to 50 or
more people with an offering value > 10 million
Yen) loosened to now apply if Japanese subsidiary
is wholly owned, but a second tier subsidiary
(previously, had to be 1st tier subsidiary)
• Exemption changes not retroactive (i.e., doesn’t
help if already a “continuous disclosure company”)
13
Pakistan – Exchange Control Approval
Tightened
• Approvals from State Bank of Pakistan more
difficult to obtain
• Continuing reporting may be required upon each
ESPP purchase
• Repatriation to be enforced
14
Russia – Uncertainty on Taxation of
Options
• Tax legislation effective January 1, 2011 which sets forth
valuation rules for financial derivatives appears to provide that
all financial derivatives (including stock options) are subject to
tax at grant.
• Legislation does not specifically address stock options and
legislative intent does not indicate that the tax authorities
intended to start taxing stock options at grant.
• Some companies considering obtaining tax ruling to clarify as
uncertain at this point whether tax is due at grant.
• Generally, no employer tax withholding or reporting obligation
for stock options.
15
United Kingdom – More Tax Changes
• HMRC announced in November 2011 that if amendments are
made to UK approved option schemes, companies do not
need to notify the HMRC of the changes unless the changes
due to “key features” of the scheme
• Change in withholding rate for terminated employees (PAYE
Code)
16
Vietnam – Taxation of Equity Awards
October 2009 Official Letter issued to “clarify” treatment of options and
share bonuses (RSUs) under Personal Income Tax law that took effect
1/1/09
Income taxed as both:
• Employment income
— May need to be calculated on basis of accounting expense!
• Income from securities transfer
— Employee to choose between .1% of sale price or 20% of gain (difference
between sale price and “non-preferential purchase price”) (possibly the
accounting expense)
Still Unclear!
Withholding obligation
17
Mobile Employees
• Continued enforcement/interest in many countries to get
share of tax revenues
• Track and develop plan for complying (at least in high risk
countries)
18
Performance Plans
• Very popular
• Unique tax and legal issues
• Make sure your company is obtaining appropriate advice as
issues can be different/surprising!
19
Questions?
Jennifer George
Partner, Orrick, San Francisco Office
415-773-5640
[email protected]
Laurie McCarthy
Global Payroll & Equity Manager
Sensata Technologies, Inc.
508-236-1567
[email protected]
20
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