California Payroll
Conference
Global Equity
Crystal Gronau & Marlene Zobayan
Rutlen Associates LLC
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September 11 and 12, 2014
Disclaimer
This presentation contains general information only and the
respective speakers and their represented firm are 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.The respective speakers and firm shall not be
responsible for any loss sustained by any person who relies on
this presentation.
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Objectives
 To understand the payroll challenges faced by companies
operating global stock plans
 Parent company
 Foreign affiliate
 To appreciate the typical non-payroll compliance
requirements
 To understand U.S. payroll challenges for U.S. expatriate and
inpatriate employees
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What Are Typical Challenges?
 Central administration of stock plans by parent company
 Only domestic payroll feeds
 Compliance requirements (for payroll employer):
 Tax withholding & reporting
 Employer social taxes
 Legal requirements
 Corporate tax deductions
 Locally qualifying plans
 Mobile employees
 Time zone, currency and language issues
 Staying up to date
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What Is Global Equity?
 Stock options
 Non-qualifying
 Qualifying
 Restricted stock awards
 Restricted stock units
 Performance shares
 Employee stock purchase plans
 Stock bonuses
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U.S. Taxation of Equity
 At grant
 83(b) elections
 At vest
 Restricted stock awards
 At release
 Restricted stock units
 At exercise
 Non-qualifying stock options
 At sale
 Incentive stock options
 Employee stock purchase plans
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Non-U.S. Taxation of Equity
 At grant
 Most countries for restricted stock awards
 Some countries tax stock options
 At vest
 Most countries for restricted stock units
 Some countries tax stock options
 At exercise
 Most countries tax stock options
 At purchase
 Most countries for employee stock purchase plans
 At sale
 Brazil, Israel, most locally qualifying plans
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How to Withhold Tax When Employer is
Not the Issuing Company
 Potential Solutions
 Deduct tax through salary
 Ask employee for check
 Withholding from shares
 Withholding from sale proceeds
 Proceeds to subsidiary
 May require different processes for different plans or sets of
employees
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Withholding From Salary
Informs
company of
exercise
Employer
Parent Co.
or Broker
Withholding from
next paycheck
Proceeds or Shares
Employee
Remits taxes
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Advantages:
-Employee receives proceeds quickly
-Correct withholding is applied
Disadvantages:
-No withholding mechanism for terminated employees
-Salary may not be sufficient to cover liability
-Local employer needs to act quickly
Employee Cuts Check
Informs
company of
exercise
Employer
Parent Co.
or Broker
Employee cuts check
Proceeds or Shares
Employee
Remits taxes
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Advantages:
-Employee receives proceeds quickly
Disadvantages:
-No withholding mechanism for terminated employees
-Additional administration for local employer
Withholding From Shares
Informs
company of
exercise
Parent Co.
or Broker
Actual
rate
Employer
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Actual
withholding
Proceeds or Shares
less withholding
Employee
Advantages:
Remits taxes -Ensures withholding for terminated employees
-Correct withholding is applied
Disadvantages:
-Employee may have to wait some time for proceeds
-Withholding has to be at minimum statutory rate to avoid US
accounting issues
-Administratively burdensome
Flat Rate Withholding From Sale
Proceeds
Flat withholding
percentage
Employer
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Parent Co.
or Broker
Reconcile withholding
Proceeds less flat
percentage
Employee
Remits taxes
Advantages:
-Employee receives proceeds quickly
-Ensures some withholding for terminated employees
Disadvantages:
-Withholding process done twice
-Broker withholding may be too much or too little (employee
expectation management)
Actual Rate Withholding From Sale
Proceeds
Informs
company of
exercise
Parent Co.
or Broker
Actual
rate
Employer
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Proceeds less
withholding
Actual
withholding
Employee
Remits taxes
Advantages:
-Ensures withholding for terminated employees
-Correct withholding is applied
Disadvantages:
-Employee may have to wait some time for proceeds
-Administratively burdensome
Withholding – Proceeds to Subsidiary
All proceeds
Employer
Parent Co.
or Broker
Proceeds less
withholding
Employee
Remits taxes
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Advantages:
-Ensures withholding for terminated employees
-Correct withholding is applied
Disadvantages:
-Employee may have to wait some time for proceeds
-Need to be careful of US GAAP
Payroll Reporting Requirements
 Timing of reporting
 Grant
 Vest
 Exercise
 Sale
 Annual
 How will local tax/payroll department get access to data?
 Beware of Data Privacy issues
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Other Global Equity Compliance
Requirements
 Legal Requirements
 Local securities filing
 Contract law
 Data privacy
 Foreign exchange
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Time Zone, Currency & Language
 Difficulties in communication due to
 Time zone
 Language
 Who is going to answer employee questions?
 Currency issues
 Are there cash disbursement restrictions?
 How will funds be disbursed to employees?
 Local currency: check/wire
 Through payroll
 Cost to employee
 What exchange rate should be used?
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International Assignees
 Tax equalization process requires special treatment
 Expatriate pays tax only to same extent they would have paid in
the their home country
 Hypo-tax
 Company pays host country and home country actual taxes
 Tax impact of exercising stock options varies widely due to
location at:
 Grant, vest, exercise and sale
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Sourcing Principles
• The general rule is that income is sourced where it is earned
or over the “earnings period”
• Each taxing jurisdiction may have a different view of the
earnings period
 U.S.
• Generally where “earned”
• Equity usually deemed to be earned from grant to vest
 Maybe overridden by treaty
• State sourcing may vary from Federal
 E.g., Ohio stock options
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Sourcing For Equity Compensation
Employee is granted an award which vests on the 4th
anniversary. Employee relocates 2 years after grant and
exercises 3 years later. Chart shown the percentage
sourced to jurisdiction of grant
U.S.
Singapore
Japan
0%
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10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
US Sourcing Rules
 Since January 1, 2006 Federal sourcing is based on US
workdays from grant to vest
 Some treaties state otherwise:
 US : Canada
 US: Japan
 US: UK
 Specific grants may require different sourcing
 E.g., an award granted for a project undertaken in a particular
location
US Sourcing Rules
 US resident
 Tax entire award
 Allocate award between US and foreign source
 Foreign earned income exclusion and FTCs can be taken against
foreign source income
 US non-resident
 Tax US sourced portion only
Inpatriate
 What countries require reporting
 Is the inpatriate tax equalized
 What social tax scheme is the employee covered by – home
or host
 Do you withhold taxes at the minimum statutory tax rates or
sell to cover anticipated actual tax liabilities
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Expatriate
 What countries require reporting
 Is the inpatriate tax equalized
 What social tax scheme is the employee covered by – home
or host
 Do you withhold taxes at the minimum statutory tax rates or
sell to cover anticipated actual tax liabilities
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Double Tax Treaties
• Each double tax treaty is different
• U.S has double tax treaties with almost 70 countries
• BUT generally an individual is tax exempt if :
 The employee is present in the host country for 183 days or less,
In the taxable year concerned or rolling 12 month period
 Referred to as 183 day rule
 The employee compensation is paid by or on behalf of an employer which
is not a resident of the host country, and
 The compensation is not borne by a Permanent Establishment (PE) or
fixed base which the employer has in the host country
 Economic employer

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Totalization Agreements
• Similar to double tax treaties but focus is social security
• U.S. has totalization agreements with 24 countries
• Generally, individual can be covered in “Home Country‘” for
up to 5 years
• May mean that income tax and social tax are sourced
differently for the same income
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Example
 Peter, an employee of ACME Inc. in the U.S. is assigned to work in Germany
for 3 years starting July 1, 2013. ACME obtain a Certificate of Coverage to
retain Peter in the U.S. social security system during the course of his
assignment. In March 2014, Peter receives a bonus of $10,000 related to his
performance during 2013. What taxes have to be paid?
 U.S. income tax on $10,000 x 50%*
 U.S. social tax on $10,000 x 100%
 German income tax on $10,000 x 50%
 Does the payer matter?
 * Assuming a US citizen and the company takes a position that U.S. withholding
is not required on foreign sourced income as the individual is subject to foreign
withholding
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Staying Up To Date
 Withholding rates change annually
 Constant international law changes
 Withholding requirements
 Reporting requirements
 Legal requirements
 Consultant update newsletters
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Any Questions?
Crystal Gronau
Rutlen Associates LLC
cgronau@rutlen.com
650-279-5879
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Marlene Zobayan
Rutlen Associates LLC
mzobayan@rutlen.com
650-868-9282
Thank you for your attention
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