NASPP CT Chapter Event:
What’s trending? #NewReporting
#HigherTaxRates
#WhyIsMyPlanEvenQualified?!
#BestPractices
Peter Simeonidis
Deloitte Tax LLP
Sally Pritchard
Deloitte Tax LLP
Agenda
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1
Introductions
Level Set
Market Data
Regulatory and Market Reactions
Country Specific Updates
Q&A
NASPP
Copyright © 2013 Deloitte Development LLC. All rights reserved.
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.
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What are your most pressing initiatives concerning your global equity plan?
Polling Summary Report as of 02/07/2013
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
17.1%
Determining award size for relevant
populations
15.5%
Determination of what types of plan to
operate and where
33.3%
0%
4
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
NASPP
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Constantly changing compliance environment
Decreased revenue bases
1
• 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.
1
Increased
audit risk
4 Continuously changing
regulations
4
2
• Challenge to keep current on Legislative
constantly changing legislation, updates
which increases exponentially
as mobility creates need to
understand interaction of
regulations across jurisdictions.
Compliance
• Informational filings
increasingly being enacted
(China, Ireland, UK)
• Departure and Exit Taxes
(Hong Kong, Singapore)
Increased
Increased
scrutiny
scrutiny
2 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.
3
Acceptable
risk profile
3
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.
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Complex Balancing Act
Corp Tax Policy
Tax Audits
Mobility Policy
Income Allocation
Corp Culture
Tax Treaties
Resources
Local Country
Regulations
System Capabilities
Payroll Compliance
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6
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Market Data
Who participated?
A truly global survey
Share plans continue to be recognised as an
effective remuneration tool
130 companies, headquartered in 21 countries, gave
us details of 340 share plans they operate in 90
countries
Main drivers for operating plans
90%
80%
% of companies
70%
60%
Executive plan
50%
Broad-based plan
40%
30%
20%
10%
0%
Drive performance
Provide corporate / Be competitive in the Expand the culture of
group identity
market
ownership in the
group
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.
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45% of broad based
plans are share
purchase plans.
66% of executive plans
include performance
conditions globally –
only 48% in the US.
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Participants
Sectors of activity and region
Media, 3%
Responses were received from
companies operating across a
broad spectrum of industries.
Conglomerate, 1%
Consumer Goods,
10%
Consumer and
Business Services,
9%
Technology and
Communications, 27%
Finance, 13%
Mining, oil & gas, 11%
Region
Asia Pacific
12%
Europe (excluding UK)
28%
United Kingdom
24%
United States
31%
Rest of World
5%
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Healthcare, 11%
% of companies
Industrials, 16%
The table shows the proportion of
Survey respondents by the region
in which the companies’
headquarters are based.
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Key trends around types of plans
What types of executive plans are companies operating?
Bonus deferral plans voluntary
Bonus deferral plans mandatory
All companies
Asia Pacific
Europe (excl. UK)
Share award plans
United Kingdom
United States
Rest of World
Share option plans
Share purchase plans
0%
10%
20%
30%
40%
50%
60%
70%
% of all executive plans in region
10
NASPP
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Key trends around types of plans
What types of broad-based plans are companies operating?
Bonus deferral plans mandatory
All companies
Asia Pacific
Share award plans
Europe (excl. UK)
United Kingdom
United States
Rest of World
Share option plans
Share purchase plans
0%
10%
20%
30%
40%
50%
60%
70%
% of all broad-based plans in region
11
NASPP
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Key trends around features of the plans
Performance measures or not?
Broad-based plans
Executive plans
Share awards plan
Share awards plan
Share option plan
Share option plan
0%
20%
40%
60%
80%
100%
0%
20%
% of responses
Share plan subject to performance conditions
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40%
60%
80%
100%
% of responses
Share plan not subject to performance conditions
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Comparison against the market
Going global
70%
How do you select your participants globally?
60%
50%
% of companies
Executive plan
40%
Broad-based plan
30%
20%
10%
0%
Based on number of
employees
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Based on business
strategy
Not operated in some
Not operated in some
countries based on tax countries based on legal/
reasons
exchange control issues
Other reasons
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Comparison against the market
Going global
How are grant sizes determined?
80%
70%
60%
Executive plan
Broad-based
plan
% of plans
50%
40%
30%
20%
10%
0%
Globally, consistent by
grade
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Adjusted based on
Determined by local
regional market practices country market practices
Other
Copyright © 2013 Deloitte Development LLC. All rights reserved.
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
25.2%
7.2%
Source: February 06, 2013 Deloitte Dbriefs Session - Equity Compensation: Refining and Managing
Plans on a Global Basis
Votes received: 1,048
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NASPP
Copyright © 2013 Deloitte Development LLC. All rights reserved.
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:
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NASPP
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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.
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NASPP
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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:
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‒
‒
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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%
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Comparison against the market
Going global
Do you operate plans to get tax breaks?
60%
50%
Executive plan
% of plans
40%
Broad-based plan
30%
20%
10%
0%
Yes, always
20
NASPP
Yes, but only when it is very
easy to do and requires minimal
changes to the design of the
plan
No, never
Other
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Comparison against the market
Going global
Do you take advantage of any of the following tax efficient plans?
40
35
Executive plan
Broad-based plan
Number of responses
30
25
20
15
10
5
0
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France (qualifying share award
or stock option plans)
Singapore (ERIS (All
Corporations) Scheme or
Qualified EEBR Scheme)
UK (HMRC approved plans)
US (ISO or ESPP)
Other
Copyright © 2013 Deloitte Development LLC. All rights reserved.
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
Irish Revenue-approved share
schemes
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Withholding
obligation
Reporting
obligation






Copyright © 2013 Deloitte Development LLC. All rights reserved.
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
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NASPP
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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
tax-resident 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
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NASPP
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Japan: New Employer Equity Reporting
Requirement
• Action:
25
•
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.
NASPP
Copyright © 2013 Deloitte Development LLC. All rights reserved.
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. .
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”
Copyright © 2013 Deloitte Development LLC. All rights reserved.
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.
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NASPP
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China - Intensive SAFE and tax registration requirements
•
Tax and SAFE authorities have increased their scrutiny of the registration process.
.
SAFE registration (Circular 7 – Feb
2012)
Beijing
•
•
Shanghai
•
•
Jiangsu
•
•
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Tax registration
Re-registration of equity plans under Circular
7 is required.
In-depth review before SAFE registration can
be completed.
•
Banks in Shanghai are tightening internal
controls. Equity-related transactions may be
rejected by banks if SAFE reporting is not up
to date.
Some banks request a statement of the
inbound annual quota (although not required
under Circular 7).
•
Increased attention on non-compliant
transactions.
Some bureaus have queried the current
foreign exchange status of prior grants when
registering new plans.
•
•
•
Most bureaus have developed
formal procedures/ requirements.
Some bureaus request an on-site
interview with the company/ agent.
Companies are facing challenges
when they do not complete tax
registration in time.
Some tax bureaus require ongoing
reporting – failure may disqualify
participants.
Initial tax registration and ongoing
reporting required.
Copyright © 2013 Deloitte Development LLC. All rights reserved.
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:
30
–
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
NASPP
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UK - OTS recommendations and Government response on the
simplification of unapproved share plans
Office of Tax Simplification
recommendations (published Jan 2013)
Government’s response
(published April 2013)
Avoid “dry” tax charge
Consult on cost of implementation –
if adopted, from 2015?
Employee shareholding vehicle
Consult on whether possible without significant
additional costs being incurred
PAYE deadlines
Consider extending once RTI fully
implemented
Form 42
View to introducing online filing from 2014
International assignees
Consult on proposals later this year
Valuation of unlisted shares
Pre-transaction: to assess resources
Automatic acceptance: not to proceed
Valuation of listed shares
Consult on change later this year
HMRC bulletin May 2013:
- Registration of existing and new share plans from April 2014.
- - Online filing of annual returns required from April 2015.
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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.
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Copyright © 2013 Deloitte Development LLC. All rights reserved.
Comparison against the market
0
25
10
15
20
France
Going global – challenging countries
Executive plans
5
Ireland
20
15
10
5
Belgium
0
China
UK
11%
Australia
Germany
Netherlands
Greece
India
Rest of World
9%
Italy
Singapore
US
21%
Other
Malaysia
Korea
Broad based plans
UK
11%
Rest of World
12%
Asia Pacific
36%
US
15%
Rest of Europe
23%
Thailand
Asia Pacific
37%
Other
Korea
Singapore
Poland
Sweden
Rest of
Europe
25%
Netherlands
India
Germany
Australia
China
25
20
33
15
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10
5
0
Switzerland
Belgium
France
0
5
10
15
20
25
Copyright © 2013 Deloitte Development LLC. All rights reserved.
25
Comparison against the market
Internationally mobile employees
How do you tax your internationally mobile
participants?
How do you track your internationally
mobile participants?
100%
Self-certification by
employees
3%
Other
7%
80%
Excel spread sheet
21%
60%
68%
60%
Stock Plan
Administration
software
24%
40%
8%
10%
20%
32%
23%
With the help of our
mobility department
45%
0%
Executive plan
Broad-based plan
Apportion tax between different countries, following the specific tax
rules in each country
Apportion tax between different countries using a generic approach
Tax in full in the country in which they are at the tax point
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Copyright © 2013 Deloitte Development LLC. All rights reserved.
Comparison against the market
Recharge of the plan costs
How do companies determine the value of the recharge?
Do companies recharge the cost of operating share plans to
their local entities?
Accounting value of
the awards
(e.g. IFRS 2/ US GAAP value)
Yes
45%
Market value of the shares
when they are delivered
to employees, less the amount
the employee pays for them
55%
0%
10%
20%
30%
40%
50%
60%
70%
% of companies who recharge
At what point does the recharge take place?
60%
70%
Why do companies not recharge?
Executive plan
Broad-based plan
60%
% of companies who do not recharge
% of companies who recharge
50%
40%
30%
20%
10%
40%
30%
20%
10%
0%
0%
Throughout the vesting period
35
50%
NASPP
At the tax point
At grant of the award only
Other point
Business decision Tax impact on
employee or
employer
Administrative
burden
Exchange control Low headcount
issues
Other
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Questions?
Deloitte contact information
Peter Simeonidis
Tax Senior Manager
Deloitte Tax LLP
+1 (212) 436-3092
psimeonidis@deloitte.com
37
NASPP
Sally Pritchard
Tax Manager
Deloitte Tax LLP
+1 (212) 436-2777
sapritchard@deloitte.com
Copyright © 2013 Deloitte Development LLC. All rights reserved.
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