Global equity compensation Recent legislative updates

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1 Global equity compensation Recent legislative updates Country Summaries August 2012 Edition (for a more comprehensive discussion, please see the "Country Discussions" section below) Argentina Tightening of foreign exchange regulations poses restrictions for chargeback arrangements and certain equity-based compensation arrangements The Argentinean Central Bank recently released Communication A 5318 which provides that both local companies and individuals are not authorized to purchase foreign currency or to transfer funds abroad for investment purposes or without a specific purpose. Under these tightened regulations, local companies will face difficulty offering certain equity-based compensation granted by a foreign parent company as well as with the reimbursements of costs related to such awards to the foreign parent company. PwC Global Equity Compensation 1

2 Australia Fiscal year tax rate changes As of July 1, 2012, there have been various changes to the Australian individual income tax rates and thresholds as well as the Medicare Levy rates and thresholds. The one-time Flood Levy imposed during the previous tax year (ending June 30, 2012) will no longer apply. France Increase in contributions on qualified stock options and free share awards As provided in the July Global Legislative Update, the French Government recently issued a draft of the 2nd Amended Finance Bill for On July 31, 2012, the French Parliament adopted the Finance Bill into law. Under the bill, employer healthcare contributions due at the time of grant on qualified awards will increase from 10%/14% to 30% for grants made on or after July 11, Whereas, employee social tax contributions due at the time of sale will increase from 2.5%/8% to 10% once the Amended Finance Bill is published which is expected to be in the coming weeks. The opposition party in France has protested the constitutionality of some of the provisions in the Bill. The measures will likely be reviewed by the Constitutional Court in the coming weeks after which time the Bill will be published. Israel Clarification of timing of deposit of securities with trustee for tax qualified plans The Income Tax Authorities ("ITA") published a new tax circular on July 24, 2012 clarifying the deadlines for the deposit of securities with the trustee in order to secure tax favorable treatment under the Section 102 trustee routes of taxation. PwC Global Equity Compensation 2

3 United States Employer rules for withholding the additional 0.9% Medicare tax effective 2013 The IRS recently published updated guidance on its website providing useful information for employers and individuals relating to the additional 0.9% Medicare tax applicable to wages beginning in 2013 as set out under provisions of the Patient Protection and Affordable Care Act of PwC Global Equity Compensation 3

4 Country Discussions Argentina Tightening of foreign exchange regulations poses restrictions for chargeback arrangements and certain equity-based compensation arrangements The Argentinean Central Bank recently released Communication A 5318 which provides that both local companies and individuals are no longer authorized to purchase foreign currency or to transfer funds abroad for investment purposes or without a specific purpose. Under these tightened regulations, local companies will face difficulty offering certain equity-based compensation granted by a foreign parent company as well as reimbursing the foreign parent company for the cost of such awards. However, the chargeback payment can be made from a foreign bank account by the Argentinean company as long as the funds are not transferred to such account from an Argentinean bank account. Furthermore, the regulations will likely limit the ability for companies to implement employee stock purchase plans (ESPPs) in Argentina due to the restriction to transfer funds abroad. Although these regulations are new and the Central Bank has not yet provided any interpretations of how these rules will affect chargeback arrangements and ESPPs, PwC-Argentina recommends companies should not implement chargebacks or ESPP plans in Argentina until further guidance is released. For those companies already operating an ESPP, PwC-Argentina recommends seeking specific guidance. Australia Fiscal year tax rate changes As of July 1, 2012, the individual income tax free threshold has increased to $18,200. The individual income tax rates and income thresholds are now as follows: 0%: A$0 - A$18,200 19%: A$18,201 - A$37, %: A$37,001 - A$80,000 37%: A$80,001 - A$180,000 45%: A$180,0001 and above PwC Global Equity Compensation 4

5 Additionally, the Medicare Levy and Medicare Levy surcharge rates and thresholds have been updated to the following: Medicare Levy: 1.5% of all taxable income (no thresholds) Medicare Levy Surcharge: o 0%: A$84,000 or less for single taxpayers/a$168,000 or less for families o 1%: A$84,001 - A$97,000 for single taxpayers/a$168,001 - A$194,000 for families o 1.25%: A$97,001 - $130,000 for single taxpayers/a$194,001 - A$260,000 for families o 1.5%: A$130,001 or more for single taxpayers/a$260,001 or more for families Lastly, the one-time temporary Flood and Cyclone Levy of up to 1% imposed on income earned during the previous tax year (ending June 30, 2012) no longer applies. France Increase in contributions on qualified stock options and free share awards As provided in the July Global Legislative Update, the French Government recently issued a draft of the 2 nd Amended Finance Bill for Under the draft bill, employer healthcare contributions due at the time of grant of qualified awards will increase from 10%/14% to 30% for grants made on or after July 11, Whereas, employee social tax contributions due at the time of sale will increase from 2.5%/8% to 10% once the Amended Finance Bill is published which is expected in the coming weeks. On July 31, 2012, the French Parliament adopted the Finance Bill into law. The opposition party in France has protested the constitutionality of some of the provisions in the Bill. The measures will likely be reviewed by the Constitutional Court in the coming weeks after which time the Bill will be published. PwC Global Equity Compensation 5

6 Israel Clarification of timing of deposit of securities with trustee for tax qualified plans The capital gain and employment income trustee routes of Section 102 of the Income Tax Ordinance ("ITO") applicable to equity awards provide that awards granted and shares realized from these awards should be "deposited on the date of issuance" with a trustee authorized by the Israeli tax authorities for these purposes. The income accrued from these securities may then be eligible for beneficial tax treatment on the part of the employee and/or the employer provided certain conditions are met. In order for the employee to receive capital gains tax treatment on the growth in value of the shares from the date of grant, the shares must be held by the trustee for at least 24 months from the date that the options are granted and deposited with the trustee. Under the employment income route where the award income is taxable to the employee at the time of sale at marginal tax rates, the trustee must hold the shares for at least 12 months. Furthermore, companies will only be allowed to claim a corporate tax deduction for the equity award employment income portion come under qualified trustee plans. In relation to the deposit requirements with the trustee following the grant date, multinational companies have found it difficult to comply with such requirements in a timely manner. Due to these difficulties, the Income Tax Authorities ("ITA") published a new tax circular on July 24, 2012 clarifying the deadlines for such deposits. 45 day requirement The circular provides that companies must transfer to the trustee within 45 days of a company's board of directors' resolution approving the equity award grants to Israeli employees a copy of such grant resolution. The copy of the resolution should include details of the grant including names of recipients, types and amounts of securities granted, vesting details, exercise price, and the date the awards lapse. 90 day additional requirement For stock option grants (and likely also applicable to similar awards such as restricted stock units), companies must transfer to the trustee within 90 days of the grant approval date, executed stock option agreements. PwC Global Equity Compensation 6

7 For share awards such as restricted stock, public companies must transfer the actual shares to a brokerage account administered by the trustee within 90 days of the resolution. Private companies must transfer the original share certificate(s) registered in the name of the trustee for the benefit of the employee within 90 days of the resolution. If the company does not have share certificates, a copy of the company's shareholders' registrar must be provided to the trustee indicating the number of shares being issued in the name of the trustee. Furthermore, the trustee is required to immediately administer accurate and routine records which document the date that the supporting documents are provided. These supporting documents must be retained by the trustee and used to demonstrate that the requirements relating to the timing of depositing with a trustee under Section 102 have been met. If the grants do not meet these requirements, they will be deemed to have been issued under a non-trustee plan and the gain from the sale of the securities will be taxed as regular compensation at the employee's marginal tax rate. If the company has not met these requirements, it can apply to the ITA for their review of the specific facts and circumstances. Interim provisions for prior grants not in compliance For grants made before July 24, 2012, the deposit requirements of the grant details with the trustee is extended from 45 days to 90 days following the grant approval. If more than 90 days have passed from the grant approval date, an application should be made to the ITA in order to ascertain whether the grants can be considered trustee plan awards. Note that the Circular is not considered legislation and thus is not binding on the ITA. However, it reflects the ITA's tax position and the ITA has followed this approach in many of its recent tax assessments. PwC Israel recommends that companies evaluate their potential exposure by reviewing the procedures used internally and by their appointed trustees relating to stock incentive plans in order to determine what degree they comply with the ITA's current position. If a company has not been in compliance with the ITA approach with regard to previous grants, PwC Israel recommends that the company consider a ruling application to resolve the matter. PwC Global Equity Compensation 7

8 Please refer to the attached PwC Israel Alert for additional details. United States Employer rules for withholding the additional 0.9% Medicare tax effective 2013 For taxable years beginning after December 31, 2012, an additional 0.9% Medicare tax withholding will be imposed on individuals who earn wages over $200,000 (tax liability starts at $250,000 for married filing a joint return, or $125,000 for married filing a separate return). This additional tax, added to the existing 1.45% employee portion of Medicare tax, will result in a total of 2.35% Medicare tax withholding on wages paid over $200,000 during the calendar year. Note that the employer's portion of Medicare tax remains at 1.45%, regardless of the amount of wages paid during the calendar year. The IRS has published guidance in the form of a Frequently Asked Questions ("FAQs") document to help employers and payroll service providers when examining existing procedures and making changes to payroll processing systems that may be affected by the law change. The IRS will also release drafts of revised payroll tax forms. The FAQs clarify various details relating to the new 0.9% Medicare tax such as when individuals are required to pay the additional Medicare tax, employer withholding requirements, and how the additional Medicare tax is applied to nonqualified deferred compensation. The FAQs can be found at: Please see the attached HRS Insight for more details on the guidance published by the IRS in relation to the new Medicare tax. CEPI Membership - Discount Offer As a long time supporter of the Certified Equity Professional Institute (CEPI) at Santa Clara University and a member of its Advisory Board, PwC is offering a discount relating to the CEPI certification. The CEPI offers the certification standard for the equity compensation industry, a three-level, self study, distance learning program in the technical regulatory issues affecting equity compensation. This discount opportunity offers a saving of $200* on new exam registration fees (normally $1,295 for US registrations, $1,495 for non-us) for the November 3, 2012 exam. PwC Global Equity Compensation 8

9 For more information, visit the website at To take advantage of this discount offer, contact the CEPI at 408/ or Registration closes September 21, * Eligible registrations include new Level 1, Level 2 or Level 3 registrations for individuals who are involved in administering or managing their own company s equity programs. There is no limit to the number of individuals at a company that can utilize this offer. Deferrals and re-tests are not eligible for a discount. Individuals already registered are not eligible for a retroactive discount. Candidates from service providers do not qualify. Questions regarding eligibility can be directed to the CEPI at 408/ PwC Global Equity Compensation 9

10 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) AmyLynn Flood (Partner) Kerri McKenna Michael Shapson Stamford, CT Heather Royce Los Angeles, CA Aldona Gorman New York, NY Parmjit Sandhu Ari Solomon Chicago, IL Anne Roest San Jose, CA / San Francisco, CA Julie Rumberger Jennifer George Karolyn Sadowski* *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 10