How to Plump Your Piggy Bank: Cost Savings Strategies for the Stock Plan Professional

Transcription

1 How to Plump Your Piggy Bank: Cost Savings Strategies for the Stock Plan Professional Peter Simeonidis, Principal, Deloitte Tax LLP Sandy Shurin, Manager, Deloitte Tax LLP April 29, 2015

2 Global Share Plans The Stakeholders Finance External Audit Legal Controller Mobility Internal External Treasury Corporate Secretary CRO Mobility Advisor Tax Tax Advisor Executive Compensation HR Employee Participant Internal Audit Broker / Administrator

3 Corporate Tax Considerations.

4 Global Intercompany Recharge Arrangements Issue: Awards of equity to U.S. employees will typically create a tax benefit for the U.S. company, however for awards made to non-u.s. participants, the corporate tax benefits can be lost. Opportunity: Quantify current/potential deductions available and create positive additional cash flow by analyzing corporate tax expense and opportunities to repatriate cash in a tax effective manner. Additional Considerations: Employment tax impact Equity vehicles and administration (share-settled vs. cash-settled awards) Administrative issues such as: how will the local entity be notified of payment, invoicing, which awards expect local payment, etc. Stakeholders

5 Cash versus Stock.

6 Cash vs. Shares Issues: Cash and stock provide different utility in light of company objectives. Social security rules vary from country to country, and may vary within a single country depending on the character of nature of the benefit realized. Opportunities: Identify key objectives and review equity award offerings country-by-country to align objectives and vehicle(s) used, as well as identify social security savings opportunities. Share-settled vehicle* Cash-settled vehicle* Provide tax-effective compensation to participants globally; reduce global employer social security charges Favorable tax planning opportunities Objective Employee retention Minimize impact on cash flow Ease of administration Meets objective Does not meet objective *impact may vary from one country to another

7 Sample Qualified Plan Opportunity - France.

8 France Draft bill on qualified free shares Loi Macron, new tax bill proposed by the French government (recently debated in the National Assembly and now submitted to the Senate). Affecting qualified free share plan awards [granted or authorised] as from the date the law is published. Significant decrease to both employer and employee social security contributions and tax costs. Increased flexibility Employer Flexibility Social security rate Current Proposed 10% 30% 20% Employer social security would now be due at DELIVERY ONLY 8

9 France Draft bill on qualified free shares Employee Taper relief Social security rate Current Proposed 10% Exempt Income tax to remain payable at the date of sale on the acquisition gain at vesting Taper relief to remain available on capital gain but also now on acquisition gain Current Social surtax rate Proposed Before Macron law Grant Vest Sale 8% 15.5% Acquisition gain Capital gain Taper relief Current Income tax Proposed After Macron law Grant Vest Sale 0%-45% Taper relief 50%/65% deduction Acquisition gain Capital gain Income tax and capital gains tax payable Taper relief 9

10 France Draft bill on qualified free shares Cumulative acquisition and holding period The required total four year holding period would be reduced to only two years The two year required vesting period would be reduced to one Grant UK Plan Release Before Macron law Grant Release Sale 2 years 2 years* (minimum) * Unless release period is 4 years or more Grant 3 Years No restrictions US Plan After Macron law Grant Release Sale Or: 1 year 1 year 1 year 1 year Release 1/3 1/3 1/3 10

11 Globally Mobile Employees and Social Security Planning.

12 What is the Issue? Companies moving employees across borders, in which they receive compensation that is earned in more than one jurisdiction How to obtain data to track employees and determine employer tax compliance in more than one jurisdiction and Addressing multiple sets of social security regulations and obligation Keeping up with tax legislative changes

13 Employee Effective Social Tax Rates 23% 13.07% 19.50% 10.19% 8.2% 6.25% 7.65% 0% Belgium Brazil France Greece Italy Norway Switzerland United States * Effective social tax rates on US $100,000 of compensation 2.00% United Kingdom

14 Employer Effective Social Tax Rates 45.0% 35.0% 36.8% 25.56% 23.81% 14.1% 6.25% 7.65% 13.8% Belgium Brazil France Greece Italy Norway Switzerland United States * Effective social tax rates on US $100,000 of compensation United Kingdom

15 Who/What do we mean by Mobile Employee? Any employee that provides services in more than one tax jurisdiction: Expatriates Permanent Transfers Temporary Assignees Split Jurisdiction / Split Payroll Employees Cross border / Commuter Employees Business Travelers

16 Globally Mobile Employees What is an Equity Award Trailing Liability? An employee may be granted an equity award in one country, vest in that award in a second country, exercise in a third country, and ultimately sell the shares in a fourth country. There could be employer reporting and withholding as well as individual tax implications in each jurisdiction. Grant Vest Notional Exercise Exercise Sale Stock Options Belgium Australia Hong Kong United States Brazil

17 Global Issues to Consider Income Tax Timing of taxation varies between countries: o o o Most countries tax options at exercise Some countries tax at grant, vest, or sale Exit and trailing taxes Amount subject to tax varies between countries: o Even for those that tax options at exercise, there may be differences between the statutory definition of fair market value Income tax sourcing rules vary

18 International Social Security - Basic Principles What makes Social Security different? o o Individuals typically receive a benefit for social taxes (e.g., on retirement) Social taxes are typically collected and remitted by the employer can be challenging if not impossible for employees to amend deposits with a return Why have Social Security Treaties? What is the rationale behind them? o o Contribution related, but benefits driven Generally concluded when there bi-lateral movement of people Are there any consistent themes in international agreements? o o o o Home country employment Track record of paying contributions in home location Typically 5 year maximum Special Circumstances

19 Global Issues to Consider Social Tax The issues associated with income tax withholding may impact social security as well Social security rules not necessarily align with income tax rules Qualified Plans, favorable Grant Terms, and Elections Totalization agreements Treatment of cash may differ from shares

20 Increase After-Tax Benefit to Employees Issue: The current design of a company s long-term incentive plan may not realize every available employee and employer advantage in all global locations with plan participants. Opportunity: Identify alternative plan designs and address alternative vehicles (i.e. awarding stock options versus restricted stock versus a cash bonus) that can deliver plan participants more after-tax income and/or reduce the cost to provide equity in each country. Timing of Taxation E.g. stock options taxed at grant (Belgium) vs. vesting (Australia) vs. Exercise (U.S.) vs. Sale (Brazil) Qualified Plans Can defer taxation, reduce applicable, change character of income (OI vs. CGT) Character of Income Options taxed at sale may be treated as capital gains, while restricted stock units in the same country may be taxed at vesting as ordinary income Cash vs. Stock Elect ordinary income taxation at grant (e.g. RSAs) Social security treatment Timing of Taxation Character of Income Qualified Plans Cash vs. Stock

21 Questions?

22 Contact information Peter Simeonidis Principal Deloitte Tax LLP Sandy Shurin Manager Deloitte Tax LLP

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