Employers that have employees in multiple countries should be
aware of the different ways in which countries treat equity awards
for income tax and social tax purposes, KPMG LLP representatives said
May 7 at the 2013 American Payroll Association Congress in
Grapevine, Texas.
In terms of how equity awards are treated for payroll purposes, "the treatment that you see around the world is not always
consistent with what you may be used to from a U.S. perspective,"
said Patrick Landers, CPP, tax managing director for KPMG's
International Executive Services practice.
From a payroll perspective, understanding how equity awards are
treated differently in different countries includes knowing
different countries' reporting requirements for taxable amounts and
tax withholding, its timing requirements for reporting, and knowing
whether liability for taxable portions of the awards falls on the
employer, employee, or both, said Nita Patel, a senior manager
with KPMG.
Recognizing national differences in whether equity awards
are taxable when granted, vested, or exercised is particularly
crucial, Patel said.
About 70 countries have laws for equity award
taxation, but more than 100 countries address equity awards within
general income and social tax laws. In recent years, many countries
have modified their tax laws with regard to equity awards, Patel
said.
For example, France implemented a withholding tax in 2011that is
specifically for restricted stock units exercised by nonresidents,
Patel said.
Many countries are becoming increasingly sophisticated about
tracking when an equity award is granted so that taxable portions
of the awards can be acquired when the awards are later vested or
exercised, even if the employees to whom the awards were granted
work or live in other countries, Landers said.
The United States has income tax treaties with many countries,
which provides relief from double taxation on income by the
United States or by the country that is party to the treaty.
However, employers should be aware in determining overall
taxability of equity awards that fewer agreements exist with regard
to preventing double taxation for social taxes that fund programs
such as Social Security in the United States or its equivalent in
another country.
Because some countries have higher social tax rates than the 6.2
percent rate payable by employers and employees for Social Security
and because some countries do not have a limit on taxable wages to
satisfy the social tax, unlike the Social Security taxable wage
base ($113,700 for 2013), employers should keep track of the
current location of employees who were granted equity awards that
are not yet vested or exercised, as well as how much time has
passed since the award was granted, to better anticipate tax
liabilities, Landers said.
For more information, see BNA's new
International Payroll Decision Support Network.
By Howard Perlman