PORTFOLIO

Global Share Plans: Issues for Multinational Employers (Portfolio 322)

Tax Management Portfolio, Global Share Plans: Issues for Multinational Employers, No. 322-1st, provides a road map to identify the key issues to launching and maintaining a global equity plan. It shows an employer how to approach the global plan with an orderly review of the issues that will need to be addressed.

Price: $400 Print

GET MORE WITH THE FULL PORTFOLIO LIBRARY

This Portfolio is part of the U.S. Income Portfolios Library, a comprehensive resource including 200+ federal tax Portfolios, practice tools, primary sources and timely news.

FREE TRIAL

DESCRIPTION

Around the globe, employees often regard the opportunity for share ownership as an attractive part of the compensation package. Employers may be eager to include worldwide employees in joint ownership of the enterprise. Global companies have many reasons to launch a global share plan — such plans motivate employees, link awards to performance, offer substantial tax and accounting advantages and allow the employer to offer a competitive incentive package to attract and retain employees. Offering local business management the opportunity to participate in a company share plan recognizes the contribution of the local division to the overall results of the organization. In addition, compensating with shares conserves the employer's cash, and for companies with tight cash flow or start-up employers, cash-saving might be the most important reason to provide a share plan.

Exporting a share plan, however, to reach a global workforce is not an easy task. There is an array of obstacles to address. In addition to the practical difficulties of many locations, payroll systems and time zones, there are other hurdles to overcome. Various local tax, legal and regulatory burdens, not to mention cultural and organizational issues, can make providing a seemingly desirable employee incentive opportunity feel like a herculean project.
Any approach to global compensation involves first and foremost a company decision regarding the appropriate balance of global standardization versus localization of incentive design. Both of these conflicting employer desires are valid and important goals. But the approach for each employer will involve a careful balancing of employee needs, employer's global goals, administrative burdens and local laws. The arguments for global standardization include a desire for all employees to have the same incentives because they share the same corporate values and standards, but on the other hand, of course, the advantages of localization include a recognition that each market needs flexibility to tailor the right incentive package to attract and retain a local workforce.

U.S. companies that export their U.S. share plans sometimes find that the U.S.-style purchase plans or stock options are managed in a way that is inconvenient for the employee or that does not consider local issues, thereby detracting from the value of such plans. Or, they find that some employees are not ready to assume investment risk or do not understand the tax implications, which creates an immediate and important need for proper participant education and communication. These issues devalue the share awards in a way that may be hard to calculate with precision; however, they most certainly dilute the incentive value that the employer desired to provide globally.
As challenging and complicated as it may be to roll-out share plans to many different locations, the issues become even more complex when participants are globally mobile and operate in different parts of the employer's worldwide operations — working in one location for a few years, then returning to a home country or transferring to another subsidiary in a different country.

Complexity alone should not be a barrier to implementing a program with positive results. This Portfolio provides a road map to identify the key issues to launching and maintaining a global equity plan. It shows an employer how to approach the global plan with an orderly review of the issues that will need to be addressed. This Portfolio does not provide a country-by-country list of local laws and compliance practices. Rather, the Portfolio and related Worksheets provide a framework to approach a global share plan initiative and to execute the project with minimum surprises.


Buy Global Share Plans: Issues for Multinational Employers (Portfolio 322) now


AUTHORS

SANDRA WIEDER COHEN
Sandra Wieder Cohen, Washington University in St. Louis (BA, 1989), Columbia University (MA, 1995), Yale Law School (JD, 1998); member of New York bar, Partner, Cohen & Buckmann, PC.

VALERIE H. DIAMOND
Valerie H. Diamond, California State University (BA, 1985), California State University (MA, 1989), University of San Francisco School of Law (JD, 1993); member of California bar, Partner, Baker & McKenzie LLP.

TABLE OF CONTENTS

Detailed Analysis

I. Who Is Subject to U.S. Tax? Identifying U.S. Taxpayers

Introductory Material

A. Citizenship and Residency

B. Source of Income

II. Offerings of Share-Based Compensation to U.S. Employees by Non-U.S. and U.S. Issuers

A. Share Plans Generally

B. Introduction to the U.S. Taxation of Share-Based Compensation

1. Stock Options

a. Non-Statutory Stock Options

b. Stock Options to U.S. Taxpayers — §409A

c. Option Grants to Globally Mobile Employees

(1) Establishing the Exercise Price

(2) Foreign Law Exception for Averaging Periods

d. Incentive Stock Options

e. Low- or Nil-Priced Options

2. Stock Appreciation Rights

3. Employee Stock Purchase Plans

4. Restricted Stock

a. General Rules Applicable to Restricted Stock

b. Restricted Stock Grants to Globally Mobile Inbound Employees

5. U.S. Taxation of Share Units or Phantom Shares

a. Structuring Units to Avoid §409A Compliance

b. Good Reason Terminations — Share Unit Vesting

c. Continued Vesting During Restrictive Covenant Period or After Retirement

d. Structuring a Restricted Stock Unit Award to Comply with §409A

e. Applying the 6-Month Delay to Share Units

6. Dividend Equivalents

a. Dividend Equivalents on Stock Options and SARs

b. Dividend Equivalents on Share Units and Other Awards

c. Dividend Equivalents Paid to Nonresident Aliens

7. General — Foreign Deferred Compensation and §409A

a. Section 409A Overview

b. Application of §409A to Inbound Employees: Non-U.S. Service Providers Working in the United States

(1) Previously Earned Compensation

(2) Grace Period for New U.S. Residents

(3) Certain Limited Deferrals of Nonresident Aliens

c. Other Exemptions that Might Apply to Global Equity Plan Participants Who Become Subject to U.S. Tax

(1) Transfers to Funded Plans

(2) Transfers Under Section 83

(3) Stock Options

d. Other International Issues with §409A

(1) Plan Aggregation

(2) Direct Conflict with Foreign Law

8. Foreign Account Tax Compliance Act

III. Expanding U.S. Plans to Cover Non-U.S. Participants

A. Introduction

B. General Design

1. Special Terms and Conditions

2. Sub-Plans

3. Award Agreements

4. Tax and Social Insurance Issues

a. General Employee Tax Treatment

b. Company/Employer Obligations

c. Tax-Favored Regimes

d. Covering U.S. Taxpayers in a Non-U.S. Equity Plan

e. Foreign Asset Reporting

f. U.S. Estate Tax

g. Beneficiary Designations

C. Securities Registration and Exemption

D. Foreign Exchange Control

E. Labor and Employment Laws

F. Privacy Laws

G. Electronic Delivery, Acceptance and Participation

IV. Mobility and Double Taxation of Equity Income

A. Introduction

B. Short-Term Business Travel: Sourcing, Exemptions and Treaty Relief

C. Long-Term Employment Assignments

1. U.S.-Inbound Assignments

2. U.S.-Outbound Assignments

D. Solutions to Double Tax Issues

V. Global Employee Stock Purchase Plan Offerings

A. Overview of ESPP Design Considerations, Alternatives and Tax Benefits

1. Tax Implications of, and Potential Tax Benefits to, the Plan Sponsor/Employer and Employees

2. Employee Population and Human Resources Needs

3. Corporate / Tax Structure

4. Financial Accounting Implications Associated with the Plan

5. Costs to Offer and Administer the Plan

6. Shareholder Issues

B. Global Discount Purchase Plan Offerings (in the United States and Outside the United States)

1. Employee Stock Purchase Plan Design

a. Section 423 Requirements

(1) Equal Rights and Privileges

(2) Employees of Corporation and Its Parent/ Subsidiaries Only

(3) Eligibility

(4) Special Rule for 5% Owners

(5) Purchase Price

(6) Purchase Period

(7) Nontransferable

(8) Holding Period

(9) $25,000 Limitation

(10) Shareholder Approval

b. Employee and Employer Tax Considerations

(1) Employees’ U.S. Income Tax Treatment

(2) Employees’ Non-U.S. Tax Treatment

(3) Employer Tax Considerations

(a) U.S. Employers’ Tax Reporting/Withholding

(b) Non-U.S. Employer Tax Reporting/Withholding

(c) U.S. Employer's Corporate Income Tax Deduction

(d) Non-U.S. Employer's Corporate Tax Deduction

(e) Mobile/Transferring Employees

2. Non-§423 Discounted Plan

C. Global Matching Share Plan Offerings

1. Design Issues for ESPPs with Matching Employer Amounts

2. Tax Issues for Matching Design

D. Non-Tax Legal Considerations in Offering ESPP

1. Securities Law Considerations

2. Segregation of Contributions

3. Exchange Controls and Currency Conversion Procedures

4. Translation Requirements

5. Prohibitions or Limitations on Payroll Deductions

6. Labor Law Issues

VI. Deferred Compensation Issues Under §457A

Introductory Material

A. Application to Equity Compensation

B. Awards Sponsored by a “Nonqualified Entity”

VII. Clawbacks Outside of the United States

A. Introduction to Corporate Clawbacks

B. Statutory Clawbacks that Derive from U.S. Law

1. Sarbanes-Oxley Act, §304

2. Emergency Economic Stabilization Act, §111(b)(3)(B)

3. Dodd-Frank Act, §954

4. EU Capital Requirements Directive

5. U.K. Financial Services Authority Remuneration Code

6. U.K. Corporate Governance Code

C. Contractual Clawbacks

1. Performance-Based Clawbacks

2. Fraud-based Clawbacks

3. Non-Competition-based Clawbacks

D. Developing a Clawback Policy for Outside the United States

E. Enforceability Issues

1. Consideration and Implementation

2. Wages and Labor Laws

3. Restraint on Trade

4. Penalties

5. Tax Treatment of Clawbacks

VIII. Non-U.S. Corporate Tax Deductions for Equity Costs

A. Availability of a Deduction to U.S. Corporation as Employer

B. Availability of Deduction to Non-U.S. Employer

C. Impact of Non-U.S. Employer Deduction on the U.S. Issuer

1. Avoiding Gain or Loss on the Recharge or Reimbursement

2. Financial Statement Accounting Implications to U.S. Parent Corporation

3. Subsidiary's Earnings and Profits Considerations

4. Transfer Pricing, Accounting and Cost Sharing Arrangements Considerations

D. Mechanics of Obtaining Deduction

1. Recharge Arrangements

2. Open Purchase/Treasury Share Arrangements

3. Corporate Action to Approve Arrangement

4. Foreign Currency Exchange Considerations

E. Collateral Considerations for Recharge Arrangements

1. Tax Considerations for Employee/Employer

2. Employment Entitlement Considerations

Working Papers

Table of Worksheets

Worksheet 1 Global Resources/Organizations on Global Share-Based Compensation

Worksheet 2 Sample Global Share-Based Compensation Compliance Checklist

Worksheet 3 Sample RSU Annex Addressing Section 409A for Foreign RSU Plans

Worksheet 4 Sample Sub-Plan to Incentive Plan (U.K. Company Share Option Plan)

Worksheet 5 Sample Sub-Plan to Incentive Plan (French Tax-Qualified Restricted Stock Units)

Worksheet 6 Sample Global Option Agreement with Appendix Containing Country-Specific Terms

Worksheet 7 Sample Employee Information Supplement for Restricted Stock Units (United Kingdom)

Worksheet 8 Sample Employee Stock Purchase Plan (Addressing §423/Non-423 Offerings)

Worksheet 9 Sample Resolution to Designate Participating Entities in Employee Stock Purchase Plan

Worksheet 10 Sample Recharge Agreement Between U.S. Issuer and Non-U.S. Subsidiary

Bibliography

Articles & Publications

2002

2004

2006

2007

2008

2009

2010

2011

2012

2013

2014

Miscellaneous

Accounting Publications

 

 

 


WORKING PAPERS

Working Papers
Table of Worksheets
    Worksheet 1 Global Resources/Organizations on Global Share-Based Compensation
    Worksheet 2 Sample Global Share-Based Compensation Compliance Checklist
    Worksheet 3 Sample RSU Annex Addressing Section 409A for Foreign RSU Plans
    Worksheet 4 Sample Sub-Plan to Incentive Plan (U.K. Company Share Option Plan)
    Worksheet 5 Sample Sub-Plan to Incentive Plan (French Tax-Qualified Restricted Stock Units)
    Worksheet 6 Sample Global Option Agreement with Appendix Containing Country-Specific Terms
    Worksheet 7 Sample Employee Information Supplement for Restricted Stock Units (United Kingdom)
    Worksheet 8 Sample Employee Stock Purchase Plan (Addressing §423/Non-423 Offerings)
    Worksheet 9 Sample Resolution to Designate Participating Entities in Employee Stock Purchase Plan
    Worksheet 10 Sample Recharge Agreement Between U.S. Issuer and Non-U.S. Subsidiary