The NASPP Blog

I had something in mind to bring to the forefront this week – the topic of monitoring your risk when it comes to global compliance for equity plans. I’d recently caught wind that one country has ramped up their tax audits – particularly related to equity plan incentives. Rather than do an ordinary run through of where we’re seeing more compliance audits and actions, I’m going to test your knowledge with a short quiz. Are you on top of the changing risk factors when it comes to global compliance? Ready?

Test Your Know-How of Global Risk Factors

1) Which country was recently the subject of a Global Alert titled: “People’s Republic of China (PRC) – Increased focus from tax authorities on equity awards”?

a. China

b. Australia

c. Mexico

2) Which country recently enacted legislation requiring an allocation ratio not to exceed 5:1 for “free” shares issued under qualified plans? (For example, where one employee receives 100 free shares, no other employee may receive more than 500 free shares.)

a. Australia

b. France

c. Hungary

3) Which country has a pending legislative bill that aims to provide specific tax requirements for treatment of share incentives for internationally mobile employees?

a. Canada

b. United States

c. United Kingdom

There is a common theme in all of the questions above: recent change. In all of these cases, there are things that have occurred, or things that are proposed that result in significant changes to how companies need to approach their equity incentives in these countries. By now, I think most companies engage in some form of a compliance review at some point in time (annually?). The question is whether a periodic review is enough to keep up with interim changes. I’m not a lawyer, but I’d venture to suggest that a periodic review of your global compliance is a good practice, but may need to be supplemented with interim monitoring and adjustments.  There are simply too many global jurisdictions, too many differences amongst locales, and too many ongoing changes to leave things up to an annual review – particularly if you are issuing equity in multiple countries or notoriously compliance aggressive locations.

To address the specific questions in the quiz above – China has increased scrutiny and enforcement of reporting for equity plans in at least two jurisdictions. This includes audits. In France, new legislation has been adopted that now requires a company to have an allocation ratio when issuing “free” shares. The scope of this new ratio is not entirely clear, and some global advisers recommend a case-by-case approach until further information is available. In the United Kingdom, there is pending legislation that would require taxation of equity incentives realized by internationally mobile employees. While the rules are not final yet, there could be significant impact to individuals who have come to the UK with equity awards already in hand. The proposed legislation would subject those awards to UK income tax if an exercise (stock option) or vesting event (restricted stock) occurs on or after April 6, 2015.

The intent of today’s blog is to remind everyone that global compliance continues to be a challenge, and one that really requires a multi-pronged approach. Leaving risk assessment to an annual review of your plans and related compliance is probably not enough. Companies should consider engaging expert advisers, utilizing available means to keep on top of interim changes (the NASPP has a Global Stock Plans Portal that includes country-specific guides, matrices, alerts and newsletters from firms specializing in global compliance), and assembling an internal team or task force that monitors and guides the process for assessing risk and managing global compliance. The case in point being the above quiz – 3 jurisdictions, 3 entirely separate issues or changes – all of interest and concern to the companies granting or taxing equity in those locations. Local regulators are becoming more assertive in their compliance measures. It’s best to consult advisers and your task force to determine where the greatest risks to the company exist, and how those risk factors may change as a result of legislative or enforcement developments.

-Jennifer

Quiz answers: 1) China; 2) France; 3) United Kingdom