The EU Court of Justice held that Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008 (“Directive 2008/94”) applies to pension benefits under a supplementary pension scheme, regardless of the cause of the employer’s insolvency, and without taking into account state pension benefits. Directive 2008/94 provides that member states must protect the pension interests of retirees when an employer becomes insolvent. In prior cases, the EU Court of Justice held that, while a member state need not guarantee 100 percent of the pension benefit, a guarantee of less than 50 percent is insufficient. In the case before the court, a crystal manufacturer (the “Employer”) in Waterford, Ireland, entered into bankruptcy. The Employer’s defined benefit pension scheme was severely underfunded and could cover only between 18 percent and 28 percent of the liabilities. A group of employees sued the Irish Minister for Social and Family Affairs… Continue Reading
According to Revenue Memorandum Circular (RMD) No. 88-2012, the Philippines Bureau of Internal Revenue recently clarified that income or gains derived from an employee’s exercise of stock options is subject to income tax as “additional compensation,” and employers are required to withhold taxes on such compensation. For managerial or supervisory employees, to the extent any such income or gain qualifies as fringe benefits, it is subject to the fringe benefit tax pursuant to Section 33 of the National Internal Revenue Code of 1997, as amended (“NIRC”). Further, if the shares to be issued upon the employee’s exercise of the stock option come from unissued stock of the corporation, then the issuance of these shares is also subject to the documentary stamp tax (the “DST”) pursuant to NIRC Section 174. Finally, the RMC details the tax implications to an employee upon his or her subsequent sale, exchange, or disposal of shares of… Continue Reading
New procedures go into effect on September 1, 2012, that, among other things, allow qualifying taxpayers to resolve certain concerns relating to participation in foreign retirement plans. The IRS provides the example that in some instances tax treaties allow for income deferral under U.S. tax law, but only if an election is made on a timely basis. The new procedures apply to low-risk taxpayers, defined as those with simple tax returns who owe $1,500 or less in tax for any of the covered years. To use the procedures, a taxpayers must file delinquent tax returns along with related information returns for the past three years. The taxpayer also must file delinquent FBARs for the past six years. Additional information can be found on the IRS website here.
New Zealand’s Financial Markets Authority (“FMA”) recently issued guidance setting forth the criteria against which FMA will assess the reasonableness of performance fees for purposes of KiwiSaver schemes and outlining the requirements for disclosure of these fees. Under the guidance, performance fees should only be charged in limited circumstances such as actively managed growth funds and must take account of the effective allowance already in the base fee for an element of active management. The FMA indicated it looks for the following elements related to performance fees: hurdle rate of return with an appropriate benchmark; high water mark (with no resets); crystallisation periods of not less than a year; and a performance fee cap. Managers and trustees for KiwiSaver schemes should review the performance fees charged to their schemes in light of this new guidance. The guidance can be found here.
Australian Treasury Issues Draft Amendment to Impose Director Liability for Superannuation Obligations
Under new legislation that has been introduced into Parliament, directors would be personally liable for their company’s unpaid superannuation guarantee amounts. When a company fails to meet its superannuation funding obligations, the Commissioner of Taxation would be authorized to step in and assess personal liability against the directors for the unpaid amounts. This is in addition to liability that directors could face for pay-as-you-go tax withholding liability. In addition, the Commissioner of Taxation would no longer be required to give 21 days notice before starting proceedings against directors. The proposed legislation can be found here.
The Ministry of Finance issued changes to Regulation 909 that would (1) enable the proclamation of the “retired member” provisions in the PBA; (2) implement immediate vesting for plan members and increase the threshold for the small pension payout rule; (3) further clarify the surplus payment rules; and (4) reflect changes to the Income Tax Act (Canada) regarding Individual Pension Plans. Draft Regulations are here. Discussion paper can be found here.
Court Finds Personal Jurisdiction Over a Foreign Parent Regarding Controlled Group Liability for U.S. Subsidiary’s Pension Plan
The Pension Benefit Guaranty Corporation (PBGC) brought suit against Asahi Tec Corporation, a Japanese company, asserting controlled group liability against Asahi for the underfunding of the terminated pension plan maintained by its bankrupt U.S. subsidiary, Metaldyne. Asahi filed a motion to dismiss, asserting that the U.S. Federal District Court for the District of Columbia lacked personal jurisdiction over Asahi. Asahi argued that because it did not commit any acts with respect to the pension plan (with either funding or the termination), and because its sole contact with the United States was its ownership of a U.S. subsidiary, there was no basis for personal jurisdiction. The court disagreed, noting the PBGC’s claims against Asahi were not based on the pension plan’s termination or underfunding, but were predicated solely on Asahi’s status as a member of the controlled group through its acquisition of Metaldyne. The court denied the motion to dismiss on… Continue Reading
Canada’s Office of the Superintendent of Financial Institutions (OSFI) Publishes FAQs on Letters of Credit
Beginning in April, 2011, sponsors of Canadian pension plans were allowed to use letters of credit in lieu of making solvency payments to a pension plan fund for up to 15 percent of a plan’s assets. In response to the “letters of credit” changes, the OSFI updated FAQs addressing changes to pension funding rules to include new FAQs on letters of credit. The new FAQs can be accessed here.
Australia’s Governor-General issued proposed regulations that would make limited recourse borrowing arrangements financial products under the Corporations Act 2001 when entered into by regulated superannuation funds. The proposed regulations also amend current regulations to provide that limited recourse borrowing arrangements are not a credit facility under the Corporations Act 2001 when acquired by superannuation funds, and an Australian Financial Services Licence covering derivatives or securities is taken to also cover limited recourse borrowing arrangements. The superannuation funds would receive consumer protections when purchasing installment warrants. The proposed regulations are located here, and an explanatory memo is located here.
FACTA Requires U.S. Employees to Report Value of Non-U.S. Equity Compensation, Deferred Compensation and Pension Benefits on their U.S. Tax Returns
Temporary regulations issued under Section 6038D of the Internal Revenue Code (which was added by the Foreign Account Tax Compliance Act (FACTA)), require certain U.S. taxpayers to file a statement on IRS Form 8938 with their personal income tax returns reporting interests in “specific foreign financial assets” if the aggregate value of those assets exceeds certain thresholds. The thresholds vary depending on the individual’s filing status and whether the individual lives in or outside of the United States. Reportable assets include financial accounts maintained by non-U.S. financial institutions and non-U.S. financial assets held outside of the U.S., including stock or securities issued by a non-U.S. corporation, non-U.S. partnership interests, indebtedness issued by a non-U.S. person, and options to acquire any of the preceding items. Accordingly, stock purchase rights, stock options, restricted stock units, stock appreciation rights and performance shares issued by non-U.S. entities to U.S. taxpayers, are subject to the… Continue Reading