The Danish Parliament recently adopted new Section 7P of the Danish Tax Assessment Act to provide, effective July 1, 2016, preferential tax treatment for certain share-based compensation granted to Danish recipients. Similar in concept to “incentive stock options” in the United States, under the new legislation, share-based compensation meeting certain requirements is not subject to taxation until the shares acquired in connection with the award are subsequently sold by the recipient. At the time the shares are sold, any gain is taxable as capital gains rather than as employment income. In order for Section 7P to apply, the following conditions must be met: Both the employer and employee must agree for Section 7P to apply in the award agreement. The award agreement must specify the nature of the award (e.g., shares, conditional shares, options, terms for receiving the shares, etc.). The value (using Black Scholes for options) must not exceed 10… Continue Reading
Israeli District Court: Costs of Equity-Based Compensation Should Be Included in Cost-Plus Transfer Pricing Arrangements
In this case, an Israeli subsidiary provided certain research and development services to its U.S.-based parent under a transfer pricing agreement that established the subsidiary’s income as an amount equal to its costs plus a 7 percent margin. Employees of the subsidiary received various stock awards under the “capital gains course” of Section 102 of the Israeli Tax Ordinance (“Section 102”). Section 102 generally applies to Israeli resident companies and non-Israeli companies that have a permanent research and development center in Israel. The subsidiary did not include accounting expenses for employee stock awards in its cost base and retroactively amended the transfer pricing agreement with its parent to reflect this treatment. The Israeli Tax Authority (“ITA”) disagreed with the exclusion of these expenses. The Tel Aviv District Court agreed with the ITA, ruling that (i) the accounting expenses for employee equity-based compensation should be included in the subsidiary’s cost base… Continue Reading
On August 7, 2015, France’s “Law on Growth and Economic Activity” (also known as the “Macron Law”) was enacted, effective as of the same date. Among other changes, the Macron Law revised certain aspects of the tax and legal regime applicable to French-qualified restricted stock units (“RSUs”) by decreasing the applicable employer social tax percentage (payable under the new regime at vesting), reducing the minimum vesting period from two years to one year, reducing the acquisition and sale restriction periods, and providing for more favorable employee tax treatment. Importantly, the Macron Law provides that qualified RSUs can be granted under the new regime only if pursuant to an equity plan that is approved by shareholders after the August 7, 2015, effective date. It remains uncertain whether the new regime could apply to RSUs granted under a sub-plan to a shareholder-approved plan if the sub-plan is adopted by a company’s board… Continue Reading
Several changes to the Australian employee share scheme tax rules became effective July 1, 2015. As enacted, the new rules reverse certain rule changes made in 2009 and provide for (i) deferring taxation of options until the time of exercise, rather than upon vesting; (ii) extending the maximum tax deferral period from seven years to 15 years from the acquisition date of a share right; and (iii) increasing the maximum share ownership limit used to determine eligibility for tax deferrals on share rights from five percent to 10 percent. In addition, the new rules provide certain tax concessions for employees of small start-up companies. Additional information on the new tax rules is available on the Australian Taxation Office’s website here.
The IRS recently issued Notice 2015-16, which is intended to “initiate and inform” its development of regulations implementing the Affordable Care Act’s so-called “Cadillac tax” on certain higher cost health plans. Beginning in 2018, Section 4980I of the Affordable Care Act imposes a 40% excise tax on the cost of employer-sponsored health coverage that exceeds an annual statutory limit ($10,200 for employee-only coverage and $27,500 for employee-plus-one coverage in 2018). The Notice outlines various approaches the IRS is considering related to some of the issues in implementing Section 4980I, such as (i) the type of coverage subject to the excise tax, (ii) how to determine the cost of coverage, and (iii) applying the annual statutory limit to the cost of coverage. Although the Notice provides insight into what the Cadillac tax regulations may ultimately provide, the Notice is merely a request for comments on the issues it addresses and is… Continue Reading
The Australian government recently released drafts of amendments to the employee share scheme tax rules, proposed to take effect on or after July 1, 2015. The proposals would reverse some of the changes made in 2009 and provide some tax concessions for employees of certain small start-up companies. With respect to reversals of 2009 legislation, changes include permitting the deferral of taxation for share rights if the participant does not own or have voting rights of more than 10 percent of the company (rather than five percent) and permitting the deferral of taxation until the time of exercise of the share right (rather than vesting) or, in certain circumstances, up to 15 years from the date of acquisition of the share right (rather than seven).
Pursuant to changes in United Kingdom (“UK”) tax legislation, companies that sponsor or maintain any share-based incentive plans or schemes (tax-advantaged or non-tax-advantaged plans) in which UK employees participate must be registered and self-certified online with the UK tax authorities (HM Revenue & Customs). The registration deadline for all new and existing share plans is July 6, 2015. Failure to meet the deadline may result in losing tax advantages and/or incurring penalties. With respect to non-UK companies, any plans under which stock options, stock appreciation rights, restricted stock, restricted stock units, or other equity awards are granted to UK employees should be registered.
The IRS recently issued Revenue Procedure 2014-55, which simplifies the reporting obligation and method to obtain the deferral of U.S. taxation on interests held by U.S. taxpayers in Canadian Registered Retirement Savings Plans (“RRSPs”) and Registered Retirement Income Funds (“RRIFs”). Previously, to defer U.S. taxation on income accruing in their RRSPs and RRIFs to the date of distribution, U.S. taxpayers were required to file Form 8891 with the IRS, which many taxpayers failed to do. The IRS has eliminated Form 8891, as well as the requirement that taxpayers file this form for future and most prior tax years. U.S. taxpayers may generally qualify for favorable tax treatment under the Revenue Procedure so long as they continue to file U.S. tax returns for any year in which they hold an interest in a RRSP or RRIF and include any distributions as income on their U.S. tax returns. A copy of the… 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.