June 2017: Tapestry Alert: UK: Share Plan Tax Returns – deadline extended – 43 working days to go!

As we noted in our May alert, the filing deadline for your UK annual share plan returns for the 2016/17 tax year are fast approaching. Usually, the deadline would be 6 July but, on Friday, HMRC announced that the deadline for this year has been extended to 24 August 2017 in recognition of the issues experienced with the ERS online service this year.

More detail can be found in our May alert, but here are a few key points:

  • share plan returns must be filed online with HMRC each year in respect of ‘reportable events’ in the preceding tax year (so this year, events from the 2016/17 tax year must be reported);
  • reportable events include grants, vestings, exercises, lapses, adjustments, rollover and cancellations;
  • in most cases, a nil return is required even where there have been no reportable events;
  • the returns can be made using templates available on HMRC’s Employment-Related Securities Online Services, accessible via HMRC’s PAYE Online Services (note that we recommend downloading new templates each year);
  • before you can submit your filing, you must register the relevant share plan;
  • UK tax advantaged share incentive plans (SIPs), save-as-you-earn plans (SAYE or sharesave plans) and company share option plans (CSOPs) must also be self-certified as compliant with the relevant UK tax legislation in the first year in which you make awards and, for subsequent filings, you will need to disclose any amendments to ‘key features’ of those plans and confirm that the amendments are in line with the relevant UK tax legislation; and
  • there are consequences for not meeting the deadline, including financial penalties for failing to register your plans and/or file your annual share plan returns on time (or for registering/filing incorrectly) and any new UK tax advantaged plans will also lose their tax status if you fail to register and self-certify them by the deadline.

Tapestry Comment
The extension to 24 August 2017 will be generally welcomed. However, we would still recommend that you progress your registration/self-certification process as soon as possible in order to ensure that no issues arise at the last minute.

If you would like our help in preparing your 2017 annual share plan filing or registering/self-certifying your plans this year, please do let us know.

We would be delighted to help!

Sarah and Matthew

Sarah FergusonMatthew Hunter

June 2017: Tapestry Alert: Financial Services: PRA Remuneration Policy Statement Updated

The PRA has recently updated their remuneration policy statement (RPS) table.

The update includes changes to the notes section of RPS table 7 (malus) to show that firms may include information in relation to the malus applied to buy-out awards within Part C of table 7.

Earlier in the month, the PRA also made additional amendments, including:

  • submission deadlines and document references, and note for Level 1 firms that this date is 31 August;
  • an amendment to question (D.i) within the RPS Level 1 questionnaire relating to the identification of Material Business Units (MBUs); and
  • additional notes on buy-out within the notes section on the RPS tables.

The RPS templates allow firms to record remuneration policies, practices and procedures and assess compliance with the rules in the Remuneration Part of the PRA Rulebook.

Level 1 firms should now be looking at the changes that they are required to make to comply with the EBA guidelines in time for the accelerated deadline of 31 August.

If you would like any help producing or reviewing your RPS, please do let us know.

Janet and Matthew

Janet Cooper  Matthew Hunter

June 2017: Tapestry Alert: Financial Services: FSB Compensation Consultation and UK’s BSB Annual Report Published

Two documents focussing on remuneration and firm culture have been published:

The theme of the two documents is focussing on firm culture and accountability.

FSB Consultation


The 2009 FSB Principles and Standards on Sound Compensation Practices established a range of compensation principles that were replicated in CRD III (and later, CRD IV) and other EU remuneration regulations.

The Principles and Standards require compensation to be adjusted for all risk types, emphasising that subdued or negative financial performance should generally lead to a considerable contraction of the firm’s total variable remuneration, taking into account both current compensation and reductions in payouts of amounts previously awarded, including through malus or clawback arrangements.


The FSB has prepared guidance setting out ‘best practice’ concerning the link between compensation and conduct, addressing:

  • the full range of responsibility for conduct issues arising from firm culture and commitment to ethical conduct, including ultimate responsibility of the board;
  • integration of non-financial considerations relating to conduct in a balanced approach to performance assessment and compensation;
  • alignment of compensation incentives over longer periods to allow any misconduct risk to materialise;
  • the use of transparent, consistent and fair compensation policies and procedures that establish clear expectations and accountability for conduct; and
  • supervisory expectations for supervisors to monitor and assess the effectiveness of firms’ compensation policies and procedures in managing misconduct risk.

Next steps

The FSB is seeking responses by 30 August 2017, after which formal guidance will be produced.

Tapestry Comment
The FSB Principles set out the basic structure replicated by many of the remuneration regulations impacting firms operating within the EU, as well as similar regulatory structures outside of the EU. The guidance does not set out additional Principles or Standards, but instead provides ‘best practice’ recommendations that firms should consider.

The focus on non-financial measures, full range of responsibility for conduct and culture and alignment of compensation over longer periods is in line most of the existing EU regulations and is particularly in line with the UK regulators’ approach.

For those firms already complying with the relevant EU regulations, we do not expect the additional guidance to require any major changes but we recommend that you compare your existing policies and practices against the recommendations to identify any potential gaps against the FSB’s ‘best practice’ approach.

UK’s BSB Annual Review 2016/2017

The BSB was set up in the UK to work with its member firms to build trustworthiness in the sector.  22 banks, both UK and overseas are members.  The BSB has published their first annual review painting a picture of the banking sector based on views from more than 28,000 people working in banks operating in the UK and UK building societies. The review focusses, in part, on creating a culture of responsibility and accountability within firms, rather than a culture of blame.

Key findings

Many participant firms have worked to link the remuneration process strongly to behaviours in line with the firms values, including:

  • removal of sales targets from frontline employees;
  • the use of balanced scorecards; and/or
  • taking into account behavioural objectives, as well as business targets.

Employees welcomed the greater importance of behavioural objectives in performance review and remuneration, and thought that this resulted in better behaviour, but said they find it more difficult to assess and measure success in this way.

In a small number of firms, focus group participants said that sales targets remained implicit through the retention of business targets for their managers.

Employees, executives and board members (including Remuneration Committee Chairmen) across many firms described remuneration policies at their firm and across the sector as too complex, with employees in several firms describing their firms’ remuneration and reward policies as confusing and over-engineered. In particular, the links between different elements of performance assessment, fixed pay and variable pay was found to be confusing.

Next steps

The BSB will focus on the topics covered in the report over the next year, including the alignment of values an strategy and issues relating to remuneration and reward, picking up themes that emerged around sales targets and incentives.

We also understand that the 2017 review is currently taking place.

Tapestry Comment
BSB’s  Annual Review does not establish rules or guidance but illustrates the renewed regulatory and industry focus on firm culture. The recent PRA Remuneration Supervisory Statement, the MiFID II remuneration regulations and the FSB Guidance noted above have elements which focus on culture. There is a particular focus on the accountability of the management body – in most banks, the board of directors – for culture as the body ultimately responsible for the oversight and approval of remuneration policies. In relation to PRA firms there is a  drive for the extension of malus and clawback from culpable individuals to those individuals responsible for those culpable individuals and to individuals responsible for setting firm culture. While this is first BSB Annual Review, future documents will be useful for identifying trends in firm culture over the next few years.

If you would like to discuss either of these documents, please do contact us.

Janet and Matthew

Janet Cooper  Matthew Hunter

June 2017: Tapestry Alert: New Zealand: Tax updates

Guidance for valuation of shares for tax reporting and changes to the tax treatment of employee share plans

Over the last 18 months, the New Zealand Inland Revenue Department (IRD) has focussed on various issues affecting the taxation of employee share plans.  In a Tapestry newsletter last year (which can be found here), we discussed the introduction of employer withholding for share plan income and the tax treatment of certain types of share plans. In this newsletter we will cover:

  • new guidance on the valuation of shares for tax reporting; and
  • proposed changes to the tax treatment of employee share plans.

Valuation of shares for tax reporting


From 1 April, employers have been able to elect to apply withholding on income under an employee share plan. Under the new rules, employers must report the taxable value of benefits that employees receive under employee share plans. To support this reporting obligation, the IRD recently released a Commissioner’s Statement (CS17/01) which provides guidance to employers in calculating the value of share benefits.

Why is the guidance necessary?

The Statement recognises that although the new reporting rules oblige employers to disclose the ‘value of the share benefit’ received under a share plan, tax legislation does not provide the tools for calculating this value. The guidance aims to give employers safe harbour valuation methods which will be accepted by the IRD.  The Statement also provides guidance with regard to the information a company should retain to support a valuation.

Do employers have to follow the IRD’s guidance?

Employers can use other valuation calculations so long as the method used determines the value of the share benefit based on the market value of the shares on the acquisition date. If the employer chooses an alternative valuation method, it must retain all supporting documentation in case the Commissioner queries the valuation.

What share plans are covered by the Statement?

Although the Statement refers to Share Purchase Agreements, this is broadly defined to include any plan which involves the acquisition of shares in a company at less than market value by an employee. The share plan may involve the immediate transfer of shares, the granting of share options or deferred share schemes where shares vest or are transferred at a later date.

What does the guidance say?

The Statement sets out several different valuation methods linked to the type of shares to be delivered under a share plan (listed shares, unlisted shares or shares in an unlisted start-up company).  Interestingly, the Statement accepts that absolute accuracy is not expected in all cases, acknowledging that this may be affected by the available data, but requires that a reasonable process must be followed. The employer is required to keep the documentation used to make the valuation.

What are the valuation methods for listed shares?

For shares in a listed company, the valuation options are:

  • volume weighted average price (VWAP) over the last five trading days (including the acquisition date) for the listed share. The VWAP for a share is calculated by adding up the dollars traded for every transaction relating to that share (price multiplied by number of shares traded) and then dividing by the total shares traded for the day; or
  • the Closing Price of listed shares on the acquisition date; or
  • if the shares are sold on the acquisition date, the actual proceeds of sale.

For shares offered to employees in a newly listed company as part of an IPO, the valuation is made using the published offered price in the offer documentation.

What exchange rate applies?

For shares in an offshore company, the value should be converted to NZD using the closing exchange rate on the acquisition date.

What is the timing for the application of the guidance?

The guidance applies to any shares acquired by employees from 1 April 2017.

Tapestry Comment
It is unusual for a tax authority to provide this type of specific valuation guidance.  In our experience, in most jurisdictions there is no specific method provided and any valuation is permitted so long as it is it reflects the fair market value of shares on the relevant date. The NZ IRD seems to be tying up what it sees as loose ends – having imposed a reporting obligation on employers, it is providing certainty as to how the to fulfil this obligation. There is also flexibility as companies which already use a different form of valuation will not be required to adopt the options in the Statement.

Companies with employees participating in share plans in NZ will already be reporting share plan income in the employer monthly schedule.  Employers should consider which of the valuation options in the Statement is applicable for their share plan, company and employees. If none, the company should ensure that it is able to demonstrate why the alternative valuation method is valid. Employers will also need to keep any documentation used to make the valuation. The valuation will be used to calculate the amount of tax payable by the employee which will be recorded in the  employee’s summary of earnings which is used to complete the annual tax return.

Taxation changes – proposed changes to tax treatment of equity share plans

In the newsletter referred to above, we also reported on the IRD’s proposals for changes to the taxation of conditional and ‘option-like’ share plans.  Following consultations on these proposals, amendments to the taxation of share plans generally forms part of the recently introduced omnibus legislation- the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill (the Bill).

What is the aim of the legislation?

The Bill is a wide ranging piece of legislation which seeks to modernise and simplify aspects of the NZ tax system. For share plans, the stated aim of the Bill is to achieve neutral tax treatment of employee share plan benefits. This reflects the IRD’s concern that some share plans have been structured with the intention of giving employees tax-free remuneration. Under the new rules, the tax position of both the employer and the employee is intended to be the same whether remuneration is paid in cash or shares, so that there is no tax advantage to the employee receiving shares rather than cash salary.

How are share plans taxed now?

Under the current rules, share plan income is taxed when shares are acquired, on the positive difference between the value of the shares and the amount paid by the employee. The tax is due in the year the shares are acquired. The IRD is concerned that some plans are structured in such a way as to artificially reduce the value of the shares on acquisition, resulting in a lower taxable benefit. The new rules aim to treat all share plans equally by deferring the moment of tax.

How will this work?

The Bill provides that the taxable amount of the benefit will be the difference between the market value of the shares at the ‘share scheme taxing date’ less any amount paid by the employee.  If the amount paid is more than the value of the shares, the difference is deductible to the employee. Under the new rules, an employee will be subject to tax on the ‘share scheme taxing date’. This is the date when:

  • there is no real risk that the beneficial ownership will change, or that the shares will be required to be transferred or cancelled;
  • the employee is not compensated for a fall in share value; and
  • there is no real risk that there will be a change in the terms of the shares affecting their value.

This means that employees will be taxable on the value of their shares when they have done everything they need to hold them like any other shareholder (for example, there is no risk of forfeiture if the employee leaves the company or the employee is not protected from incurring a loss if there is any drop in share price).

Is there anything else?

The Bill also proposes:

  • employers will be entitled to a corporate tax deduction of the amount that is taxable to the employee (being the difference between the market value of the shares and the price paid for them);
  • simplified rules for tax advantaged share plans (called ‘widely offered’ or ‘exempt’ share plans). The rules propose an increase in the value of shares that can be issued to employees from NZD2,340 over a three year period to NZD5,000 a year and removal of the deemed tax deduction now available for employers (with effect from 6 April 2017).

A separate discussion paper has been issued to address the treatment of taxation of share plans for start-up companies.

Are there transitional provisions?

Under the Bill, grandfathering rules apply so that the Bill will not apply to shares granted or acquired before 12 May 2016 or, generally, within six months of the enactment of the Bill where the taxing point under the new rules would arise before 1 April 2022, provided that the shares were not granted with a purpose of avoiding the application of the Bill.

What is the timeline?

The Bill is in the select committee stage and is open to submissions from the public until 5 July 2017. It is likely that the Bill will not come into effect until 2018.

Tapestry Comment
The change to the taxation of share plans is part of an overall strategy by the NZ Revenue to simplify and modernise its tax system – and to raise more tax by removing any tax advantages currently available to some complex share plans. This will impact companies with existing share plans operating in NZ and proposals for new plans where the plan structure is tax driven. For international companies with employees in NZ, this change will affect when tax is due and, for some plans, may increase the amount of tax employees are required to pay. The changes have been under discussion for over a year so are not unexpected, but employers may want to consider discussing the impact on affected employees and reviewing whether, given the transitioning rules, it would be appropriate to make grants in advance of the new legislation taking effect.
If you have any questions concerning these updates, please do contact us, we will be happy to help.


Sharon Thwaites

May 2017: Tapestry Alert: France: Good News – Tax-qualified free share awards – social contribution refund?

A recent decision of the French Constitutional Court has held that employer social contribution payments made at grant on certain tax qualified free share awards may be able to be reclaimed if the award fails to vest.


For tax qualified free share awards granted under a free share plan authorised between October 2007 and the introduction of the ‘Macron law’ in August 2015,  the employer social contribution is due in the month following grant.  If the award, or part of the award, does not vest, the employer was not entitled to claim a refund of the social contribution.

What does the Constitutional court decision say?

The court (in a decision released on 28 April) held that although it is acceptable for the employer to be required to pay the social contribution on grant of the award, the inability to claim a refund when the award does not vest is not constitutional. As a result, it may now be possible for employers to claim a refund from the French social administration (URSSAF) of employer social contributions paid in relation to an award, or part of an award, which has not vested. Limitation periods apply to claims for reimbursement of payments made to the URSSAF which may limit the ability of an employer to make a claim as a result of the court’s decision.

Does this affect ‘Macron’ share plans?

The decision does not affect ‘Macron’ tax-qualified free share awards, which are awards authorised under the more favourable tax regime introduced in August 2015, as employer social contributions under the Macron regime are not due until within the month following vesting of awards. As such, there would be no employer social contribution due in relation to a Macron award if it failed to vest.

What should companies do?

Companies seeking to apply for a refund will need to act quickly.  They should review any employer social contributions they have previously paid on tax-qualified free share awards at grant, including in order to determine the amounts and times of payment, and consider whether they may be eligible for a refund. If you want to find out if you might be eligible, please contact us and we can advise on the requirements (the details of which are still unclear). Should you be eligible, we can also help you with the process for claiming the refund from the URSSAF.

Going forward, companies should put in place systems to monitor the employer social contributions paid at grant and track whether those shares subsequently vest or lapse, so that they do not miss out on opportunities to claim a refund where the employee does not actually end up receiving the shares.

Is there anything else to think about in France?

As no doubt you are aware, Emmanuel Macron has recently been elected as the new President of France.

The tax-qualified regime for free share awards which bears his name was introduced by Mr Macron while he was the Economy Minister for France. Following his departure from the government, the Macron free share award regime was watered down at the end of 2016 to reduce the tax benefits (see our newsletter on this here). However, it is not expected that he will seek to introduce further changes to this regime in the coming months.

Tapestry Comment
This is welcome news. It has long been considered unfair that companies can incur this cost where the employee does not end up receiving an actual benefit. The Macron law sought to remedy this (by moving the time of payment of employer social contributions from grant to vesting) but this did not affect awards granted under free share plans authorised prior to the regime’s introduction.

Certain evidence will need to be produced to the URSSAF in order to successfully claim a refund, so it is important companies get specialist advice on the URSSAF’s requirements. Nevertheless, the process could be worthwhile, particularly where significant amounts are involved.

If you have any questions, please do contact us – we would be delighted to help!

Bob and EmmaBob Grayson  

Tapestry’s Hannah Needle – Tax Lawyer of the Year!

We are delighted to announce that Hannah Needle has been named as Tax Lawyer of the Year in Lawyer Monthly’s Women in Law Awards 2017. Full details of the award citation can be found here.

It is our great pleasure to congratulate Hannah on her receipt of this award. The Women in Law Award recognises achievement and success amongst women in the legal profession across the globe, focussing on legal practitioners who have influenced the wider legal profession in their jurisdiction over the last year. Voted on by other members of the legal community, it has quickly become a prestigious accolade and recognises Hannah’s abilities as a lawyer and her commitment to the development of her chosen area of expertise in executive and employee incentive plans.

Hannah joined Tapestry just over a year ago and her impressive skills as a lawyer and her infectious enthusiasm for the work that we do meant that Hannah quickly became a key part of our UK tax and global share plan teams. Hannah is the senior lawyer in our Leeds office and, in addition to extensive client work, is a popular speaker at industry events, on the GEO UK Chapter Committee, a trainer on the Tapestry ICSA Course on Employee Share Plans and helps to run the North of England share plan industry discussion group.