Global updates - Page 2 - Tapestry - Global Legal Compliance Partners

Tapestry: Worldwide Wrap-up - tap into our global knowledge!

19 April 2023

Staying ahead of the curve on regulatory and tax compliance is a never-ending task for companies. To help you keep on top of recent developments, here is our second quarterly Worldwide Wrap-Up of 2023, with some of the most recent changes that should be on your radar. We have summarised these topics briefly in this alert, however they will be covered in more detail along with other recent developments on our 26 April webinar.

China - Shanghai SAFE - updated list of ‘significant changes’
Any changes affecting a SAFE registration which are deemed to be ‘significant’ require the local company to complete an updated registration with the local SAFE office within three months. SAFE offices differ as to what counts as significant and the Shanghai office has recently announced that adding new onshore entities or removing the registered onshore entities is now deemed as a significant change.
This means that employees of the new entities cannot participate in the plan until the change application has been completed and the new entities have been included in the SAFE registration.
Changes to the SAFE registration (including the regular participants’ list update) which are not deemed as significant do not have to be reported to Shanghai SAFE upon occurrence or on a regular basis but can be registered together with the registration of a significant change.

Tapestry comment
It is a rare WWW-Up when we do not have a SAFE update or a new interpretation of the rules. This is not a major change but it is a useful reminder of the importance of keeping SAFE registrations up-to-date and being aware that any changes which might impact a SAFE registered plan, including to local entities, may have to be reported in a timely fashion.

Malaysia Salary deductions – restrictions expanded

Recent changes to the Employment Act (the Act) in Malaysia mean that the approval of the Director General of Labour (DGL) is now required for an employer to make deductions from an employee’s salary to pay contributions towards an employee share plan.
Before the amendments, the Act had limited scope and usually did not cover participants in global employee share plans. Consequently, DGL approval was generally not required for salary deductions for contributory share plans. On 1 January 2023, the Act was extended to cover all private sector employees who enter into a service contract with an employer, including participants in global share plans who would not previously have been caught by the salary deduction restrictions.
For companies offering contributory share plans in Malaysia, the choices are suddenly more restricted. It would theoretically be possible to apply to the DGL for a general exemption to cover offers made by a parent company to purchase its shares. Alternatively, the local employer can apply for permission from the DGL to take payroll deductions under a share plan offered by a parent company. A third route would be for the employee to make the contribution directly to the company once they have been paid, either by setting up a standing order or a direct debit. A more detailed analysis of the choices is included in our alert (here).

Tapestry comment

This is a surprising change and seems to go against the general trend to simplify the process for employees to participate in employee share plans. Although we can all understand the desire of regulators to protect employees from fraudulent or unscrupulous behaviour, making it more difficult for companies to include Malaysian employees in global share plans is unfortunate.

Sri Lanka - PAYE reintroduced as mandatory APIT
In November 2019, the Sri Lankan government suddenly announced that it was abolishing PAYE from 1 January 2020. Individuals were required to report and pay income tax directly. The change was intended to simplify the tax system for individuals but was met with widespread confusion.
The government quickly moved to put in place a type of voluntary PAYE, called Advance Personal Income Tax (APIT). From April 2020, employees could consent to tax withholding by their employer and the employer would pay the APIT to the Revenue on their behalf.
From 1 January 2023, this voluntary system has been made mandatory, with employers now required to withhold and pay APIT for employees.

Tapestry comment
The abolition of PAYE, caused not only confusion but was one factor in a massive drop in government revenue in 2020, just as the arrival of the Covid pandemic wrecked havoc on the country’s economy. The reintroduction of a form of PAYE is generally seen as part of an overall package of measures that will help to get Sri Lanka’s battered economy back on track.

USA - SEC adopts rules on clawback
In our last WWW-Up, we reported that the SEC had adopted final rules on clawback (here). The SEC rules require US securities exchanges to adopt listing standards that require all listed companies (including foreign issuers) to implement a compliant clawback policy. Under the timetable, US securities exchanges had until 26 February 2023 to propose listing standards that implement the final rules. The NYSE and NASDAQ proposed listing standards, which closely follow the SEC rules, were published on 13 March 2023.
The new listing standards must become effective by 28 November 2023 (although it could be earlier – such date being the effective date). Companies will then have 60 days from the effective date to comply with the new listing standards and to draft and adopt compliant clawback policies. The latest date will be 27 January 2024.

Tapestry comment
As previously discussed, companies need to review their existing clawback policies or put in place new policies. January seems like a long way off now, but an earlier effective date might mean the date for compliance is brought forward. The length of time required to complete and agree the policy should not be underestimated.

Global tax rates
We will look at some recent tax updates, in particular those countries with a tax year commencing in April. Our international advisors provide us with new rates to update OnTap as quickly as they become available. Recent announced changes include:

Bermuda: payroll tax now applies to income up to $1,000,000.
India: proposal to cap tax surcharge at 25% (currently up to 37%).
Scotland: top rate of tax increased to 47%.
Sri Lanka: after several tax changes in the past year, the maximum tax rate from 1 April is 36% for income over LKR2.5 million.

Tapestry comment
We will discuss the detail of these changes in our 26 April webinar. Countries may have made adjustments to tax bands and to social security caps. If you need specific advice for any jurisdiction, please let us know.

If you have any questions, or would like to discuss any element of legal and tax compliance for your global incentive plans, do get in touch - we would be delighted to help!

Chris Fallon, Tom Parker, Lewis Dulley

Tapestry Alert: UK - Annual share plans return filing - new templates for 2023

6 April 2023

All employers operating share plans in the UK must submit an employment related securities (ERS) return to HM Revenue & Customs (HMRC) by 6 July following the end of the tax year. The deadline for filing the ERS return for the 2022/23 tax year, which ended on 5 April 2023, is Thursday 6 July 2023. As the registration and reporting process can take some time, we recommend that employers prepare and file their return with HMRC as soon as possible.

New for 2023 – updated ERS return templates

In January 2023, HMRC announced prospective changes to the end-of-year ERS return templates and corresponding guidance notes. At the end of February 2023, HMRC published the updated guidance notes that distinguish between the approaches for ERS returns submitted before and from 6 April 2023. The new forms of the ERS return templates for use from 6 April 2023 have now been published on the UK Government website here.

The main change is that the following data fields that, prior to 6 April 2023, were optional in certain of the ERS return templates, have become mandatory:

The employing company’s PAYE reference.
Whether PAYE is operated (yes/no).
The National Insurance (NI) number of the employee (where this is not available, an alternative reference that is derived from the employee’s date of birth should be used for ERS returns purposes only).

In addition, certain of the column headings in the ERS return templates have been updated.

It was also announced in the UK Spring Budget in March 2023 that the grant notification process for tax advantaged “enterprise management incentive” (EMI) options will be changed, with effect for options granted from 6 April 2024. The ERS return template for EMI plans has therefore not been updated this year for this change, but is set to be updated again in a year’s time.

What do I need to do?

Register any new plan or arrangements well in advance of the filing deadline

Before you can submit your ERS return, all relevant share plans must have been registered online with HMRC via the registration service found here. To do this, you will need a Government Gateway user ID and password. Your UK payroll team will typically have these details.
You do not have to have a separate registration for each non-tax advantaged plan or arrangement. All current non-tax advantaged plans may be covered by a single registration (and return), (although you can choose to make plan-specific registrations if preferred). Please note, however, that each UK tax advantaged plan must be registered individually and have its own return submitted.
UK tax advantaged Share Incentive Plans (SIPs), Save As You Earn plans (SAYE plans) and Company Share Option Plans (CSOPs) must also be ‘self-certified’ online as being compliant with applicable UK tax legislation.
You will not need to register your plan again if it has already been registered. Only new plans implemented during the 2022/23 tax year will need to be registered. Within 7 days of registering, you should receive a unique scheme reference number for the plan.

File the ERS return – including any nil returns

Once you have the unique scheme reference number for your plan, you will be able to file the ERS return.
To file the return, you must complete the relevant online template.
Each template asks for prescribed information in connection with relevant ‘reportable events’.
The template that you must use will depend on the plan that you are completing the return for. There are particular templates for each of the UK tax advantaged plans, while plans that are non-tax advantaged will utilise the "other ERS schemes and arrangements" template.
Once you have completed the template, you can run it through a formatting check and then submit the return here.

Key points to look out for

Mobile employees: make sure you capture all of your plan participants who have been in the UK at any relevant time and have any UK income tax position in relation to their awards.
Net-settled awards: HMRC has issued specific guidance on the reporting of net-settled awards (where awards are partially settled in cash to meet applicable tax liabilities). You may need to check processes carefully to determine whether tax on awards is funded by net-settlement or a “sell to cover” arrangement, and then organise reporting accordingly.
Transactions: make sure the relevant entities are reporting share award activity related to any corporate transaction and, if your group has acquired a business or company, make sure any share awards in that entity are included in reporting where appropriate.
No plan activity: where you have registered a plan, you must continue to file a return even where there has been no plan activity in the relevant tax year. In these circumstances, a ‘nil return’ should be filed.
Templates: you will need to download the new templates from here rather than using previously downloaded templates. The templates are format sensitive so generally no changes should be made. The checking service found here allows companies to check for formatting errors prior to filing the completed templates. We recommend using this service as it is very helpful in pinpointing particular formatting issues so these can be corrected before making any attempt to submit the templates.
Terminated plans: if you no longer use a share plan, you will still need to make an annual return for outstanding awards. Once all awards have been settled, you can stop filing but only after you have informed HMRC that the plan has terminated. Further information on this is available here.

Why is it important to register and file accurate returns on time?

Failure to register and/or file the return on time can have serious consequences:

Financial penalties may be applied for returns that are materially inaccurate (potentially including both careless as well as deliberate errors).
Financial penalties automatically apply if you fail to file your ERS returns by the 6 July deadline, even if no reportable events occurred in the tax year.
Newly adopted UK tax advantaged plans will not benefit from tax advantaged status if you fail to register and self-certify them by the deadline where awards have been granted in the 2022/23 tax year. This means that any awards granted under new SIPs, SAYE plans and CSOPs on or after 6 April 2022 would not be tax advantaged.

Tapestry comment

For many companies with UK share plans participants, the online ERS return process is now an established part of the annual cycle of share plans activity. Up until 6 April 2023, the form of the ERS return template and the data fields that were mandatory had not changed for a number of years. Therefore, employers may have been in the habit of reusing templates and approaches from previous years. Such an approach will not work this year as the new forms of the templates must now be used.

We expect that the HMRC system will reject returns submissions if they are not on the revised form of the templates or do not contain the relevant mandatory information.

Therefore, whether or not you are new to the process, the message continues to be to plan ahead and allow plenty of time for gathering data in the correct format and checking the content.

In particular, now that NI numbers are mandatory, where employees do not have these their employers should ensure that they have their dates of birth to hand to be able to generate the relevant alternative reference.

The additional mandatory information required by HMRC may also be used to support their cross checks to other share plan related tax touchpoints, such as the PAYE income tax and NI contributions operated by an employer on share awards and any corporation tax deductions it has claimed in respect of them. It therefore continues to be important for share plans teams to work together with payroll and corporate tax colleagues to ensure that the data used is consistent.

If you have any questions on any of the matters raised in this alert, please do contact us and we would be happy to help

Suzannah Crookes and Paul Abthorpe

Financial Services updates / Global updates / Newsletter - 04/07/2023

Tapestry Alert: UK Tax - Chancellor's 2023 Spring Budget

16 March 2023

Yesterday, the Chancellor of the Exchequer (the UK Finance Minister) delivered the Spring budget (financial statement) to the UK parliament.

As expected, the main topics in the budget were the cost of living crisis and growing the economy. There was a focus on investment and encouraging people to return to the workforce, through measured changes to certain rules relating to pensions and increased support for childcare. However, we also had some welcome updates for UK tax-advantaged share plans: the announcement of a review into the tax- advantaged all-employee save as you earn plans (SAYE) and share incentive plans (SIPs), as well as tweaks to the rules relating to Enterprise Management Incentive (EMI) plans.

Budget updates

1. SAYE and SIPs: a new consultation on the all-employee SAYE and SIPs was announced in the 2023 Budget Report. Following lobbying by the share plans industry to encourage the Government to review these plans, the announcement was very welcome. The Government will be launching a call for evidence on SAYE and SIPs, to consider opportunities to improve and simplify these plans.

2. EMI plans: a consultation was launched in 2020 to consider whether these tax-advantaged employee option plans (currently only available to smaller businesses, and subject to certain qualifying criteria) should be made more widely available. The consultation closed on 26 May 2021 and the Summary of Responses was published yesterday (here). Key measures:

from April 2023, the requirement for the issuing company to set out details of share restrictions within an EMI option agreement and the requirement for the participating employee to sign a working time declaration will be removed; and
from April 2024, the Government will extend the deadline for a company to notify HMRC of the grant of an EMI option from 92 days following grant to the 6 July following the end of the tax year.

3. Pension allowances: pensions are not a share plans related issue but they form an important part of the package of typical employment related benefits and do (or should) have an impact on employees’ financial planning. The increase of the annual cap on tax free contributions to pensions, from £40,00 to £60,000 in any tax year, was expected. The abolition of the pension lifetime allowance (LTA), which limits the value of a personal pension pot, was not. The LTA means people incur tax charges if they accumulate more than £1,073,100 pension contributions over their lifetime, but this will now be abolished with effect from 6 April 2023. This was a surprise as only an increase in the LTA was anticipated. Further pension related limits (the Money Purchase Annual Allowance and limits relating to the tapering of the annual allowance) will also increase from 6 April 2023.

Previously announced Share Plans Updates: these were not new in the Budget, but as a reminder given the developments above:

Company Share Option Plan (CSOP): changes already announced include a doubling of the CSOP limit to £60,000 and the removal of some of the share class restrictions which have previously made it harder for some, mainly unlisted, companies to qualify. This change is expected to be included in the Finance Bill which will be published on 23 March.
SAYE: as set out in our alert last year (here), we are also expecting an announcement on the SAYE bonus rate and this is likely to come in the next few weeks.

Other previously announced changes to tax rates and allowances: the Budget helpfully did not introduce further changes to the Autumn statement position and therefore the following will take effect on 6 April:

Income tax: the top 45% additional rate of income tax will be paid on earnings over £125,140 instead of £150,000. A freeze for the personal allowance and higher rate income tax thresholds until April 2028 was confirmed, which means as wages rise, millions of people will pay more in tax.
Capital gains tax: the individual capital gains tax (CGT) annual allowance is cut from the current £12,300 to £6,000. This will fall to £3,000 in April 2024.
Dividend tax: the dividend allowance is halved from £2,000 to £1,000 and will be halved again to £500 from April 2024.
Social security: the main upper national insurance contributions thresholds are frozen until April 2028. The secondary threshold (at which employers start to pay secondary contributions) will also be frozen for the same period.
Corporation tax: the top rate of corporation tax will be increased from 19% to 25%.

Tapestry comment
It is exciting to see the announcement of a consultation on changes to SAYE and SIPs in the Budget. ProShare, the employee share plan industry body, has been lobbying hard for the past few years to encourage the Government to focus on reform of all-employee share plans to increase their effectiveness, so we are delighted to see their efforts recognised. As ProShare have said, this is a huge step forward in the ‘quest to widen participation in the SIP and SAYE, and ensure these key plans remain relevant and attractive to both employers and employees for decades to come’. We at Tapestry will continue to work with industry bodies, clients and friends to help to make these popular plans more accessible and more effective.

For companies operating EMI plans, and those acquiring businesses with EMI options in place, the relaxation of certain administrative requirements is good news and will assist both in grant processes as well as potentially in a due diligence context for corporate events.

As the previously announced tax measures come into force in April, companies may wish to revisit their share plans to make sure not only the plans themselves but also, we suggest, the communications made to employees about the plans, are fit for purpose. Clear, effective and relevant communications are even more critical than ever. Guidance and education, particularly in relation to the reduction in the CGT annual allowance, will be especially important. For example, information relating to SAYE share sales, which may now more easily attract CGT following SAYE maturities, should be looked at closely to ensure it is clear and helpful. The increase in the CSOP personal limit to £60,000, which should make CSOPs a much more attractive form of tax efficient incentive, means companies may wish to ensure they take full use of this increased scope and explain their use clearly.

If you have any questions on any of the matters raised in this alert, please do contact us and we would be happy to help

Chris Fallon & Sharon Thwaites

Global updates / News / Newsletter / Press Releases - 03/20/2023

Tapestry's Certificate in Employee Share Plans 2023 - LAST CHANCE TO BOOK FOR 2023!

8 March 2023

Registrations for this year's Certificate in Employee Share Plans course, accredited by the CGIUKI, will be closing very soon! Book now before it's too late!

For the details about the 2023 course and details on how to register, please see below.

How will the course be structured?
The course is split into 2 parts and each part will be taught over 5 short days on Zoom, finishing around lunchtime each day. These session timings make it easier and more practical for on-screen learning and to fit around other commitments.

The course will combine larger group teaching with participatory learning through smaller breakout sessions, each hosted by a Tapestry lawyer. These sessions ensure an interactive experience and the opportunity to learn from each other, with fun exercises and practical examples to help consolidate your knowledge.

Are there in-person networking opportunities?
Yes. One of the most valuable added benefits of the course is the networking opportunities that you get from being with your classmates outside of the office. So although the teaching will be virtual, we will be hosting optional in-person networking sessions in London. Drinks are on us!

How will the course be examined?
Exams will be held virtually for the 2023 course. The examination dates are set out below.

What are the dates for the course?
Each part of the course will run over 5 short days. Times below are UK times.

Part 1: 15 - 29 May 2023
Exam: 3 July 2023

Part 2: 18-22 September 2023
Exam: 6 November 2023

Teaching: 9.30 to lunchtime
Exams: 13.30 onwards

Do I need to book time off work to attend the course?
Course participants should plan to attend the course teaching in an uninterrupted virtual learning environment. We know this can be challenging at times, however we do find a strong connection between active course participation and exam success. We therefore recommend that you and your employer treat the time you are attending the tuition (i.e until around lunchtime each day) as being ‘out of the office’, just like you would if the course was in-person. There is time to work in the afternoons, if needed.

Note that you should plan to attend all of the course tuition (and minimum attendance requirements apply). Course participants will also need to commit to self-study time to prepare for the exams.

How much will the course cost?
Our 2023 course price is £4,250 plus VAT.

How do I confirm my place?
We very much hope that you are able to join us – please click ‘Register here’ to book your place. Please indicate when making your booking if you are based in the UK or overseas.

What our 2022 course participants say...

“The course provides practical and helpful information on a range of share plan topics and is taught in a simple to understand way.”
Alex Pollard, Caledonia Investments plc

“Really well presented course with excellent speakers, course notes and guidance. I found it really useful and am glad to have done it. Can’t recommend it enough.”
Elle Solomi

“Fantastic course, great speakers and support! Fully recommend to help on your Employee Share Plans journey.”
Iqbal Grewal, Computershare

“Helped me in my day job and also gives me a better understanding of other areas and departments of the business.”
Jonny Thompson, Link Group

If you have any queries regarding the course, please do contact us. More information can also be found on our course website.

Best wishes

Team Tapestry

Tapestry Global Compliance Partners

Events / Global updates / News / Newsletter / Press Releases - 03/09/2023

Tapestry Alert - Malaysia - Salary deductions - restrictions expanded

16 February 2023

Recent changes to employment legislation in Malaysia mean that the approval of the Director General of Labour (DGL) is now required for an employer to make deductions from an employee’s salary to pay contributions towards an employee share plan.

Background
Under the Malaysian Employment Act (the Act), an employer is only permitted to make specified lawful deductions from the wages of all employees. The Act exempts additional specific deductions which can be made at the written request of the employee. In all other cases, the permission of the DGL is required prior to making any salary deductions. Before the recent amendments, the Act only applied to employees whose wages were below MYR 2,000 (around GBP380) per month or who worked in manual labour. Given this limited scope, the Act usually did not cover participants in global employee share plans and consequently no DGL approval was required for salary deductions for contributory share plans.

Amendments to the Act
Following wide ranging amendments to the Act, which came into effect on 1 January 2023, the scope has been extended to cover all private sector employees who enter into a service contract with an employer. As a result, the Act now applies to participants in global share plans who would not previously have been caught by the salary deduction restrictions.

Employee share plans
As noted above, the Act includes exemptions for specific deductions which can be made at the request of the employee and without the need for approval from the DGL. One of the specific deductions is in respect of payments for shares in the employer’s business. Unfortunately, this exemption has been drafted and construed very narrowly and only applies to shares in the actual employer, which is usually the local entity rather than the parent company. In the view of local counsel, this exemption cannot be relied upon for deductions to make payments for shares in the parent company, meaning companies will need to re-evaluate the operation of share plan related salary deductions. The Act provides for employers to apply to the DGL for approval to make salary deductions for a purpose that is not otherwise permitted under the Act. It would be theoretically possible to apply for a general approval to extend this exemption to cover offers made by a parent company to purchase its shares. However, it is not possible to say how long it would take to get a response or whether the response would be favourable.

What can companies do now?
Unless the exemption is extended to cover a foreign share plan, for companies offering contributory share plans in Malaysia, the choices are suddenly more restricted. The local employer can apply for permission from the DGL to take deductions in respect of payments to a third party on behalf of the employee, which would include payroll deductions under a share plan offered by a parent company (this is different from an application to extend the exemption, as discussed above). This is a potentially lengthy process and requires an application to the employer’s local Labour Department branch (or each branch if there are multiple employers). The employer will be required to complete a prescribed application form and file detailed documentation. A response is likely to take at least 10 weeks. An alternative is for the employee to make the contribution directly to the company once they have been paid, either by setting up a standing order or a direct debit.

Date of implementation
The amendments to the Employment Act came into force on 1 January 2023.

Tapestry comment
This is a surprising change and seems to go against the general trend to simplify the process for employees to participate in employee share plans. For example, Singapore recently removed the requirement to obtain regulatory approval for salary deductions. It is disappointing to see Malaysia move in the opposite direction. As the Employment Act includes a specific exemption for employee share plans, it is particularly frustrating that the exemption is considered not to apply to employee share plans offered by foreign companies to employees in Malaysia. Although we can all understand the desire of regulators to protect employees from fraudulent or unscrupulous behaviour, making it more difficult for companies to include Malaysian employees in global share plans is unfortunate. We hope that the DGL will consider extending the share plan exemption to include offers to Malaysian employees under global share plans.

If you want to discuss any of the points above or want help with your share plans or other incentive arrangements, please do contact us.

Rebecca Perry & Sharon Thwaites

Executive Remuneration updates / Global updates / News / Newsletter / Press Releases - 02/17/2023

Tapestry's Certificate in Employee Share Plans. New year, new possibilities!

16 January 2023

Are you looking for ways to develop your career in 2023? Do you want to turn to a new share plans chapter? Does your current role focus on just one or two aspects of share plans? Tapestry’s Certificate in Employee Share Plans, accredited by the CGIUKI, will help you broaden your share plans knowledge, teach you new skills and demonstrate how you can use the skills you already have to target more areas of share plans. Learn all the key components of designing and operating executive and employee share plans as well as:

gaining up to date information on regulatory issues
learning practical tips for adding value to your company
developing knowledge through best practice
obtaining insight from leading experts

How will the course be structured?
The course is split into 2 parts and each part will be taught over 5 short days on Zoom, finishing around lunchtime each day. These session timings make it easier and more practical for on-screen learning and to fit around other commitments.

The course will combine larger group teaching with participatory learning through smaller breakout sessions, each hosted by a Tapestry lawyer. These sessions ensure an interactive experience and the opportunity to learn from each other, with fun exercises and practical examples to help consolidate your knowledge.

Are there in-person networking opportunities?
Yes. One of the most valuable added benefits of the course is the networking opportunities that you get from being with your classmates outside of the office. So although the teaching will be virtual, we will be hosting optional in-person networking sessions in London. Dinner and drinks are on us!

How will the course be examined?
Exams will be held virtually for the 2023 course. The examination dates are set out below.

What are the dates for the course?
Each part of the course will run over 5 short days. 9.30am to lunchtime. Times are UK times.

Part 1: 15-19 May 2023 / Exam: 3 July 2023

Part 2: 18-22 September 2023 / Exam: 6 November 2023

Do I need to book time off work to attend the course?
Course participants should plan to attend the course teaching in an uninterrupted virtual learning environment. We know this can be challenging at times, however we do find a strong connection between active course participation and exam success. We therefore recommend that you and your employer treat the time you are attending the tuition (i.e until around lunchtime each day) as being ‘out of the office’, just like you would if the course was in-person. There is time to work in the afternoons, if needed, though.

Note that you should plan to attend all of the course tuition (and minimum attendance requirements apply). Course participants will also need to commit to self-study time to prepare for the exams.

How much will the course cost?
Our 2023 course price is £4,250 plus VAT.

What our 2022 course participants say...

“I thought the course was brilliant! The speakers are all experts in their areas and are all really approachable and accommodating when any additional training is required. I would highly recommend Tapestry as a training provider!”
Vicky Noble, Intertrust

“All of the speakers have been amazing, I feel so privileged to be able to learn from such experienced people!”
Amber Clifton, The RM2 Partnership Limited

“I found the course to be very beneficial, everyone has a wealth of knowledge and are more than happy to share”
James Couchman, FARFETCH

“The course is very well structured and the support from the Tapestry Team is great”
Matt Tudball, Computershare

If you have any queries regarding the course, please do contact us. More information can also be found on our course website.

Best wishes
Team Tapestry

Global updates / News / Newsletter / Press Releases - 01/17/2023

Worldwide Wrap-Up - Tap-in to our global knowledge!

6 January 2023

Happy New Year and we hope that you had a relaxing break over the Holidays.

Staying ahead of the curve on regulatory and tax compliance is a never-ending task for companies. To help you keep on top of recent developments, here is our first quarterly Worldwide Wrap-Up of 2023, with some of the most recent changes that should be on your radar. We have summarised these topics briefly in this alert, however they will be covered in more detail along with other recent developments on our 11 January webinar, which you can register for here.

Australia - employee share scheme reforms tweaked
We have covered the reforms to the Australian share plan securities rules, which took effect on 1 October 2022, in previous World Wide Wrap-Ups. Following a consultation with industry stakeholders, the regulator, ASIC, issued a new legislative instrument at the end of 2022 to address some technical issues raised by advisers. These include:

A broader exemption for secondary sales of quoted financial products.
More options for the financial information that foreign companies can provide to ESS participants.
Clarification that financial products offered outside Australia do not need to be included when calculating the issue cap.

The new ESS regime is intended to replace ASIC’s existing Class Order relief for employee incentive schemes. Offers under the Class Order relief can continue to be made until 1 March 2023, so long as the offer can be accepted before 1 April 2024 (previously the cut off dates were 31 December 2022 and 31 January 2024, respectively).

Tapestry comment
Advisers continue to dig into the details and companies are still considering how the new rules apply to their current and future share plans. We would always advise obtaining specific advice for share plan offers in Australia, but this is particularly important while the new rules settle in.

Canada - trust reporting delayed - again

In our World Wide Wrap-Up in May last year (here), we reported that the much delayed implementation of additional reporting for trusts in Canada was firmly back on the agenda and due to come into force at the end of 2022. Under Bill C-32, Fall Economic Statement Implementation Act 2022, which received Royal Assent on 15 December 2022, the new trust reporting rules will now apply to taxation years ending after 30 December 2023 (rather than after 30 December 2022). This means that, for trusts with a calendar year-end, the new reporting rules will apply one year later, beginning with the 2023 taxation year.

Tapestry comment

This is clearly a useful breathing space given the additional detail to be reported (including details of all trustees, beneficiaries and settlors of the trust, as well as any person able to exert control over trust decision making). The additional reporting will capture trusts that will be reporting for the first time and it is crucial to make use of this delay, either to ensure that that the trust will be able to comply or to restructure the plan to remove the trust arrangement.

India - new foreign exchange rules
In August 2022, India introduced new foreign investment rules, aiming to liberalise India’s regulatory framework and replace the existing regulations facilitating overseas investment by Indian residents. The new rules (the OI Regime) are wide ranging and the impact on employee share plans (ESOPs) is covered in detail in our alert (here).
Specific points to note are:

Exemption: For an Indian resident to participate in an ESOP, the individual must obtain Reserve Bank of India (RBI) approval or come within an exemption. Under the OI Regime, all ESOPs must come within the General Permission. There are no other exemptions.
Cashless ESOP: The previous exemption for a cashless ESOP no longer applies.
Liberalised Remittance Scheme (LRS): Under the LRS, Indian residents are permitted to send up to USD250,000 offshore each year without seeking RBI consent. Any amounts invested in foreign shares under an ESOP must come within an individual’s LRS limit.
ESOP reporting by employer: Employers are required to make semi-annual filings on Form OPI within 60 days of each of 31 March and 30 September and late filing fees apply. This filing replaces the previous annual filing requirement.
Repatriation of funds: Strict repatriation requirements for proceeds of sale and dividends will not apply under the OI Regime so long as the funds are reinvested under the terms of the General Permission within 180 days of receipt.

Tapestry comment
Foreign exchange rules in India continue to be complex. To some extent, the OI Regime appears not to have made significant changes to the operation of global employee share plans in India, but there are important updates that companies will need be aware of - in particular, the new twice yearly reporting system (and the first report is already due). Other changes are more subtle and companies will need to review their share plans to ensure that they comply with the revised General Permission.

Russia - update on the impact of counter-sanctions regime
The practicalities of offering shares to Russian resident employees continue to be challenging. In our webinar, we will address some of the common concerns that companies have when considering whether and how to include Russian employees in their global share plans. We will provide our latest updates on the following questions:

Can we grant awards to our Russian resident employees?
Are Russian employees able to receive shares in foreign companies?
Is it possible for a Russian employee to send funds outside Russia to purchase shares in an ESPP?
What is the position if a Russian employee wants (or needs) to sell the shares?
Can the employee receive income from the shares?
What other practical issues do we need to consider?

Tapestry comment
Under the circumstances, there are no simple or straight forward answers and we continue to proceed with caution. However, there are alternatives available for companies that still wish to include Russian employees in their share plans. Whether those alternatives will apply to a particular company and a specific plan will need to be considered on a case-by-case basis.

USA - SEC adopts rules on clawback
On 26 October 2022, the SEC adopted final rules on clawback, as required by the Dodd-Frank Wall Street Reform Act 2010. Under the new rules, US securities exchanges are required to adopt listing standards that require all listed companies (including foreign issuers) to implement a clawback policy, providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers, based on certain financial information in the event of an accounting restatement. US securities exchanges have until 26 February 2023 to propose listing standards that implement the final rules and the new listing standards must become effective by 28 November 2023.

Tapestry comment
To comply with the SEC clawback rules, companies will need to review their existing clawback policies or put in place new policies. Companies should also review relevant employment contracts and remuneration arrangements (including equity and other types of incentive plans) to ensure that they comply with the amended/new clawback policies.

Global tax rates
For many countries, revised tax rates start on New Year’s Day. Often, the rates are only announced in the last days of December, and in some cases the final figures are not available until well into January, sometimes later. Our international advisors provide us with new rates to update OnTap as quickly as they become available. Recent announced changes include:

Croatia: Croatia adopted the Euro on 1 January, so tax and social security rates are now expressed in EUR.
Finland: The split between national and municipal tax has changed, with the state taking over health care from the municipalities. The top combined rate of tax has increased slightly from 57.06% to 57.36%.
Russia: Under the new Social Fund of Russia, employers contribute at a flat rate of 30% (capped) and 15.1% above the cap.
Scotland: The higher rate is due to increase from 41% to 42% and the top rate from 46% to 47%. The new rates will take effect on 6 April.

Tapestry comment
The above list is not exhaustive and we will discuss the detail of these changes in our 11 January webinar. Many countries have made adjustments to tax bands and to social security caps. If you need specific advice for any jurisdiction, please let us know.

If you have any questions, or would like to discuss any element of legal and tax compliance for your global incentive plans, do get in touch - we would be delighted to help!

Sally Blanchflower, Rebecca Perry and Olivia Rodrigo

Global updates / News / Newsletter / Press Releases - 01/09/2023

Tapestry Alert: India - Major reform of foreign investment rules

13 December 2022

As of 22 August 2022, India has a new set of foreign investment rules. The new rules were issued to liberalise India’s regulatory framework and replace the existing regulations facilitating overseas investment by Indian residents. The new rules are wide ranging and this alert will focus on how the new rules affect offers to Indian employees under global employee share plans (ESOPs).

Where are the new rules?
Overseas investment in India is regulated under the Foreign Exchange Management Act 1999 (FEMA) and is implemented by the Royal Bank of India (RBI). The new rules are contained in the Foreign Exchange Management (Overseas Investment) Rules 2022, the Foreign Exchange Management (Overseas Investment) Regulations 2022 and the Foreign Exchange Management (Overseas Investment) Directions 2022 (collectively, the OI Regime).

How do the new rules apply to share plans?
As a general rule, for Indian residents to participate in an ESOP, the individual has to obtain RBI approval or come within an exemption. This chart gives a high level overview of the key features under the old and new rules from a share plan perspective:

ESOP under the previous rules
Under the previous rules, the relevant exemptions for an ESOP were: the General Permission for offers to Indian employees and directors of a foreign entity; cashless employee share plans (i.e. plans with no outward remittances from India); and, the Liberalised Remittance Scheme (LRS). Each of these exemptions is discussed in more detail below. The local employer had to make an annual ESOP report in Annex IV to the RBI. The General Permission did not provide an exemption from the strict repatriation rules which require repatriation of the proceeds of sale of shares within 180 days and repatriation of dividends within 90 days of receipt. This meant that it was not possible to operate a DRIP (dividend reinvestment programme) for Indian employees without approval from the RBI.

ESOP under the new OI Regime
Under the OI Regime, Indian individuals who invest in foreign shares will be making either an Overseas Direct Investment (ODI) or an Overseas Portfolio Investment (OPI). In the case of a foreign ESOP, employees will usually be treated as making an OPI. The OI Regime sets out detailed descriptions of both ODIs and OPIs, but in brief (and for most ESOPs), an OPI is an investment where an individual acquires foreign securities that represent less than 10% of the foreign entity’s share capital.

General Permission: under the OI Regime, all ESOPs must come within the revised General Permission. There are no other exemptions. The main terms of the General Permission are unchanged, apart from a new semi-annual reporting obligation. To come within the General Permission, the ESOP must comply with the following:

The individual must be an employee or a director of:
- an Indian office, or branch of the foreign entity, or
- a subsidiary in India of the foreign entity, or
- an Indian company in which the foreign entity has direct or indirect equity holding.
The shares offered under the ESOP must be offered by the foreign entity globally on a uniform (i.e., non-discriminatory) basis.
Outward remittances must be made through an authorised bank.
The local employer must make prescribed semi-annual filings.

Cashless ESOP: The specific exemption for cashless ESOPs has been removed. Such plans must comply with the revised General Permission and must be reported in the semi-annual filing.

Liberalised Remittance Scheme (LRS): Under the LRS, Indian residents are permitted to send up to USD250,000 offshore each year without seeking RBI consent. Subject to compliance with strict rules and reporting obligations, the LRS allows flexibility in sending funds offshore. Previously, the LRS did not mention ESOPs, and local counsel generally advised against using the LRS for an ESOP, one reason being the need to ensure that the LRS limit was not exceeded. To align the LRS with the OI Regime, the LRS has been amended to state that the acquisition of foreign shares comes under the OI Regime. Any amounts invested in foreign shares under an OPI, including under an ESOP, must come within an individual’s LRS limit.

ESOP reporting by employer: Under the old rules, employers made an annual filing on Annex IV (ESOP Reporting Statement). Under the OI Regime, this single filing is replaced with semi-annual filings on Form OPI (here). The form includes details of share plan investments held abroad and any changes (investments and sales) since the last report, as well as any amounts remitted and repatriated in the previous six months. The local employer must declare the percentage interest and the shares allotted and repurchased and the number of employees who acquired and sold shares during the period. The forms are filed by the local employer with the RBI through an authorized dealer within 60 days of each of 31 March and 30 September and late filing fees apply. As the first filing was due on 28 November this year, many companies have been caught out and local counsel advise that the filing should be made as soon as possible. Reporting companies should discuss how to complete the report with their authorised dealer.

Repatriation of funds: One advantage of the OI Regime is that it appears to permit employees in India to participate in a DRIP. The strict repatriation requirements for share proceeds will not apply so long as the funds (proceeds of sale and dividends) are reinvested under the terms of the General Permission within 180 days. If this deadline cannot be met, the funds must be repatriated to India within180 days of receipt.

Date of implementation
The OI Regime took effect on 22 August 2022. Due to the extent of the changes, local advisers have been working with the regulators to clarify the application of the changes to ESOPs. This has a caused a delay in news of the OI Regime being circulated, although, frustratingly, no delay in the implementation of the new reporting requirement.

Application of the OI Regime to previous overseas investments
Any overseas investments made prior to 22 August are deemed to have been made under the OI Regime. As a result, any plans that were offered on the basis of the previous rules or which have received RBI approval, must now comply with the OI Regime.

Tapestry comment
Foreign exchange rules in India continue to be complex. To some extent, the OI Regime appears not to have made significant changes to the operation of global employee share plans in India, but there are important updates that companies will need be aware of - in particular, the new twice yearly reporting system. Other changes are more subtle and companies will need to review their share plans to ensure that they comply with the revised General Permission. If your plan does not currently permit employees in India to participate in a DRIP, this may be something to investigate in more detail. The key takeaway is that the OI Regime is a major overhaul of the FX rules and it will take a bit of time for advisers, local teams and employees to adjust to these changes.

We would like to thank our local counsel Roshnek Dhalla at Khaitan & Co for her assistance with the information for this alert.

If you want to discuss any of the points above or want help with your share plans or other incentive arrangements, please do contact us.

Sally Blanchflower, Rebecca Perry, Sharon Thwaites

Executive Remuneration updates / Financial Services updates / Global updates / Newsletter - 12/14/2022

UK: The IA Principles of Remuneration 2023

10 November 2022

The Investment Association (IA) yesterday released its updated Principles of Remuneration, with the usual accompanying letter to Remuneration Committee Chairs setting out member expectations for the 2023 AGM season.

Full copies can be found here: 2023 Principles and Remco Chair letter.

Whilst the IA notes it has not made significant changes to its Principles, there are specific areas with notable updates as set out below. The IA’s previous guidance for addressing the impact of the Covid-19 pandemic has also now been withdrawn.

Windfall gains
The guidance continues to provide that companies should scale back the quantum of awards at grant, following a substantial fall in share price, to reduce the risk of windfall gains. Further guidance has now been added, stating that shareholders expect remuneration committees to consider adjusting vesting outcomes where awards were not scaled back at grant. In the Remco Chair letter, the IA indicates that remuneration committees should clearly articulate to shareholders how they have considered the impact of potential windfall gains when determining vesting outcomes and why any reduction is appropriate. If no reduction is made, they should explain and disclose the rationale.

Pay restraint
Companies are warned to be mindful of widening inequality and making excessive awards to executives at a time when many lower-paid employees are forced to make significant sacrifices due to cost-of-living constraints. In the Remco Chair letter, the IA points out that most companies exercised good levels of restraint in relation to executive pay through the pandemic and should continue to be mindful of this in the current economic context. In particular:

Remuneration outcomes should be commensurate with company performance and not excessive – the guidance now states outcomes should also be commensurate with the experience of key stakeholders.
Remuneration committees should consider the overall quantum paid to executives in the context of pay levels and conditions across the entire workforce.
Remuneration committees should generally not increase executives’ salaries at a level greater than inflation or the increase awarded to the wider workforce. In the Remco Chair letter, the IA indicates a need to consider the impact of inflationary salary increases on overall remuneration (given that variable pay is often linked to a salary multiple) and encourages any increases to be below those given to the rest of the workforce.

Discretion
The guidance on remuneration committee use of discretion remains. The changes this year add a focus on ensuring remuneration outcomes reflect the performance of the executives and their contribution to overall corporate performance – as well as the experience of shareholders, wider stakeholders and general market environment.

The Remco Chair letter states that the IA encourages remuneration committees to be clear on disclosing issues and the different drivers they have considered when judging overall performance, and to put outcomes in the context of wider stakeholder experience.

Performance measures
The guidance continues to suggest the inclusion of strategic or non-financial performance measures, but now clarifies that this should be in addition to financial performance measures and should promote long-term value creation.

Remuneration committees should consider the collective impact of performance targets to ensure they lead to a balanced assessment of the company’s performance and that there is ‘appropriate natural tension’ between the metrics chosen.

Where ESG measures are used, there is now express guidance to state that they should be suitably stretching. In particular, they should not provide reward for ‘business as usual’ activity or be used as essentially a ‘soft target’ to increase overall quantum. Remuneration committees should explain how progress against the targets will be measured and how performance against them will be disclosed.

The Remco Chair letter provides some potentially helpful flexibility, suggesting that given wider economic uncertainties, it may be appropriate to consider wider performance ranges and discretion may be needed to ensure appropriate outcomes are achieved.

Non-executive directors (NEDs)
Recognising the increased complexity and time commitment associated with the NED role, the guidance now states that NEDs should receive fees commensurate with their duties, but that any increases in fees should be properly explained. Guidance on encouraging ownership by NEDs of shares in the company is retained, with a new acknowledgement that the number of companies introducing a minimum shareholding guideline for NEDs is increasing.

Pensions
The Remco Chair letter includes a statement that IVIS will red top any remuneration policy or report where executive pension contributions are not aligned to the majority of the workforce, reflecting the previous guidance that such alignment should be achieved by the end of 2022.

Tapestry Comment
The annual update to the IA Principles provides a useful barometer of investor views and key focus areas in relation to executive pay, and the changes are unsurprising given the wider economic outlook. These focus areas will be an important factor for companies in considering their executive pay structures for the year ahead. Whilst much of the guidance remains unchanged, the changes made will potentially be significant for those companies impacted, in a year where many will be renewing remuneration policies, managing the vesting of “Covid grants” under their LTIPs, and considering pay in the context of the current economic climate.

In addition to the IA’s update, LGIM has also published remuneration guidance, and the ISS has published its 2023 benchmark policy consultation. The FRC’s annual review of corporate governance reporting also contains some useful observations. We will be considering all of the updates in our Q1 webinar on Investor Expectations – look out for details to follow!

As always, if you have questions about any of the content of this alert, or there is any assistance you need in relation to your incentive plans, do not hesitate to contact us.

Hannah Needle, Suzannah Crookes and Sally Blanchflower

Executive Remuneration updates / Global updates / Newsletter - 11/11/2022

Tapestry's Certificate in Employee Share Plans 2023 - Leaves are falling... Cert ESP is calling! 2023 registration now open!

October 2022

The world of share plans is challenging and complex, and the risks of non-compliance are high. Like the seasons of the year, legal and governance considerations are changing constantly, so let our industry experts help develop your understanding with up-to-date training.

Tapestry’s Certificate in Employee Share Plans is a professionally recognised qualification that provides up to date information on design, legal and regulatory considerations, operating share plans globally, executive and all-employee plans, tax, accounting, administration and much more.

Our industry-leading course combines technical know-how with practical experience of advising clients. With practical tips to add value to your company, sign up now and help your business:

be more cost effective - reduce your reliance on external advisors;
reduce risk - understand the rules and the importance of compliance; and
benefit from ongoing best practice - stay connected with others in our industry and continue to keep up to date through regular alumni events.

Following the positive feedback we received on both our 2021 and 2022 virtual courses, we are very pleased to confirm that the Certificate will be delivered virtually for 2023! The course will run with virtual interactive teaching sessions, so you can take it wherever you are.

How will the course be structured?
The course is split into 2 parts and each part will be taught over 5 short days on Zoom, finishing around lunchtime each day. These session timings make it easier and more practical for on-screen learning and to fit around other commitments.

The course will combine larger group teaching with participatory learning through smaller breakout sessions, each hosted by a Tapestry lawyer. These sessions ensure an interactive experience and the opportunity to learn from each other, with fun exercises and practical examples to help consolidate your knowledge.

Are there in-person networking opportunities?
Yes. One of the most valuable added benefits of the course is the networking opportunities that you get from being with your classmates outside of the office. So, although the teaching will be virtual, we will be hosting optional in-person networking sessions in London. Dinner and drinks are on us!

How will the course be examined?
Exams will be held virtually for the 2023 course. The examination dates are set out below.

What are the dates for the course?
Each part of the course will run over 5 short days. Times below are UK times.

Do I need to book time off work to attend the course?
Course participants should plan to attend the course teaching in an uninterrupted virtual learning environment. We know this can be challenging at times, however, we do find a strong connection between active course participation and exam success. We therefore recommend that you and your employer treat the time you are attending the tuition (i.e. until around lunchtime each day) as being ‘out of the office’, just like you would if the course was in-person. There is time to work in the afternoons, if needed, though.

Note that you should plan to attend all of the course tuition (and minimum attendance requirements apply). Course participants will also need to commit to self-study time to prepare for the exams.

How much will the course cost?
Our 2023 course price is £4,250 plus VAT.

Register and pay by 31 December 2022 to get our Early Bird rate of £3,950 plus VAT.

What our 2022 course participants say...
"Never have I been on such a well-run, informative course with very high-quality materials, speakers and attention to detail both for the course itself and the extras around it (box of treats and social events!) to make it as enjoyable as possible"
Kirstan Boynton, Spirax-Sarco Engineering

"The ESP course is really informative and engaging no matter what experience you have with share plans"
Julia Sherwin, Rentokil-initial

"Hitchhikers guide to share plans"
Peter Bagi, Global Shares

"This course is extremely helpful to understand the complex world of UK share plans. The course is well organised, the speakers really bring share plans to life and have shared some helpful best practice guidance on the operation of share plans for students to take away with them to implement into internal processes!"
Emma Jackman, Hammerson plc

If you have any queries regarding the course, please do contact us. More information can also be found on our course website.

Best wishes

Team Tapestry

Global updates / News / Newsletter / Press Releases - 10/27/2022

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