24 July 2020
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, this is our third quarterly Worldwide Wrap-Up of 2020, 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 some other recent developments, on our 29 July webinar.
COVID-19 – Global Footprint
COVID-19 has changed the way we work for good. Some companies now have an entirely virtual workforce, others have employees working from different locations to normal, and some may have new employee populations. As a result, we are seeing a shift in companies’ global footprint, meaning new considerations when reviewing your share plan compliance. Do you know where your employees are located? Do you know why it matters?
We will look at one of the most prominent impacts of COVID-19 on the operation of your share plans. We will discuss why employee location matters, why you may need to add to your compliance list and tools to help manage changes to your workforce.
Argentina – Net tightens on FX transactions
The Argentinian Central Bank continues to tighten access to the foreign exchange market for Argentine residents. New rules released at the end of May have added a 90 day delay on individuals accessing the foreign exchange market.
For more detail, see our June alert here.
Additional FX restrictions make the implementation of any share plan requiring the purchase or transfer of foreign currency abroad (e.g. to pay for shares or for a recharge) increasingly difficult. The 90 day “freeze” on access to FX markets means that monthly share purchases and transfers, already highly restricted, may no longer be possible and may have to be replaced by accumulation periods and quarterly purchases.
Belgium – Court confirms social security extension
A recent decision of the Ghent Labour Court of Appeal has added support to the position taken by the National Social Security Office (NSSO) in 2018, that equity incentives offered by a foreign parent to participants in Belgium are always subject to social security contributions. For more detail on the recent decision, see our July alert here.
The 2018 position of the NSSO was expected to be subject to challenge in the courts, but the advice was that it would be prudent for companies to proceed on the basis that share plan income in Belgium was subject to social security. This case, in upholding the position of the NSSO, stresses the need for companies to ensure compliance.
Chile – New tax treatment for Options
The Chilean government has recently passed the ‘Modernization Tax Bill’ which makes substantial changes to the tax system and, of particular relevance, to the taxation of stock options. Under the previous rules introduced in 2017, stock options were taxable as income at grant and exercise, with any capital gain taxed at sale. Under the new tax reform, which applies retrospectively from 1 January 2020, it may be possible for the taxation of stock options to be deferred to the sale of the shares.
The new tax rules, which have been under discussion for 18 months, are part of a major overhaul of the tax system in Chile. This is positive news but companies will need to assess the impact of the changes on their specific share plans operating in Chile.
EU/US – Privacy Shield quashed
In a highly anticipated decision, the EU Court of Justice (EUCJ) has recently announced that the Privacy Shield data transfer arrangement between the EU and the US does not adequately protect the data privacy rights of EU citizens. The Privacy Shield was put in place in 2016 to allow companies to transfer the personal data of EU citizens to the US without breaching the EU’s strict privacy rules (including the GDPR). As a consequence of the decision, organisations relying on the Privacy Shield must now look to alternative arrangements. For a detailed analysis of this case, please see our newsletter here.
The demise of the Privacy Shield was forecast even as the arrangement was finalised in 2016. Companies and administrators in the EU should discuss with the team who manage data privacy compliance in their organisations to check what approach they are taking with regards to data transfer arrangements for the business as a whole.
Global tax rates for 2020
Not surprisingly, the impact of COVID-19 has caused delays in government tax rate announcements for countries with a July/June tax year. But there have been some changes since our last webinar and we will look at where rates have changed. Our international advisors provide us with new rates to update our database as quickly as they become available. In this Wrap-Up we take a brief look at some of the changes.
Australia – earnings base for employer social security increased. Employer contribution rates to increase to 12% from 2025.
Bahamas – national insurance ceiling raised.
Canada – 2020 budget postponed.
Gibraltar – 2020/21 budget postponed from June to September.
Egypt – top income tax rate increased from 22.5% to 25%.
Kenya – top income tax rates reduced from 30% to 25% (COVID-19 related decrease).
We will discuss the detail of these changes during our 29 July webinar.
South Africa – Data protection law comes into force
Initially passed in 2013, the Protection of Personal Information Act (POPI) came into force on 1 July 2020 with a 12 month grace period before enforcement will take place. POPI requires data processors to obtain the prior consent of the participant to the processing of personal data and addresses processing, including cross border transfers.
To comply with POPI, where specific consent to the collection and processing of personal data is not already standard procedure, the employer should ensure that it has in place a system to obtain the relevant consents from employees in SA. Companies may wish to undertake an audit of their internal privacy policies and consider what administrative and technical processes could be put in place to fill current compliance gaps and, on-going, to monitor compliance with POPI.
UK – Brexit update
On 31 January 2020, the UK left the EU and the transition period ends on 31 December 2020. Because an ongoing relationship agreement has not yet been reached, it is still unclear what will happen after 31 December on matters such as securities laws, data protection, tax and social security.
We will be discussing some of the issues of Brexit in a share plans context and what developments we hope to see over the next few months.
UK – Capital Gains Tax (CGT) review
The Chancellor (UK Finance Minister) has ordered a review of the UK’s CGT regime to identify simplification opportunities in relation to the taxation of chargeable gains. Although such reviews are not unusual, there is speculation that the review could lead to an alignment of the rates of CGT and income tax. As CGT rates are much lower the income tax rates, such a change would increase the Treasury’s tax revenues following this period of increased spending. For a detailed discussion of the CGT review please see our alert here.
The outcome of this review could have significant implications from a share plans perspective. For UK taxpayers participating in share plans, low rates of CGT can help encourage participants to hold onto their shares, knowing that any increase in value is taxed at lower CGT rates (or not taxed at all, if the gain falls within their annual exemption). Any reductions in the CGT annual exemption and/or equalising of rates of income tax and CGT would negatively impact the position of UK taxpayer participants.
OnTap update – Announcing new functionality
Tapestry’s global legal and tax online database, OnTap, has recently been upgraded to include some features to make it even more easy to use!
For our OnTap subscribers: the changes in Argentina, Belgium, Chile and South Africa, the termination of Privacy Shield and the revised tax rates have come into force and OnTap has been updated to reflect the new rules. For more information or a demonstration of OnTap, please contact the OnTap team.
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, Sonia & Tom