7 May 2021
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 the second in our series of quarterly Worldwide Wrap-Up newsletters for 2021, 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 12 May webinar.
Data protection: In our January Worldwide Wrap-up (here), we noted that the UK-EU Trade and Co-operation Agreement included a four month transition period (extended to six months, so expiring on 30 June 2021) under which the UK would not be treated as a third country for EU data protection law (GDPR). The purpose of the transition period was to give the EU time to adopt an adequacy decision confirming that the UK’s data protection rules will be treated as having equivalent status to GDPR. On 19 February, the EU Commission published a draft adequacy decision. The draft decision is now under consideration by the European Data Protection Board and a committee composed of representatives of the EU Member States.
Social Security: the detached worker rules set out the post-Brexit agreement between the UK and EU member states to allow citizens of one state to continue to make social security contributions in their home state if working for a short period (up to 24 months) in another state. The EU member states all had to opt in to the detached worker rules and this was finally announced in February.
These may seem like small points but they had everyone worried in December last year when it looked like no arrangements would be in place. There is still concern over the EU adequacy decision as the 30 June deadline is just over the horizon and historically such decisions take years rather than weeks.
Canada - proposed cap on deductions for stock options
There was no Canadian federal budget in 2020 due to the Covid pandemic but the 2021 budget is now progressing. Budget 2021 has confirmed the government’s plan to proceed with a proposal to limit the tax reduction currently available for holders of stock options (see our most recent newsletter here). We will be watching to see if the enabling legislation is in place by the planned commencement date for the new rules which is currently 1 July.
After several false starts, it looks increasingly likely that this change will come into force in 2021, and it is expected to have a major impact on the value of stock options for employees in Canada. We will continue to monitor developments.
Canada - additional reporting for non-resident trusts
In 2018, the Canadian government announced plans to require additional reporting by trusts (see our alert here). The new rules will require a trust to file a tax return, even if it has had no distributable income for the year, and to file a schedule reporting the identity of all trustees, beneficiaries and settlors of the trust, along with any other persons who have a measure of control over the trust or the decision making of the trustees. The new reporting rules are due to take effect from tax year 2021 but have not yet become law.
Although the new rules are not yet law, it would be prudent for companies operating share plans for employees in Canada, and who make use of a trust to hold the shares, to ensure that they have this information available.
GIG economy - Uber drivers are workers not self-employed
On 19 February, the UK Supreme Court confirmed earlier decisions that Uber drivers are workers for the purposes of UK employment legislation and are therefore entitled to receive national minimum wage and annual paid leave. Under UK law, employment status is categorised in three ways:
- Employees who have the full protection of employment law
- Workers who are entitled to more limited rights
- Self-employed who have limited employment rights.
In the Uber case, the company argued that the drivers were self-employed under the terms of the contractual arrangement between Uber and the drivers. The court rejected this argument and found that the level of control that Uber had over the drivers created a worker status. The court held that the designation of the drivers in the contract as self-employed could not change the employment status of the individuals.
The GIG economy has been hailed as creating a 21st century work model, but it has raised difficult questions over the status of the individuals who work for GIG economy, or platform companies. In the share plan world, if Uber drivers are not employees, they will usually not be able to benefit from share plans which are generally only available to employees. Although Uber initially suggested that the ruling only applied to the drivers who brought the case, it subsequently confirmed that it will treat all its drivers as workers, which means they are now entitled to receive minimum pay, paid leave and pensions. As the Uber case impacts on other platform companies, will these costs be absorbed by the companies or passed on to consumers? Or will gig economy companies look for creative ways to realign their business model to limit the impact of this and similar decisions in other countries?
Global tax rates for 2021
With several countries starting the 2021 tax year in March and April, and new rates being announced since our last webinar, 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.
New Zealand - top rate of individual tax increased from 33% to 39%
South Africa - top rate tax band increased
UK - increase in personal allowance (no further increases until 2025/26)
We will discuss the detail of these changes during our 12 May webinar.
Remember to be ahead of the game with global reporting deadlines. Coming up in the next few months:
- Australia - ESS statement (employees) 14 July and ESS report (tax office) 14 August
- India - quarterly tax certificate - 31 July
- Portugal - share plan reporting on Form Modelo 19 - 30 June
- UK - annual employee share plan return - 6 July
If you need this information for other jurisdictions not shown above or if you need any assistance with any global filings, please do get in touch with us.
USA - Doubling of CGT proposed
The US government has recently proposed an effective doubling of the CGT rate for tax payers earning over $1 million a year. Currently the rate of CGT paid depends on whether the asset is subject to short term rates (where the asset was held for less than 12 months) or long term rates (held for over 12 months). The short term rate is the tax payer’s marginal tax rate and the long term CGT rate is a flat 20% (plus 3.8% net investment tax for high earners). The proposal abolishes the distinction between short term and long term CGT so that all capital gains would be taxed at marginal income tax rates. Combined with a plan to increase the top rate of income tax from 37% to 39.6%, this would bring the top CGT rate to 43.4%, once the net investment tax was added. The same change would apply to dividends.
It is too early to say if there is a realistic chance that such a significant change to US taxes will be approved. If adopted, such a change may impact the attractiveness of long-term share ownership. Low rates of CGT can encourage participants to retain their shares, knowing that any increase in value is taxed at lower CGT rates. Equalising of rates of income tax and CGT would negatively impact the position of taxpayer participants.
Of course, many countries already treat capital gains as a standard part of personal income and subject to the same tax rates and, with governments struggling to fill the fiscal gap created by the Covid pandemic, more countries may look to follow the US example - assuming it is adopted. Indeed, a similar proposal was included in the 2020 report of the UK Office of Tax Simplification (see our newsletter here). Although the UK government did not increase CGT rates in the recent UK budget, they did not rule out doing so in the future.
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, Matthew Hunter and Tom Parker