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 fourth and final 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 email, however they will be covered in more detail, along with some other recent developments, on our 14 October webinar.
Brazil – Data protection law comes into force
The General Data Protection Law, known as the Lei Geral de Proteção de Dados Pessoais (LGPD), was enacted in 2019 and was due to come into force on 15 August 2020. Following several delays, and the intervention by the Brazilian Senate, the LGPD came into effect on 18 September 2020. LGPD is similar to the EU General Data Protection Regulation and introduces a robust set of rules including obligations to keep records of data processing activity and to determine the legal basis for the processing of data; obligations for transparency of data processing, cross-border transfers of data, data security and data breaches, sensitive data and specifies situations in which data processing must stop. LGPD also requires the appointment of a data protection officer.
To comply with LGPD, where specific consent for 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 Brazil. 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 LGPD.
Canada – employee rights
A recent decision of the Ontario Superior Court held that termination provisions which provided that an employee lost his right to unvested awards upon termination of employment for any reason were unenforceable. Even though the termination provisions were unambiguous, the court found that as the provisions took away the employee’s right to awards on termination without cause they were “harsh and oppressive” and that the employer had not taken sufficient steps to bring the provisions to the attention of the employee. (Battiston v Microsoft Canada Inc.). The employer has appealed the decision.
The key takeaway from this decision is that where a termination provision limits an employee’s entitlements to post-termination awards, it is not sufficient that the provision is unambiguous. The provision may still be deemed to be “harsh and oppressive.” Where this is the case, the employer must ensure that the provision has been brought to the employee’s attention. In this case, the obligation on the employer was not discharged by requiring the employee to tick a box to confirm that he had read the terms of the award.
Data Protection – global update
Following the roll out of the GDPR, there has been a flurry of activity as countries around the globe move to put in place rules that, to greater or lesser, extent follow the EU gold standard set by the GDPR. Over the past few months we have seen developments in Brazil (as discussed above), Egypt, New Zealand, South Africa and Thailand.
Many countries are following the lead of the EU and putting in place robust rules for dealing with personal data. This is not a share plan specific issue but as share plans are often operated globally, rules surrounding how employees agree to their data being used and restrictions on the transfer of personal data, impact on the operation of share plans. There are real costs of failing to comply, both the risk of damage to the company’s reputation and, increasingly, substantial fines. It is crucial that companies ensure that they have systems in place to comply with the rules.
Global tax rates
Not surprisingly, the impact of COVID-19 has caused delays in government tax rate announcements for countries with a July/June tax year. There have been some changes since our last webinar, including:
Angola – Progressive rates have now increased
Bangladesh – Top tax rate reduced
Canada – 2020 budget postponed
Gibraltar – 2020/21 budget postponed until 2021
UK – 2020/21 budget postponed until 2021
Zimbabwe – changes to the highest tax rate on annual income
We will discuss the detail of these changes during our 14 October webinar.
Greece – tax break for free-share awards
In January 2020, Greece introduced a new tax break for employees receiving shares under an employee share option plan. Under the new tax treatment, any gains made following the exercise of a compliant option will be subject to capital gains tax rather than income tax. The benefit was extended to free shares in August 2020 (effective for income from 1 January 2020).
This is a helpful clarification of the application of this significant tax break for Greek employees. When the rules were first announced in January, the tax break only referred to share options and it was unclear if free share plans would also benefit.
UK – Brexit update
On 31 January 2020, the UK left the EU. The transition period ends on 31 December 2020. An ongoing relationship agreement has not yet been reached and therefore 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.
USA – Uber sued by employees over RSUs
In May 2019, Uber’s long awaited IPO took place. This August, around 190 current and former Uber employees filed a lawsuit against the ride-hailing firm in relation to their RSUs that were settled on the IPO date. The plaintiffs are arguing that Uber unfairly accelerated the settlement of these RSUs by six months, resulting in a significantly higher tax burden for the employees. The case will focus on whether Uber had the contractual right to accelerate the RSUs. Uber argues that the case is ‘without merit’. For a more detailed discussion of the case, please see our newsletter (here).
Whatever the result of the case, the claim is a reminder that companies should consider in-flight awards on a corporate event and check carefully the terms of the award documents.
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 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.
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!
Lorna, Steve & Tom