Staying ahead of the curve on regulatory and tax compliance is a never-ending task for companies.
To help keep you up-to-date with recent global developments, we are holding our third Worldwide Wrap-Up webinar for 2021 to highlight some of the most recent changes that should be on your radar. We will be covering the below topics in more detail on our 14 July webinar
Australia – removal of tax on termination
Currently, when an individual leaves employment and retains any unvested shares under a tax-deferred Employee Share Scheme (ESS) in Australia, taxation will generally be triggered at that time. The 2021 Budget announced the removal of the tax trigger at cessation of employment (see our alert here). This change will now likely apply to ESS interests issued from the next Australian income year (1 July 2022).
Whilst the removal of early taxation for leavers is beneficial for ESS, and brings the tax treatment in line with many other jurisdictions (making global compliance much easier), the rules only applying to issues following implementation of the change means the benefits may not be recognised for some time.
Brexit – GDPR decision adopted
On 28 June, the EU Commission adopted an adequacy decision (see our alert here) confirming that the UK’s data protection rules are fit for EU purposes. This means the UK will not be treated as a third country for the purposes of the EU General Data Protection Regulation and allows the continued free flow of data between the EU and UK.
The deadline for adoption of the EU adequacy decision was 30 June so we were literally checking this one every day! It was a relief to receive the adequacy decision in time and see that ‘business as usual’ applies (at least for the next 4 years). It also means that EU companies do not have to adopt (potentially!) cumbersome alternatives when transferring data to the UK.
Canada – cap on deductions for stock options takes effect
The cap on the tax reduction available for option-holders finally took effect on 1 July, limiting the scope of tax benefits available to participants, but possibly allowing for a corporate tax deduction for employers (see more here).
This change has been in the pipeline for a while and most companies will have likely factored this into their planning and communications. The availability of the tax deduction has made options popular in Canada and the cap may result in a desired switch to other award types (although employees can still take advantage of the beneficial tax treatment up to the CAD200,000 cap).
Germany – tax advantage increase
Germany has recently introduced the following tax advantages available to employee shareholders:
Discounted or free shares offered to employees of small or medium sized start-ups (less than 12 years old): income on compliant shares will not be taxed until the earlier of sale, termination of employment or 12 years from the date of transfer to the employee.
Tax break: the existing tax break for free or discounted shares (where shares are offered to all employees) has been increased from EUR360 to EUR1,440 per year.
Both of the above came into effect on 1 July 2021.
The low value of the tax break previously available in Germany, and the high administration costs, meant this tax advantage was rarely utilised. Increasing this threshold, and implementing a tax regime for start-up businesses, will hopefully see a growth in take-up, and it is great to see governments recognising and supporting the benefits of employee share ownership.
Ireland – new share plan reporting
The Irish Revenue has released a new electronic return for reporting all share-based remuneration (specific share plan reporting already applies to option plans and approved share plans). The template for the Form ESA can be downloaded from the Revenue’s website and must be filed by 31 August 2021 (for tax year 2020). Moving forward the return deadline will be 31 March (see more here).
We are not that far from 31 August! Companies should begin to prepare for this filing (including registering to make e-filings through the Revenue’s online system), particularly if reporting in Ireland will be new, to ensure you have the information to hand before the deadline looms. The scope of the filing means employers with larger scale and/or more complex share incentive arrangements in Ireland must be (unfortunately!) prepared for a more time-consuming reporting process.
UK – tax new year?
For historic reasons, the UK’s tax year for individuals begins on 6 April. This is different to most other jurisdictions (which have a 1 January tax year). In June, the (aptly named) Office of Tax Simplification (OTS) announced it was conducting a review as to whether to move the end of the UK tax year for individuals from the current 5 April to either 31 March or 31 December. To minimise disruption, the review will focus on the 31 March date (which is the government tax year end date and the date used for corporation tax rate changes). For more on what we thought was surely an April Fool’s joke (!) please see here.
A report from the OTS is expected this summer but note the OTS is only an advisory body and any changes to the tax year will ultimately be decided by the government. We will be watching with interest and you can be sure that we will let you know the outcome of the review.
We hope you can join us for our webinar on 14 July as we go through the key regulatory and tax updates from the last quarter, including those set out above and more, and how these may impact your share plan offerings.
If you have any questions or would like to discuss your global legal or tax compliance, please do get in touch – we would love to help!
Hannah Needle, Sonia Taylor and Emilie Sylvester