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 2022, 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 January webinar, which you can register for here.
Australia - employee share scheme tax and regulatory reforms
As discussed in our last wrap-up webinar (and summarised here), last July the Australian government released draft legislation to implement reforms to the taxation and regulation of employee share schemes (ESS). In a case of one step forward and another step sideways, the government has separated the tax and regulatory reforms and, in November, tabled a bill in parliament which will remove the taxing point on cessation of employment for ESS awards. One advantage of the draft bill is that the removal of cessation of employment as a taxing point will apply to all existing ESS that have not yet reached a taxing point. Previously, the reform was only going to apply to awards granted after the start of the tax year following Royal Assent of the reform (which will not be before 1 July 2022). Plans to simplify the securities law exemptions are subject to a further period of consultation which started on 20 December and will end on 4 February.
The tax reform is widely welcomed, particularly for companies who have increasing numbers of mobile employees. The retrospective effect of the latest draft bill is also particularly helpful in widening the number of awards that can potentially benefit from the new rules. We will be following the changes and will keep you updated.
Canada - termination provisions upheld
The decision of Battiston v Microsoft (discussed here) originally held that a termination provision in an employee share plan was not enforceable, even though the employee had accepted the terms of the provision, on the grounds that it was "harsh and oppressive" and that insufficient steps had been taken to bring it to the employee’s attention. The appeal court overturned the previous decision. It was accepted that the employee clicked to accept the terms of the plan even though he did not read the terms. The court held that this constituted notice and that by accepting the terms without reading them, the employee could not be put in a better position than an employee who did read the terms of the plan.
This outcome means that companies offering share plans in Canada may be able to start relying on the standard tick box acceptance approach again. However, it is of course important to consider which provisions should be highlighted to participants as a matter of best practice. This will usually include termination provisions, in particular, still in Canada.
China - extends preferential tax treatment
On 29 December 2021, the Chinese authorities confirmed that the preferential income tax treatment for registered share plans under Circular 164 would be extended to the end of 2022. Previously, the tax treatment was due to expire on 31 December 2021. In addition, the beneficial income tax treatment for a one-time bonus has been extended to the end of 2023.
Although not unexpected, the extension of the tax treatment for a further year will be welcomed by share plan employees in China. On the webinar, we will also discuss the tax filing requirements under the updated Circular 35, which relate to the preferential income tax treatment for share plans.
Data Protection - global update
The spread of data protection legislation continues. As discussed in previous alerts, there has been a flurry of activity as countries around the globe move to put in place rules that, to a greater or lesser extent, follow the EU ‘gold standard’ set by the GDPR. Over the past few months we have seen developments in Saudi Arabia, UAE and Vietnam.
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. We will discuss a few of the recent updates.
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. Current changes include: Colombia and Indonesia.
The above list is not exhaustive and we will discuss the detail of these changes in our 12 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.
Netherlands - change to taxable moment withdrawn
As discussed in our alert (here), last October the Dutch government released details of a proposed change to the timing of the taxation of options which are subject to selling restrictions. Under the proposal, employees would be able to choose to defer the taxable moment of their options from exercise to the moment the underlying shares can be traded by the employee. The amendment was due to come into force at the start of 2022, but the proposal was withdrawn by the Dutch government. The suggestion is that the proposal will be replaced by new rules that will apply to unlisted or start-up companies only. In any event, it is unlikely that there will be any new legislation in place before 2023.
It is disappointing that this practical proposal has not been taken up by the Dutch government. If we hear any more news on this, we will let you 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!
Emma, Sonia and Tom