Worldwide Wrap-Up - Tap-in to our global knowledge!

6 January 2023

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 2023, 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 11 January webinar, which you can register for here.

Australia - employee share scheme reforms tweaked
We have covered the reforms to the Australian share plan securities rules, which took effect on 1 October 2022, in previous World Wide Wrap-Ups. Following a consultation with industry stakeholders, the regulator, ASIC, issued a new legislative instrument at the end of 2022 to address some technical issues raised by advisers. These include:

  • A broader exemption for secondary sales of quoted financial products. 
  • More options for the financial information that foreign companies can provide to ESS participants.
  • Clarification that financial products offered outside Australia do not need to be included when calculating the issue cap.

The new ESS regime is intended to replace ASIC’s existing Class Order relief for employee incentive schemes. Offers under the Class Order relief can continue to be made until 1 March 2023, so long as the offer can be accepted before 1 April 2024 (previously the cut off dates were 31 December 2022 and 31 January 2024, respectively).

Tapestry comment
Advisers continue to dig into the details and companies are still considering how the new rules apply to their current and future share plans. We would always advise obtaining specific advice for share plan offers in Australia, but this is particularly important while the new rules settle in.

Canada - trust reporting delayed - again

In our World Wide Wrap-Up in May last year (here), we reported that the much delayed implementation of additional reporting for trusts in Canada was firmly back on the agenda and due to come into force at the end of 2022. Under Bill C-32, Fall Economic Statement Implementation Act 2022, which received Royal Assent on 15 December 2022, the new trust reporting rules will now apply to taxation years ending after 30 December 2023 (rather than after 30 December 2022). This means that, for trusts with a calendar year-end, the new reporting rules will apply one year later, beginning with the 2023 taxation year.

Tapestry comment

This is clearly a useful breathing space given the additional detail to be reported (including details of all trustees, beneficiaries and settlors of the trust, as well as any person able to exert control over trust decision making). The additional reporting will capture trusts that will be reporting for the first time and it is crucial to make use of this delay, either to ensure that that the trust will be able to comply or to restructure the plan to remove the trust arrangement.  

India FlagIndia - new foreign exchange rules
In August 2022, India introduced new foreign investment rules, aiming to liberalise India’s regulatory framework and replace the existing regulations facilitating overseas investment by Indian residents. The new rules (the OI Regime) are wide ranging and the impact on employee share plans (ESOPs) is covered in detail in our alert (here).
Specific points to note are:

  • Exemption: For an Indian resident to participate in an ESOP, the individual must obtain Reserve Bank of India (RBI) approval or come within an exemption. Under the OI Regime, all ESOPs must come within the General Permission. There are no other exemptions.
  • Cashless ESOP: The previous exemption for a cashless ESOP no longer applies.
  • Liberalised Remittance Scheme (LRS): Under the LRS, Indian residents are permitted to send up to USD250,000 offshore each year without seeking RBI consent. Any amounts invested in foreign shares under an ESOP must come within an individual’s LRS limit.
  • ESOP reporting by employer: Employers are required to make semi-annual filings on Form OPI within 60 days of each of 31 March and 30 September and late filing fees apply. This filing replaces the previous annual filing requirement.
  • Repatriation of funds: Strict repatriation requirements for proceeds of sale and dividends will not apply under the OI Regime so long as the funds are reinvested under the terms of the General Permission within 180 days of receipt.

Tapestry comment
Foreign exchange rules in India continue to be complex. To some extent, the OI Regime appears not to have made significant changes to the operation of global employee share plans in India, but there are important updates that companies will need be aware of - in particular, the new twice yearly reporting system (and the first report is already due). Other changes are more subtle and companies will need to review their share plans to ensure that they comply with the revised General Permission. 

Russia - update on the impact of counter-sanctions regime 
The practicalities of offering shares to Russian resident employees continue to be challenging. In our webinar, we will address some of the common concerns that companies have when considering whether and how to include Russian employees in their global share plans. We will provide our latest updates on the following questions:

  • Can we grant awards to our Russian resident employees?
  • Are Russian employees able to receive shares in foreign companies?
  • Is it possible for a Russian employee to send funds outside Russia to purchase shares in an ESPP?
  • What is the position if a Russian employee wants (or needs) to sell the shares?
  • Can the employee receive income from the shares?
  • What other practical issues do we need to consider?

Tapestry comment
Under the circumstances, there are no simple or straight forward answers and we continue to proceed with caution. However, there are alternatives available for companies that still wish to include Russian employees in their share plans. Whether those alternatives will apply to a particular company and a specific plan will need to be considered on a case-by-case basis.

USA - SEC adopts rules on clawback 
On 26 October 2022, the SEC adopted final rules on clawback, as required by the Dodd-Frank Wall Street Reform Act 2010. Under the new rules, US securities exchanges are required to adopt listing standards that require all listed companies (including foreign issuers) to implement a clawback policy, providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers, based on certain financial information in the event of an accounting restatement. US securities exchanges have until 26 February 2023 to propose listing standards that implement the final rules and the new listing standards must become effective by 28 November 2023. 

Tapestry comment
To comply with the SEC clawback rules, companies will need to review their existing clawback policies or put in place new policies. Companies should also review relevant employment contracts and remuneration arrangements (including equity and other types of incentive plans) to ensure that they comply with the amended/new clawback policies.

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. Recent announced changes include: 

  • Croatia: Croatia adopted the Euro on 1 January, so tax and social security rates are now expressed in EUR.
  • Finland: The split between national and municipal tax has changed, with the state taking over health care from the municipalities. The top combined rate of tax has increased slightly from 57.06% to 57.36%.
  • Russia: Under the new Social Fund of Russia, employers contribute at a flat rate of 30% (capped) and 15.1% above the cap.
  • Scotland: The higher rate is due to increase from 41% to 42% and the top rate from 46% to 47%. The new rates will take effect on 6 April.

Tapestry comment
The above list is not exhaustive and we will discuss the detail of these changes in our 11 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. 

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, Rebecca Perry and Olivia Rodrigo

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