Instructions for completing Form 1099-MISC, Form 3921, and Form 3921.
IRS instructions for reporting compensation on Form W-2.
IRS instructions for completing Form 1099-MISC.
A procedural update to the Internal Revenue Manual clarifies instructions relating to the application of late-deposit penalties to tax withholding for NQSOs and extends existing penalty relief to restricted stock units and stock-settled SARs.
IRS GLAM 2020-004 clarifies when income is recognized and the company's tax withholding deposit liability accrues for nonqualified stock option exercises, stock-settled SAR exercises, and payouts of restricted stock units.
Transcript for webcast Virus, Volatility and Variables, addressing challenges with equity awards in a volatile market.
A comparison between the attributes of stock and cash-settled SARs to NQSOs.
Directive to IRS auditors to treat deposit liability for NQSO and SSAR exercises, as well as RSU payouts, as accruing on the settlement date, rather than the transaction date.
This Generic Legal Advice Memorandum the timing of (i) income inclusion and application of FICA taxes and federal income tax withholding and (ii) the employer’s obligation to deposit withheld employment taxes occur with respect to NQSOs, stock-settled SARs, and restricted stock units (RSUs).
Addressing Equity and Incentive Compensation Concerns
Results from our April 2020 quick survey on how companies are adjusting their equity awards in light of the market volatility caused by COVID-19.
Sample worksheet to explain the $25,000 limit to employees.
A chart comparing the key considerations for common types of modifications to equity awards.
This article explains the impact of a company stock split on equity awards, including how to properly effect a split on stock plans.
The article offers an in-depth explanation of how to apply the Section 423 $25,000 limitation to your ESPP.
This slide deck uses several examples to explain key concepts important to understanding the $25,000 limitation under section 423.
This is a sample email that can be used to explain the $25,000 limit to an employee.
A sample memo explaining the ESPP $25,000 limitation to employees.
This study by Aon Rewards Solutions, with contributions by the NASPP and Fidelity Stock Plan Services, definitively answers the question of how common ESPPs are.
An annual return must be submitted in the UK for each open stock plan registration, even if there is no plan activity to report. This year’s returns are due by July 6. New this year, the report includes special instructions for share withholding/net settlement.
This article by Infinite Equity proposes a solution for the age-old problem of underwater stock options.
This article discusses the tax and accounting consequences of retirement provisions included in RSU awards, with an in-depth look at the rules around collecting FICA payments and best practices in this area.
Key trends in the design of restricted stock/unit, performance award, and stock option programs.
This Morrison & Foerster alert provides an overview of enforcement trends regarding Rule 10b5-1 plans, discusses the proposed legislative changes to Rule 10b5-1 plans, and advises on best practices for Rule 10b5-1 plans— both as the law currently governs them and in line with anticipated changes.
Individuals whose stock ownership exceeds certain thresholds can be required to file reports with the FTC and the DOJ. Learn more about how these rules apply to stock compensation.
NASPP members frequently ask whether it is permissible to withhold federal income taxes at a rate higher than the flat rates applicable to supplemental payments. This article explains what you need to know about this practice, including the IRS's rules and accounting considerations.
Describes the IRS procedures for withholding and depositing payroll taxes.
Explains Form W-2 reporting requirements for nonqualified stock options, incentive stock options (ISOs), Section 423 employee stock purchase plans (ESPPs), and qualified equity grants.
The memo by Morrison & Foerster summarizes the new HSR Act filing thresholds for 2020.
The latest developments and compliance requirements for Section 16.
This article illustrates how tying option exercise prices to an index can result in a better compensation vehicle.
This article explains the characteristics of restricted stock, restricted stock units, and restricted stock purchases. It also covers the design, administrative, tax, securities law, and financial considerations of these arrangements.
This article summarizes the characteristics and tax treatment of deferred stock units (DSUs).
Current US tax withholding rates and maximums for supplemental payments made in 2020.
Written for readers without an accounting background, this article provides a summary of the treatment of stock compensation under US GAAP. Also includes highlights of differences between the US GAAP and IFRS with respect to stock compensation.
This article summarizes the principal features of employee stock purchase plans (ESPPs),
especially those that are designed to qualify under Section 423 of the Internal Revenue
Code (the “Code”), and highlights some of the practical considerations involved in putting an ESPP into place.
On December 20, 2019, the IRS issued proposed regulations under Section 162(m). This article from McGuireWoods summarizes the primary matters addressed under the proposed regs, including a helpful table of key areas.
This article by Morrison & Foerster summarizes the proposed Section 162(m) regs issued by the IRS in December 2019.
Proposed regs under Section 162(m), issued by the IRS on December 20, 2019.
This article by PwC summarizes key issues in the IRS's proposed regs under Section 162(m).
Commonly asked questions (and answers) on how stock compensation should be reported on Form W-2 and Form 1099-MISC.
This article summarizes the key features, as well as the pros and cons of stock-settled stock appreciation rights.
This article summarizes the tax treatment of stock-settled stock appreciation rights.
This article summarizes the accounting treatment applicable to stock-settled stock appreciation rights under ASC 718.
This article summarizes the U.S. tax withholding and reporting requirements for stock compensation.
Where participants recognize compensation income in connection with stock compensation,
the company has a reporting obligation with respect to this income and is also sometimes
required to withhold taxes on the income. This article summarizes the U.S. tax withholding
and reporting requirements for stock compensation.
Practical Tips to Help You Prepare for the Annual Audit
This article by Infinite Equity explains how performance awards are included in diluted earnings per share.
Are you considering an ESPP with a generous offering period, lookback, and discount? This article by Infinite Equity discusses key things to consider.
This is a simple spreadsheet that provides an example of how to calculate how many years before shares will need to be allocated to a stock plan.
Find out the latest practices and trends in stock compensation!
As more and more companies grant performance equity, understanding the valuation and accounting impacts of these awards becomes more and more essential. This article will outline the key points to consider when accounting for performance equity awards.
This Baker McKenzie alert highlights a Supreme Court case that could impact that social tax treatment of equity awards in Belgium.
Pearl Meyer's summary of the hedging policy disclosure requirements.
Are you recognizing more expense than you need to for your ESPP? This article by Infinite Equity looks at additional factors to consider when valuing ESPPs.
CA FTB Publication 1004, which provides information on how stock compensation is taxed for both residents and nonresidents.
Nuggets of Wisdom in the CEP Institute’s Global Equity GPS
Considerations and alternative approaches for valuing awards
This alert by Shearman & Sterling discusses Ninth Circuit's June 2019 decision on stock compensation expenses in cost-sharing agreements.
This PwC alert discusses the most recent decision on cost-sharing arrangements in the Altera case.
Clawback policies have been common for some time. However, because implementation of the proposed Dodd-Frank clawback rules may never be finalized, companies are beginning to implement or update executive compensation recoupment and forfeiture rules on their own based on investor sentiment, good governance principles, and recent events.
This quick survey reports on compliance and administrative practices for state-to-state mobile employees, including assignees, transfers, and business travelers.
This alert from Deloitte Tax discusses a Canadian budget proposal to introduce CA$200,000 annual cap on beneficial treatment of employee stock options for large companies.
Best practices for a successful transition
Get a handle on your mobility tax compliance!
SEC rule requiring public companies to describe policies they have adopted regarding the ability of employees (including officers) or directors to purchase financial instruments, or otherwise engage in transactions, that hedge or offset any decrease in the market value of equity securities granted as compensation or held directly or indirectly by the employee or director
The memo by Morrison & Foerster summarizes the new HSR Act filing thresholds for 2019.
This article summarizes the tax and accounting treatment of dividends and equivalents on equity awards. The article also discusses common trends in the payment of dividends and equivalents.
This Baker McKenzie alert summarizes new tax withholding requirements in Belgium
Written by Marlene Zobayan of Rutlen Associates, this paper provides a summary of the state tax treatment of domestically mobile employees.
This NASPP alert provides a high-level summary of the SEC's hedging policy disclosure rule.
Alan Dye, the nation's foremost expert on Section 16, covers all the latest Section 16 pitfalls & quagmires. Hear practical tips on refining your Section 16 procedures—and answers to your questions on the challenges you are facing today. This is the transcript of his January 2019 webcast.
Transcript for Hot Topics in Equity Compensation webcast
The alert summarizes an IRS Notice of Proposed Rulemaking that will eliminate the requirement to suspend contributions in an ESPP after an employee receives a hardship withdrawal from the company's 401(k) plan.
This client alert by Goodwin summarizes the SEC's hedging policy disclosure rule, which was adopted as required under the Dodd-Frank Act.
This client memo by Sullivan & Cromwell summarizes the SEC's new hedging policy disclosure rule, which was adopted pursuant to the Dodd-Frank Act.
This client alert by Cleary Gottlieb summarizes the SEC's final hedging policy disclosure rule, as required under the Dodd-Frank Act, and discusses how the final rule differs from proposed rule.
Cheat sheets that explain how to calculate the cost basis of shares acquired under compensatory stock awards.
Sample FAQs on cost-basis reporting that stock plan administrators and others can use to develop FAQs for their stock plan participants.
This client memo by Davis Polk provides a handy FAQ on the hedging policy disclosure rule adopted by the SEC as required under the Dodd-Frank Act.
This Ropes & Gray alert describes the scope and application of the SEC's final hedging policy disclosure rule and offer some practical guidance for public companies. The rule was adopted in accordance with the Dodd-Frank Act.
This article summarizes Notice 2018-97, which the IRS issued to provide guidance on certain aspects of new code Section 83(i).
This notice provides guidance on key requirements the apply to qualified equity grants under Section 83(i).
This article reviews the mechanics of stock-for-stock exercises, as well as the tax, accounting, and securities law considerations.
Under Section 6039 of the Internal Revenue Code, employers must file returns with the IRS for employees who have exercised incentive stock options during the year or transferred shares acquired pursuant to Section 423 qualified employee stock purchase plans. This article provides an in-depth summary of the mechanics of preparing the filings on Form 3921 (ISOs) and Form 3922 (ESPPs) that are necessary to fulfill this requirement.
This article submitted by Raymond James provides a review of the terminology, exercise techniques and tax treatment of stock options.
This article by Raymond James explains the factors executives should consider before making a Section 83(b) election.
IRS notice of proposed rules which would, among other actions, eliminate the requirement to suspend contributions to an ESPP after a hardship withdrawal from a 401(k) plan.
Changes to tax withholding rates and compensation thresholds for various tax-related purposes for 2019.
FW Cook’s 2018 Director Compensation Report studies non-employee director compensation at 300 companies of
various sizes and industries to analyze market practices in pay levels and program structure.
This 46th annual FW Cook Top 250 Report details the long-term incentive practices and trends of the 250 largest
companies in the Standard & Poor’s (“S&P”) 500.
This executive summary highlights results from the quick survey on Rule 10b5-1 plans cosponsors by the NASPP, Morgan Stanley, and Shearman & Sterling.
A checklist of income that should be reported on Form W-2 for various stock plan transactions.
When the Internal Revenue Service (IRS) determines during an examination that a fringe benefit
should have been taxed and the employer accordingly has to pay additional taxes in a later year, how is
the subsequent payment treated for tax purposes? Recent IRS guidance on this issue serves to clarify
when employers will need to “gross up” these payments for the employee.
This article provides a summary of Rule 144.
An outline of considerations under Section 16.
This article highlights findings from a study by Alvarez & Marsal and Equilar on trends in change-in-control provisions.
A sample memo to describe to employees the payments they'll receive in a change in control.
A checklist of HR considerations for compensation in a change in control.
The comment letter submitted by the NASPP on the SEC's concept release proposing changes to Rule 701 and Form S-8.
This Cooley alert summarizes the SEC's amendment to the Rule 701 disclosure threshold and the SEC's 2018 concept release on Rule 701 and Form S-8.
Korn Ferry’s memo on IRS Notice 2018-68, which provides guidance on Section 162(m) as amended by the Tax Cuts and Jobs Act. The memo reviews the guidance on covered employees, written binding contracts, material modifications, and negative discretion and notes that a legal opinion may be necessary to show that awards with negative discretion constitute a written binding contract.
This client alert by DLA Piper summarizes IRS Notice 2018-68, which provides guidance on Section 162(m) as amended by the Tax Cuts and Jobs Act. The alert focuses on how the use of negative discretion impacts eligibility for grandfather protection, renewed or extended contracts, material modifications, and who is covered employee. The alert also includes a list of action items for employers.
This client alert by Baker McKenzie summarizes IRS Notice 2018-68, which clarifies certain aspects of the expansion of Section 162(m) under the Tax Cuts and Jobs Act. This alert summarizes the IRS’s guidance on who is a covered employee and the types of arrangements that are eligible for the grandfather provision.
This article by McDermott Will & Emery summarizes the guidance provided by the IRS and Treasury in Notice 2018-68, which relates to amendments of Section 162(m) of the Tax Cuts and Jobs Act. Notice 2018-68 provides guidance on who is a covered employee and what types of compensatory arrangements qualify for the grandfather provision. This article focuses primarily on the guidance as to what constitutes a written binding contract for purposes of the grandfather provision.
The IRS and Treasury have issued guidance on who is a covered employee for purposes of Section 162(m) and which forms of compensation are exempt from Section 162(m) pursuant to the grandfather provision included in the Tax Cuts and Jobs Act.
This notice provides initial guidance on the application of Section 162(m), as amended by the Tax Cuts and Jobs Act of 2017. The notice provides guidance as to covered employees under Section 162(m) and the grandfather provision of 162(m).
This article by PwC summarizes the guidance is ASU 2018-07, which expands the scope of ASC 718 to include awards issued to nonemployees.
Sample FAQs for a newly implemented ESPP.
Tips for combining stock plan records from a target company with that of the acquirer's stock plan data after a merger, acquisition or other change-in-control.
This article provides an overview of incentive stock options, including characteristics, requirements, and tax treatment.
When presented with a securities law question, both the federal securities laws, which
include the Securities Act of 1933 and the Securities Exchange Act of 1934, and state
securities laws, which will include the laws of the state of the company's principal place of
business and each state in which the company proposes to offer and sell securities to its
employees, must be considered. This article addresses considerations under the Securities
Act of 1933, with a brief discussion of similar considerations at the state level.
On July 18, 2018, the SEC released an amendment to Rule 701 to increase the threshold at which privately held companies most provide additional disclosures to employees to $10 million worth of stock.
The alert describes the SEC’s recent amendment to increase the disclosure threshold in Rule 701 to $10 million (up from $5 million) and the SEC’s concept release of proposed changes to Rule 701 and Form S-8.
Among the many questions companies face following the changes to section 162(m) is whether to continue seeking periodic shareholder approval for the performance criteria under their incentive plans. Covington & Burling researched what large public companies decided to do this year by reviewing the most recent proxy statements filed by S&P 100 companies.
This alert describes the SEC’s amendment to Rule 701 to increase from $5 million to $10 million the annual threshold at which private companies must provide additional disclosure for securities offered and sold pursuant to compensatory arrangements and the SEC’s solicitation of comments on further ways to modernize Rule 701 and Form S-8.
Sample cover letter to notify plan participants that they have received an award of stock or units.
Sample cover letter to notify plan participants that they have received a stock option grant.
Sample email to announce to stock plan participants that their grant agreement is available online.
Sample notification to plan participants that they have received an award or stock option. Includes a list of three things participants need to know.
On July 18, 2018, the SEC amended Rule 701(e), as mandated by the Economic Growth, Regulatory Relief, and Consumer Protection Act. The amendment revises Rule 701(e) to increase to $10 million the aggregate sales price or amount of securities sold during any consecutive 12-month period in excess of which an issuer is required to deliver to employees (and other covered persons) certain disclosures.
Release No. 33-10520. SEC amendment to Rule 701 to increase the threshold at which private companies must make additional disclosures to employees to $10 million (from $5 million), as required under the Economic Growth, Regulatory Relief & Consumer Protection Act.
Release No. 33-10521. SEC concept release on proposed modernization of Rule 701 and Form S-8.
On June 20, 2018, the FASB issued ASU 2018-07, which expands the scope of ASC 718 to cover awards issued to nonemployees. This article summarizes the major provisions of the ASU.
The $5 million threshold for additional participant disclosures under Rule 701 will soon be increased from $5 million to $10 million. This is great news for companies which are not reporting issuers in the US.
Focus on the growing definition of mobility and more complex global tax issues
This IRS memo provides clarification on how income and tax withholding should be handled when collected and reported in a year after the year in which the collection and reporting should have occurred.
The Economic Growth, Regulatory Relief and Consumer Protection Act, signed into law in May 2018, directs the SEC to increase the sale threshold triggering enhanced disclosure under Rule 701 from $5 million to $10 million and to index the enhanced disclosure threshold for inflation every 5 years, rounded to the nearest $1 million.
On June 20, 2018, the FASB issued ASU 2018-07, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees.
The standard that governs accounting for nonemployees (ASC 505-50: Equity-Equity Based Payments to Nonemployees) has been absorbed into ASC 718 through the release of ASU 2018-07. Is your Company equipped with the knowledge and processes to update your valuation, accounting, and disclosures?
This Wilson Sonsini alert takes an in-depth look at the deferral opportunity available for qualified equity grants under new code Section 83(i), as created by the Tax Cuts and Jobs Act.
This alert serves as a reminder of the need for yearend reporting to the UK tax authorities (HMRC) with respect to options and other equity incentive awards granted to, and share acquisitions by, UK employees which occurred between April 6, 2017, and April 5, 2018. The requirements are relevant to both UK and US companies.
How equity awards can be part of a financial wellness program for employees
Businesses and nonprofits operating in Pennsylvania that hire independent contractors or corporate directors who live outside of Pennsylvania, or that pay rent on Pennsylvania property to landlords living outside of Pennsylvania, must carefully consider new Pennsylvania withholding rules that will be enforced beginning on July 1, 2018.
This article summarizes the characteristics, advantages, and tax treatment of RSUs.
This ClearBridge 100 Report presents findings on various executive compensation policies, including compensation recovery (clawback) policies, stock ownership guidelines and post-vesting holding requirements, anti-hedging policies and anti-pledging policies, and target compensation positioning philosophies. The ClearBridge 100 is comprised of 100 S&P 500 companies.
This article discusses exemptions available under the NYSE and Nasdaq stock exchange listing rules that avoid the requirement for shareholder approval for awards granted in connection with a change-in-control (CIC) and can help avoid an M&A-related drain on the acquiror’s equity plan share reserve.
There are numerous journal entries that are recorded in a company’s accounting records
throughout the life of an equity compensation award to reflect the impact of that award on the company’s financials. This article illustrates the entries used to record some of the most common stock plan transactions.
Annual share plan returns must be filed with the UK tax authorities (Her Majesty's Revenue & Customs or "HMRC") on or before July 6, 2018 to report information pertaining to employee share awards in the prior UK tax year (April 6, 2017 to April 5, 2018). Companies are encouraged to submit their returns as early as possible.
EU State Aid approval for EMI plans expired on April 6, 2018; all EMI stock option grants (and possibly exercises) from April 6, 2018 through the effective date of new EU State Aid approval will be non-tax advantaged. Until new EU State Aid approval is received, companies with EMI option plans should consider (1) delaying new EMI option grants and (2) notifying affected optionees of the issue.
A Detailed Look at Choice Plans
This article provides a summary of the changes to Section 162(m) under the Tax Cuts and Jobs Act and a list of questions for compensation committees to consider.
A chart comparing the accounting, tax, securities law, and administrative considerations for restricted stock and units.
Tokens have nudged into the mainstream with “initial coin offerings” (ICOs) and the blockbuster rises—and drops—in the prices of cryptocurrencies. An emerging trend sees companies leveraging the value of tokens to compensate founders, directors, employees, consultants and others. Just as with traditional equity-based compensation, token-based compensation has significant legal implications.
Belgian tax authorities have been scrutinizing equity compensation tax withholding and reporting practices of multinational companies (particularly Belgian subsidiaries of US companies).
Several companies with registered equity plans in China received courtesy phone calls from the SAFE office in Beijing reminding them of the timely filing of quarterly reports.
The exclusion from the prospectus requirements for EU/EEA offerings with a value of EUR 5 million during a 12 month period will be decreased to EUR 1 million effective July 21, 2018.
A new tax favorable employee share option incentive scheme was introduced for small-to-medium enterprises in Ireland.
The Singapore Ministry of Manpower has further changed the approval process for payroll deductions by now requiring signed acknowledgement forms and a representative employment agreement.
Her Majesty’s Revenue & Customs released two publications in related to equity awards and in particular, tax-advantaged share schemes.
This article explains how companies can elect to account for compensation that is not deductible under Section 162(m) and covers the processes needed to properly recognize DTAs for nondeductible stock awards.
The U.S. Securities and Exchange Commission brought an action against San Francisco-based Credit Karma on March 12 for issuing employee stock options without a valid registration exemption because the issuer failed to satisfy the requirements of Securities Act Rule 701.
Make sure you are keeping up with key international developments!
This alert from Morgan Lewis summaries new Section 83(i) of the tax code, which allows private companies to offer employees the opportunity to defer income for stock options and RSUs.
Thoughts from Pay Governance on how the loss of the exemption for performance-based compensation will impact executive compensation.
This article covers the characteristics of nonqualified stock options as well as key tax considerations that apply to these options.
Work smarter, not harder!
Sample survey to ask employees who hold shares acquired under incentive stock options if they sold, gifted or otherwise disposed of their shares before the statutory holding period lapsed.
Sample notice for employees to use to inform their employer of disqualifying dispositions of shares acquired under incentive stock options.
Survey that can be used to ask participants in a Section 423 employee stock purchase plan if they have disposed of any of the shares acquired under the ESPP prior to lapse of the statutory holding period.
This article from PwC provides additional information about tax withholding rates under the Tax Cuts & Jobs Act.
The Tax Cuts and Jobs Act (TCJA) significantly changes Section 162(m). While supplemental regulatory guidance is likely, the impact on companies’ compensation programs and planning processes is immediate. This memorandum discusses some of the more significant changes and ways companies can address these and areas where the new rules present uncertainty.
Tax updates for Argentina, Finland, France, Germany, Ireland, Latvia, Netherlands, Philippines, and Romania. Filing updates for Australia, Hong Kong, Ireland, Japan, Luxembourg, Portugal, and the UK.
Sample checklist of steps that must be completed to process a purchase under a Section 423 qualified employee stock purchase plan (ESPP).
Sample list of internal approvals and sign-offs necessary to process a purchase a purchase under an employee stock purchase plan (ESPP).
The SEC issued additional guidance in late 2017 to assist companies in complying with the heightened disclosure requirements under Rule 701. This article discusses this new guidance and provides a brief overview of the key requirements of Rule 701.
On January 26, 2018, the FTC announced the adjusted HSR Act notification thresholds for 2018. The new thresholds will become effective on February 28, 2018.
Alan Dye, the nation's foremost expert on Section 16, covers all the latest Section 16 pitfalls & quagmires. Hear practical tips on refining your Section 16 procedures—and answers to your questions on the challenges you are facing today.
Submission of Federal Form 1099-MISC and withholding on Pennsylvania-source nonemployee compensation, business income and lease payments.
Under Section 6039, participant statements for ISOs and ESPPs must be distributed by January 31.
Winning Plays from the Pros
Participant statements required under Section 6039 are due by January 31. Here's what you need to know.
This development covers a bill released in late December by the Danish Ministry of Taxation in a public hearing, which is based on negotiations between the two governing political parties, to increase threshold of incentive compensation as percentage of annual salary under certain conditions.
Details on how the latest tax reform will affect equity compensation
This Deloitte article provides a summary the treatment of qualified equity grants by certain private companies under newly created Section 83(i) of the Internal Revenue Code. Section 83(i) was added to the tax code by the Tax Cuts and Jobs Act.
This development summarizes tax withholding changes for 2018.
This Trucker Huss alert explains why qualified equity grants can be a helpful tax strategy for employees and an excellent recruiting, retention and incentive program for employers. It also reviews the statutory requirements for establishing a qualified equity grant program for eligible employees of an eligible corporation.
A summary of ISS's policy updates and clarifications for 2018 that apply to stock compensation plans.
ISS voting guidelines for the United States, updated for the 2018 proxy season.
The newly adopted Tax Cuts & Jobs Act has provisions that directly and indirectly affect stock compensation, whether in personal financial planning or in company stock plan administration. This article summarizes the provisions that affect in some way the individual taxation of stock compensation. (The individual tax rates and AMT changes end after 2025, reverting to the current rates unless extended.)
Section 423 of the Internal Revenue Code, which defines qualified employee stock purchase plans.
The text of Section 422 of the Internal Revenue Code, which defines incentive stock options.
A summary of the provisions of the Tax Cuts & Jobs Act of 2017 that impact stock compensation.
After a flurry of activity in the House and the Senate over the past few weeks, H.R.1, colloquially known as the Tax Cuts and Jobs Act, which represents the first major overhaul of the U.S. tax system in several decades, passed both houses on December 20, 2017. The Act makes certain significant changes in the area of executive compensation, which companies and their advisors should be aware of and evaluate carefully.
This alert summarizes the major sections of the Tax Cuts & Jobs Act that affect stock compensation plans, including changes to Section 162(m) and new Section 83(i).
In light of the looming reduction in the corporate tax rate under the Tax Cuts & Job Act, employers may wish to accelerate the deductibility of cash and equity incentive compensation from 2018 to 2017. This acceleration would apply with respect to cash and equity incentive compensation that is scheduled to vest, settle or be paid within two and half months following the close of the 2017 tax year.
ISS FAQ on US Equity Compensation Plans, updated for the 2018 proxy season.
This development covers a bill released in late December by the Danish Ministry of Taxation in a public hearing, which is based on negotiations between the two governing political parties, to increase threshold of incentive compensation as percentage of annual salary.
U.S. Tax Withholding and Reporting for Stock Compensation
FW Cook’s 2017 Director Compensation Report studies non-employee director compensation at 300 companies of various sizes and industries to analyze market practices in pay levels and program structure.
Transcript detailing Highlights from the NASPP/Deloitte Consulting 2017 Stock Plan Administration Survey
Highlights of the 2017 Domestic Stock Plan Administration Survey, cosponsored by the NASPP and Deloitte Consulting LLP.
IRS Form 3921, used to report ISO exercises.
Common equity-based compensation-related transactions, such as restricted stock grants, settlement of
restricted stock units (RSUs), exchange of operating partnership units (OP units) and option exercises, may
trigger filing obligations under the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) for executives of
REITs or other companies who own significant amounts of their company’s stock. Executives should be aware
of how these filing requirements may apply to them, as filing fees are not insignificant ($45,000 or more) and
failing to make a required filing can bring about stiff consequences, including fines of up to $40,000 per day, a
governmental inquiry, and potential embarrassment.
This article looks at the impact of the new T+2 settlement cycle on the timing of tax withholding and deposit of taxes with the IRS, as well as other related equity award administration, tax withholding, and tax calculation topics, with a particular focus on stock options and restricted stock units.
FW Cook’s fifth study of aggregate share-based compensation. This report covers the three-year period from 2014 to 2016, and includes the following: company-wide annual grant rates, overhang, frequency and prevalence of long-term incentive plan share requests, allocation of long-term incentive pools to the CEO and other proxy officers, and prevalence of employee stock purchase plans (“ESPPs”).
New requirements from the Shanghai Branch of the PRC State Administration relating to dedicated foreign exchange accounts.
On September 21, 2017, the SEC issued several new pieces of guidance on calculating the CEO pay ratio, including an interpretive release, detailed guidance from the Division of Corporation Finance, and updated CDIs.
A summary of the SEC's newly issued guidance on the CEO pay ratio disclosure, with easy-to-read bulleted lists.
Summary of the SEC's newly issued guidance on the CEO pay ratio, with bulleted lists and table comparing the Staff's hypothetical scenarios.
Chart summarizing the SEC's new guidance on the CEO pay ratio and relating guidance to updated CDIs.
An in-depth look at the SEC's recent guidance on the CEO pay ratio, with additional commentary from Pearl Meyer.
The Securities and Exchange Commission is publishing interpretive guidance to
assist registrants in preparation of their pay ratio disclosures required by Item 402(u) of
Results from the NASPP's quick survey on practices with respect to calculating the CEO pay ratio, including defining compensation, statistical sampling, determination date, cost of living adjustments, and other policies.
This report presents information on long-term incentives granted to executives at the 250 largest U.S. companies in the S&P 500. The report covers LTI grant types and usage by industry, equity mix, vesting and other award terms, performance plan characteristics, CEO LTI grant value mix, and performance measure adjustments for impact of currency fluctuations.
Withholding tax reform postponed to January 1, 2019; Refund of employer social contribution paid at grant of
qualified awards; Estate & investment income tax reform as from 2018.
This article will help you with the advance preparation for managing a change-in-control process, including identifying the various plans and agreements that may come into play during a transaction and cataloguing the relevant CIC provisions; assessing competitiveness and potential issues with current arrangements, including 280G considerations; and addressing any shortfalls in current plans or agreements and creating a playbook for successful transition of incentive plans.
This development covers draft legislation that has been released regarding the 2017 budget announcement that non-residents of Australia will be denied access to the main residence exemption for captial gains tax purposes.
This memo discusses Tetraphase Pharmaceuticals and other case law regarding the role of 10b5-1 plans, briefly outlines the requirements of 10b5-1 plans, and provides practical reminders to corporations and their counsel on crafting plans that will likely be most successful in shielding corporate executives from liability.This memo discusses Tetraphase Pharmaceuticals and other case law regarding the role of 10b5-1 plans, briefly outlines the requirements of 10b5-1 plans, and provides practical reminders to corporations and their counsel on crafting plans that will likely be most successful in shielding corporate executives from liability.This memo discusses Tetraphase Pharmaceuticals and other case law regarding the role of 10b5-1 plans, briefly outlines the requirements of 10b5-1 plans, and provides practical reminders to corporations and their counsel on crafting plans that will likely be most successful in shielding corporate executives from liability.
Newly updated results for Ayco's informal survey as to the utilization of restricted stock and RSUs at 325 companies where Ayco provides financial counseling or financial education services.
PwC's report of new developments in Australia, Canada, France, and the United Kingdom.
Transcript for The Trump Administration and Compensation: How the New Administration Seeks to Change the Rules
This survey provides an overview of the current environment and signals the direction in which companies are moving with respect to executive compensation and corporate governance practices. This survey features responses from 118 companies across a diverse range of industries, covering topics such as annual and long-term incentive plan designs, Say on Pay, the CEO pay ratio, and more.
This client alert briefly summarizes the key provisions of the SEC's final pay ratio disclosure rule and focuses on the limited exemptions provided for non-US employees. Invoking these exceptions will likely be difficult in practice. Companies should, however, generally be able to take steps to gather the necessary information relating to their non-US employees.
The FASB recently issued ASU 2017-09 to clarify which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The ASU becomes effective for all entities for fiscal years beginning after December 15, 2017.
Ayco's informal survey of 350 of their clients on the design of performance award programs, including types of types of awards, grant frequency, performance period, metrics, payout structures, TSR awards, and more.
On May 10, 2017, the FASB issued ASU 2017-09, which clarifies when modification accounting is required under ASC 718.
A checklist for implementing Rule 10b5-1 trading plans.
A recent decision of the French Constitutional Court has held that employer social contribution payments made at grant on certain tax qualified free share awards may be able to be reclaimed if the award fails to vest.
Recent Developments in Chile, Colombia, and the United Kingdom.
Transcript for Be Prepared for T+2
This article summarizes key considerations for safeguarding employee data, including a checklist of questions to review with service providers. While focused on retirement plans, many of these concerns also apply to equity plans.
The UK has implemented a mandatory gender pay reporting regime, which requires large employers (companies with 250 or more employees who work in or have a sufficiently close connection with the UK) to publish annual reports containing detailed data on their gender pay gap.
In 2016, the FASB issued Accounting Standard Update (‘ASU’) 2016-09, Improvements to Employee
Share-Based Payment Accounting, which makes a number of changes meant to simplify and improve
accounting for share-based payments. One of the most significant changes relates to accounting for tax
deductions associated with stock compensation, and will now result in all tax benefits being reflected in
corporate earnings. This article examines what companies will need to consider in applying these changes.
On March 7, 2017, the FASB issued an exposure draft of a proposed accounting standards update to expand the scope of ASC 718 to cover awards issued to nonemployees.
This development explores the use of strategic objectives rather than financial metrics in performance awards.
Answers to Questions Submitted in Advance
On February 10th, the SEC took action to formally approve of changes proposed by the NASDAQ Stock Market, NYSE MKT LLC, and New York Stock Exchange LLC’s, to shorten the standard settlement cycle for most broker-dealer transaction from three business days (T+3) to two business days (T+2).
In January 2017, the Internal Revenue Service made public its Golden Parachute Payments—Audit Techniques Guide for Large Businesses. The Guide is intended for internal use for IRS agents auditing companies and high net worth individuals. However, in recent years, IRS has shared this and other guides with the public to (i) make known its positions on certain issues, and (ii) help companies avoid the traps that could lead to problems with IRS.
This article provides a framework from which to evaluate whether compensation incentive programs, including equity incentives, encourage appropriate and not excessive levels of risk-taking among employees. The article discusses risk in the context of pay mix, performance measures, performance and payout curves, goal setting certification of performance, and participant communications.
In January 2017, the Internal Revenue Service ("IRS") released an updated Golden Parachute Payments Audit Technique Guide ("ATG") that covers the examination of golden parachutes under Internal Revenue Code ("IRC") Sections 280G and 4999.
This development covers an number of updates that ISS has announced to its proxy voting policy for 2017 that impacted stock compensation.
Effective September 1, 2013, companies have the ability to offer shares to employees in return for the employee becoming an employee shareholder and surrendering certain employment rights, such as the right not be to unfairly dismissed and the right to redundancy pay.
The Budget has now been delivered and has, broadly, confirmed previous announcements and sought to clarify and update outstanding issues. The headlines may be dominated by the leak of the Budget but there were certainly aspects which will be of interest to employers who operate share schemes and their participating employees.
Companies offering an ESPP to employees in Singapore need to obtain
approval from the Singapore Ministry of Manpower (“MOM”) to take payroll
deductions from employees who are subject to the Singapore Employment
Companies are required to complete a notification filing with the Capital Markets Authority (the “CMA”) in connection with the offering of equity awards to employees in Saudi Arabia. The notification filing must be made through an “authorized person,” i.e., an entity licensed to engage in securities activities in Saudi Arabia. The company and the authorized person must notify the CMA at least ten
Restricted stock units and other types of equity awards for which no payment is required to receive the award or the underlying shares generally have not been subject to New Zealand securities laws, including the new regime under the Financial Markets Conduct Act 2013 (“FMCA”). However, a recent case in New Zealand presents some risk that RSUs (and other nil consideration awards) could be caught
A tax bill introduced on June 30, 2015 would require employers to report
equity income realized by New Zealand employees by the end of the pay
period in which the income is received. The bill would also allow (but not
require) employers to withhold tax on equity award income and remit the
withheld tax through the New Zealand PAYE system. The bill is currently
being consulted on, but should it pas
IRS instructions on auditing golden parachute payments for compliance with Section 280G, including documents to review, nine steps to perform a 280G audit, and an audit flow chart.
On January 19, 2017, the FTC announced the adjusted HSR Act notification thresholds for 2018. The new thresholds are effective on February 27, 2017.
Directors, secretaries and shadow directors of an Irish subsidiary have been
required to report their interests in the parent company (e.g., acquisition of
shares, stock options, RSUs, or disposal of shares) to the Irish subsidiary.
On March 31, 2015 the Japanese National Diet passed legislation introducing a tax on Japanese tax residents moving abroad (the “Exit Tax”). For Japanese citizens moving abroad, the Exit Tax became effective on July 1, 2015. For other long-term Japanese tax residents moving abroad who are not Japanese citizens, the Exit Tax will become effective on July 1, 2020.
A recent court ruling confirmed that a stock option granted from an overseas parent company to employees in a Korean subsidiary is regarded as salary income (Class B) and subject to 10% tax credit even if there is no direct employment agreement between the parent company and the Korean employees.
To calculate the taxable amount realized from equity awards in Germany, the general rule under administrative guidelines published by the German tax authorities has been to use the fair market value (“FMV”) of the underlying shares on the date that beneficial ownership of the shares is actually transferred to the employee. In practice, for administrative reasons, many multinational companies calc
Conducted by The Ayco Company, this informal survey of 375 of Ayco’s publicly traded clients reveals that 55% now maintain some type of stock purchase plan. This article reports ESPP trends and practices, as indicated by the survey group of 200 companies. The survey reflects relative stability in the types of plans compared to similar surveys Ayco conducted two and four years ago.
This article provides an update in insider trading compliance and the use of Rule 10b5-1 plans. The article discusses best practices for Rule 10b5-1 plans, such as cooling off/waiting periods, time limitations, allowing trades outside of the plan, use of multiple plans, modification/termination of plans, and more.
ISS proxy voting guidelines for the United States, for the 2017 proxy season.
Proxy advisory firm ISS provides an FAQ addressing questions about how they evaluate U.S. equity plans.
The article summarizes how stock options and restricted stock units may be adjusted as a result of a spin-off or corporate divestiture. It includes discussion and illustration of three approaches to adjusting awards: the shareholder (or portfolio) approach, the employee (or concentration) approach, and the dividend approach.
FW Cook’s 2016 Director Compensation Report studies non-employee director compensation at 300 companies of
various sizes and industries to analyze market practices in pay levels and program structure.
This development covers the FASB's exposure draft of a proposed modification to ASC 718 that is intended to clarify when an amendment to an existing equity plan or award is subject to modification accounting under the standard.
In July 2016 Solium and the NASPP launched a Global ESPP quick survey to NASPP members. Solium was interested in digging deeper into perceptions and trends in relation to local tax qualified share plans. The findings indicate a general trend of extending US 423 tax qualified plans globally. Explore the survey results with us, which sparks interesting insights into topics like fairness, perceived value and measures of success.
2006 study of executice compensation at 100 technology companies. Includes results on stock options, restricted stock, performance-based plans, and stock ownership.
The French Minister of Finance has confirmed the introduction of French withholding tax effective 1/1/2018.
IRS Form 3922, used to report first legal transfer of shares acquired under a Section 423 employee stock purchase plan (ESPP).
The NYSE FAQ on stockholder approval of stock compensation plans.
As we reported in our fourth quarter 2015 newsletter, the Australian Tax Office (“ATO”) announced some fundamental changes to the Employee Share Scheme reporting process, including the manner in which the reports can be lodged and the content of the reports.
On June 22, 2016, the IRS proposed new regulations under Section 409A. The proposals are intended to clarify certain aspects of the final regulations under Section 409A and the proposed regulations on inclusion of income for violations of Section 409A.
Although the regulations are not final, they can generally be relied on immediately.
This development is a discussion about some of the most significant clarifications that relate to stock compensation.
Proposed rules on section 409A addressing grants to newly hired employees, payments upon death, accelerations or delays in payments due to foreign ethics or conflicts of interest laws, separation pay, distribution of restricted stock in lieu of compensation, and vesting under the income inclusion rules.
The results of this survey on broad-based employee stock purchase plans (ESPPs) show some continuity, such as the continued prevalence of a 15% discount and a six-month offering period, as well as some insights, such as high levels of satisfaction and low levels of investment in education.
Argentina lifts some exchange control requirements on outward remittance of funds.
While holding shares as part of executive compensation is not a new
concept, there is growing interest by companies to require mandatory
vesting holds on executive shares for an additional period of time,
even after the executive leaves the company.
On March 30, 2016, the FASB issued Accounting Standards Update 2016-09, which finalizes the FASB's updates to simplify the operation of ASC 718, including changes to the accounting treatment of the tax effects of stock compensation, forfeitures, and share withholding.
This article summarizes how ASU 2016-09 amends ASC 718, including changes to tax accounting procedures, application of estimated forfeiture rates, and the treatment of share withholding.
A summary of the administrative, tax, and other considerations that apply when options are gifted for estate planning purposes.
This article provides a handy table that compares the guidance in ASU 2016-09 to prior US GAAP and includes KPMG's observations on the new guidance.
As part of its effort to reduce the cost and complexity of accounting for share-based payments (stock options, restricted stock, performance shares, etc.), the Financial Accounting Standards Board recently issued Accounting Standards Update (ASU) 2016-09. This article discusses some of the positive and negative outcomes of the new rules.
In March of 2016, ISS issued an update to its FAQs on equity compensation. The updates are summarized in this development.
Deloitte's summary of and observations on ASU 2016-09, including an example of the journal entries for the new tax accounting.
On November 30, 2015, the European Commission published a proposal for a new European (“EU”) Prospectus Regulation which is intended to repeal and replace the existing EU Prospectus Directive. Pursuant to this proposal, it is anticipated that issuers not listed or incorporated in the EU will be entitled to rely on the Employee Share Plan Exemption from the EU prospectus filing requirement.
The recently elected government in Argentina has announced plans to ease restrictions on
foreign exchange rules, reversing the tight controls imposed on residents’ access to the foreign exchange market to purchase foreign currency and remit funds out of Argentina.
Examples of Form 1099-B, Form 8949, and Schedule D for various scenarios involving shares acquired under an ESPP.
Examples of Form 1099-B, Form 8949, and Schedule D for a sale of shares acquired under an RSU.
A sample of an email that could be sent to employees alerting them to the fact that the cost basis reported on Form 1099-B for shares acquired under company stock plans may not be correct.
This presentation are a set of example sample flow charts that explain how employees should use the information in Forms 3921 and 3922 to report ISO and ESPP transactions on their tax returns. There are separate flow charts for situations where the 1099 reporting is unknown, is known to be net of fees, and is known to not be net of fees.
A sample flow chart explaining how to report sales of shares acquired under NQSOs on IRS Form 8949.
A sample flow chart explaining how to report sales of shares acquired under RSAs on IRS Form 8949.
A sample flow chart explaining how to report sales of shares acquired under RSUs that are not subject to deferred payout on IRS Form 8949.
Examples of Form 1099-B, Form 8949, and Schedule D for various scenarios involving shares acquired under ISOs.
On January 21, 2016, the FTC, the agency charged with administering the Hart-Scott-Rodino Antitrust Improvements Act, announced the adjusted HSR Act notification thresholds for 2016.
Chief Counsel Memorandum 201543003 adds yet another twist to the rules governing who is considered a covered employee for purposes of Section 162(m).
In a Chief Counsel Advice legal memorandum issued on August 24, 2015, the IRS concluded that the compensation paid to the principal financial officer of a “smaller reporting company” can, in certain circumstances, be subject to the deduction limitation of Section 162(m).
The newly elected Liberal government in Canada included in its electoral campaign proposals to reduce tax benefits by limiting the availability of the stock option deduction. It has yet to be seen how this promise will translate into legislative reality, however timely actions may help mitigate any adverse consequences.
For more details, download the full document.
The value of equity-based compensation in a private company is used for financial
reporting, tax, and transactions. The selection of an appropriate volatility factor is needed
to arrive at an accurate value. This discussion provides an overview of volatility and how it is
used to value equity compensation in a privately owned company.
This article provides a history of clawback provisions and discusses issues companies should consider when implementing a clawback policy.
As we reported in our July 2, 2015 client alert, the new Australian share plan legislation received Royal Assent on June 30, 2015 and applies to all equity awards granted on or after July 1, 2015. Under the new tax regime, stock options are generally taxed at exercise only (not at vesting).
Report on the Morgan Stanley/NASPP 10b5-1 Survey of 325 companies.
As previously discussed in our April 2015 Clients & Friends Newsletter,
on March 31, 2015 the General Secretariat of Public Revenues (“GSPR”) published an administrative circular (Circular No. 1072/31.03.2015) which provides that equity awards are deemed “benefits-in-kind” and not subject to income tax withholding.
The new law (Loi Macron), which introduces changes to the requirements and tax and social tax treatment of French-qualified restricted stock units (“RSUs”), was finally published in the Official Gazette on August 7, 2015.
As discussed in our August Global Update newsletter, Russia’s new “data localisation” law came into force on 1 September 2015
Frederic W. Cook & Co. studied non-employee director compensation programs at 300 companies of various sizes and
industries. This report summarizes pay levels and program structure.
Following on from our Global Rewards Update in December 2014, the changes to the qualified free share award regime in France have now been approved by the French Senate and have therefore been adopted into law.
IRS guidance on whether the principal financial officer of a smaller reporting company, is a “covered employee” within the meaning of §162(m).
Final rules amending Item 402 of Regulation S-K to require public companies to disclosure the ratio of CEO pay to median employee pay, as required under Section 953(b) of the Dodd-Frank Act.
The Norwegian government has introduced a new bill which, if introduced, would result in major new amendments affecting restrictive covenants, such as non-compete clauses. This is likely to impact existing employment contracts and incentive arrangements.
Companies trying to submit their annual share plan returns online to the HMRC since Friday, July 3 rd have not been able to complete the submission process due to technical problems with HMRC's online system.
This memo provides a summary of the SEC's proposed rule to implement the compensation recovery provisions of Section 954 of the Dodd-Frank Act, including the compensation and individuals subject to recover, recovery period, and related disclosures.
This memo use a Q&A approach to explain the SEC's proposed rule to implement the compensation recovery provisions of Section 954 of the Dodd-Frank Act.
This memo takes an in-depth look at mechanices of the SEC's proposed rule to implement the compensation recovery provisions of Section 954 of the Dodd-Frank Act.
Proposed rule to implement the provisions of Section 954 of the Dodd-Frank Act, which requires the Commission to adopt rules directing the national securities exchanges to prohibit the listing of any security of an issuer that is not in compliance with requirements for disclosure of the issuer’s policy on recovery of incentive-based compensation that is received in excess of what would have been received under an accounting restatement.
On July 1, the SEC proposed rules that, if finalized, would direct the national securities exchanges (e.g., NYSE and NASDAQ) to adopt standards requiring listed companies to develop and implement compensation clawback policies and disclose enforcement of said policies.
As described in our November 2014 newsletter, the Financial Markets Conduct Act 2013
(FMCA) which came into effect in New Zealand last year provides an “exclusion” that will work
for most employee share plans.
The Australian parliament has passed the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015.
Belgian resident taxpayers have long been required to report foreign income and assets held overseas, including foreign shares acquired under employee share plans, to the Belgian authorities. Until recently, taxpayers were only required to indicate in their annual tax return that they held any type of foreign assets and there was very little scrutiny from the Belgian authorities.
We have been informed by our London office that Her Majesty’s Revenue and Customs (“HMRC”) has sent a letter to several companies operating tax-advantaged share plans outlining concerns that some share plans have been registered incorrectly.
New forms have become available for Belgian employees to report offshore bank or brokerage accounts, including accounts related to equity incentive plans, to the National Bank of Belgium (“CP”).
For more details, download the full document.
This UK tax special report discusses registering, self-certifying and filing annual returns for any share plans operating in the UK, expected changes to UK tax, and significant changes to the taxation of internationally mobile employees.
This white paper is designed to frame the emerging feature of post-vest holding periods with
corporate executives in mind. We hope to assist executives in understanding and addressing the
financial planning and tax implications of post-vesting holding periods.
Special Commission Created to Investigate Foreign Bank Accounts Used to Evade Taxation.
In a previous newsletter we informed you of potential Australian tax changes that may result in favourable outcomes for both employers and employees, this can be found here. The changes have now been proposed in the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 which was introduced to the Australian Parliament on 25 March 2015.
The deadline of 6 July 2015 to register share plans UK is fast approaching and you need to ensure that you have registered in advance to be able to make the filing.
On February 18 2015, the EU’s Commission published a consultation paper considering potential changes to the Prospectus Directive with the consultation process closing on May 13 2015.
On 3 March 2015, HM Revenue and Customs (HMRC) published the final share plan reporting templates for the 2014/15 tax year. These templates replace the paper annual returns (Forms 34, 35, 39, 40, and 42) and must be filed by companies that operate share plans in the UK by 6 July 2015.
On 3 March 2015, HM Revenue and Customs (HMRC) released updated templates for annual employee share plan returns.
As was previously highlighted in our January 2015 Global Rewards Update, companies are required to provide information to the Office of the Revenue Commissioners (“Revenue”) in relation to the grant, assignment or release of rights, allotment of shares on the exercise of a right, or the transfer of any asset under rights granted.
Companies are required to submit an annual report (Form
RSS1) to the Irish Revenue in relation to certain types of
equity awards granted to employees in Ireland
In February 2015, the SEC proposed rules to implement the requirement under the Dodd-Frank Act that companies disclose their policies with respect to hedging by employees and directors.
Significant changes to the UK taxation of share awards for internationally mobile employees (IMEs) will take effect from 6 April 2015.
Companies which operate tax-advantaged plans in the UK will need to certify that their plans/schedules comply with the relevant UK tax legislation.
On July 31, 2014, the European Union (the “EU”) adopted sanctions against Russia through Council Regulation 833/2014, as amended by Council Regulation 960/2014 (the “Regulation”), in response to Russia’s actions in the Ukraine.
A new law (Loi Macron) has been introduced that would result in significant (and mostly positive) changes to the requirements and tax treatment of French-qualified RSUs.
This white paper describes several prominent and common pitfalls that private companies will want to avoid in the design and administration of their equity incentive plans.
Further to our Global Rewards Update of October 2014, the Australian government has released
drafts of the amendments to the employee share scheme (ESS) tax rules. The changes are proposed
to take effect for ESS interests, such as shares (i.e. restricted shares) and rights to shares (i.e. share
options), acquired (i.e. granted) on or after 1 July 2015.
The Federal Tax Court (BFH) recently considered whether the acquisition of shares at a reduced price represents employment income. Although certain elements of the Court’s decision were consistent with prior case law, the BFH seems to have departed from its previous position on the timing of the valuation of the benefit.
Companies are required to provide information to the Office of the Revenue Commissioners (“Revenue”) in relation to the grant, assignment or release of rights, allotment of shares on the exercise of a right, or the transfer of any asset under rights granted.
This article by Hay Group looks at the treatment of performance awards upon a change in control in light of the increasing pressure on companies to apply double-trigger vesting when adjusting awards for a CIC.
Changes to the UK tax legislation require the annual filings for your share plans to be made online.
Although the individual tax and social security treatment of share options is explicitly provided for in Belgian legislation, this is not the case for the corporate tax treatment of share option plan expenses recharged by a foreign parent entity to their Belgian subsidiaries.
The tax rules applying to employee share schemes (ESS) in Australia underwent significant changes in 2009. The changes took the Australian tax regime out of step with most of Australia’s trading partners by imposing income tax at vest rather than when share options are exercised or shares are sold.
On 17 July 2014, Finance Bill 2014 received Royal Assent. As discussed in the Global Rewards Update (GRU) of April 2014, the Finance Bill contained a number of significant amendments to the UK legislation governing both tax advantaged and non-tax advantaged share plans.
Tax resident individuals in Italy may be required to report, and pay wealth tax, on assets held overseas. This includes any shares acquired in foreign companies (and held overseas) as a result of participating in employee share plans.
Many companies require all new hires to sign restrictive covenant agreements (e.g., non-compete, non-solicitation, confidentiality and non-disclosure). While the enforceability of such provisions varies by state, courts often take a dim view of such agreements (particularly those with non-competes), and are reluctant to enforce provisions that are not reasonable in duration, geography or scope of duties. Two recent decisions, however, strongly suggest that courts outside of California will enforce online restrictive covenants in stock award agreements.
The UK 2014 Finance Bill has proposed significant amendments to the taxation of share awards for internationally mobile employees. Subject to enactment of the Finance Bill, the new rules will apply to all share vestings and option exercises occurring on or after 6 April 2015 (irrespective of the date on which the award was granted).
If we are looking at significant trends in 2013 affecting equity compensation programs, then the rise of foreign asset and account reporting obligations will have to be one of them. And Switzerland is to blame for it, sort of.
Companies must be careful that their clawback policies do not subject their equity grants to variable accounting treatment. This memo from Towers Watson explains what the concern is.
Companies will be obliged to file their annual share plan returns (including Form 42) online for the 2014/2015 tax year onwards (due 6 July 2015).
This memo compares the US GAAP and IASB treatment of awards that are no longer subject to service-based vesting conditions but remain subject to a performance condition.
Shanghai SAFE now requires that companies with SAFE approval from Shanghai SAFE report all quarterly plan activity for all plans registered with Shanghai SAFE on a single quarterly report form. Previously, Shanghai SAFE required that different plans be reported on separate reports.
Following the announcement in December 2013 of proposals to change the taxation and reporting of employee share plans in the UK, Finance Bill 2014 was released on 27 March 2014.
Until recently, the allocation of qualified free shares was not subject to any legal constraints in France, unless shareholders decided otherwise.
On March 13, 2014, in response to a persistent issue regarding the recognition of expense for performance awards, the Financial Accounting Standard Board's ("FASB") Emerging Issues Task Force ("EITF") determined that a performance target which can be achieved after an employee provides the requisite service, is a performance condition that affects the vesting of the awards (not a condition that can affect the grant date fair value of the awards). Therefore, compensation cost should be recognized if it is probable that the performance condition will be achieved. This EITF ruling narrows the scope of acceptable accounting practices, only allowing the use of the performance condition approach.
The survey includes data on minimum eligibility requirements for retirement provisions, as well as how companies collect FICA taxes for retirement-eligible employees.
A recently approved amendment to IFRS 2 clarifies how different vesting conditions affect employers’ accounting for equity awards.
Answers to questions posed for the webcast.
The Internal Revenue Service (IRS) recently released final regulations regarding the application of the Net Investment Income Tax (NIIT) as well as final Form 8960, Net Investment Income Tax – Individuals, Estates, and Trusts and corresponding instructions. The NIIT affects tax years that begin on or after January 1, 2013 and applies to US citizen and resident individuals with higher incomes on p
Deloitte previously issued Global Rewards Updates relating to Australian employee share scheme (ESS) reporting in June 2010 and June 2012. This update is intended to provide further clarification surrounding the Australian Taxation Office’s (ATO) increased focus in this area.
This is an informal survey of how our members administratively handle the death of stock plan participants.
Answers to Questions Submitted in Advance
"In December 2013, Nasdaq amended its rules related to compensation committee composition to bring them in sync with
those applicable to NYSE companies."
This article provides checklist of things companies need to think about for their equity plans as they prepare for an IPO.
Following the Constitutional Court decision, the French government has now adopted into law a package of tax measures. This Global Rewards Update (GRU) is a follow up from our November 2013 GRU. It provides an overview of the key measures relating to equity plans.
Companies with approval from Shanghai SAFE are required to annually re-register
their equity plans with Shanghai SAFE.
A Regional Court of Appeals in Sao Paolo has concluded that social security taxes were not due on income realized from stock options granted by a Swedish parent company to employees of its Brazilian entity.
For more details, download the full document.
Switzerland Finalizes Tax Circular 37
The 2014 French Social Security Financial and Income Tax Bills being discussed before the French Parliament will introduce some chanqes to the income tax and social security rates and bands. The Bills are expected to pass into law shortly and the changes will take effect from 1 January 2014.
New Instructions on Social Security Sourcing of Equity Income in Cross-Border Cases
This NASPP quick survey covers administrative policies for ESPPs, timing of purchases, employee mobile access to ESPP accounts, and extension of ESPPs to non-US employees.
In a rare piece of good news relating to Section 409A of the Internal Revenue
Code, on October 4, 2013, California reduced its additional state tax on income
failing to comply with Section 409A from 20 percent to 5 percent. This reduction is
effective for taxable years beginning January 1, 2013 and later.
Under an employee shareholder arrangement, an employee will relinquish certain statutory employment rights including the right to not be unfairly dismissed and the right to a redundancy payment. In return, the employee must receive at least £2,000 worth of shares in his employer (or a parent company). The employer can grant £2000 worth of these shares income tax-free, whilst up to £50,000 worth o
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Stock Compensation (formerly, FASB Statement 123R), requires generally that all equity awards granted to employees be accounted for at “fair value.”
HMRC over recent months have published a number of bulletins providing information and updates in respect of share plans in the UK, including approved plans.
Recent amendments to UK company law and proposed tax reforms have been designed to simplify and promote employee share ownership in the UK. If implemented, these reforms will significantly change the administrative and tax framework for those granting shares or options to employees, but they will be welcome news for many employers. Particularly for private companies looking to use employee share
Taxation and Social Security Treatment of Equity Based Income from 1/1/2013
In June 2013, the U.S. Supreme Court struck down Section 3 of the federal Defense of Marriage Act and thus required federal recognition of same-sex marriage recognized under state law. This article considers the impact of this decision on SEC regulations affecting public companies and other fundamental SEC rules that will be affected by the immediate change. The article also examines the impact to definitions and concepts important in the administration of most stock incentives, human resources and employee benefits.
In January 2013, the Office of Tax Simplification (“OTS”) published a report containing recommendations on how the UK taxation of unapproved employee share plans could be simplified.
A case went before the Delhi Tribunal regarding the tax treatment of the gain made on the exercise of stock options by an Indian Resident (but not Ordinarily Resident) individual.
Improvements to the tax treatment of Enterprise Management Incentive (“EMI”) options and the new concept of “employee shareholder agreement,” whereby an employee accepts fewer UK statutory employment rights in exchange for shares with tax advantages, will both take effect in 2013.
HM Revenue and Customs (HMRC) require companies to report any employee-related stock or stock option transactions that have taken place during the UK tax year (April 6–April 5) and may fall into the UK income tax net. The relevant information must be reported on a “Form 42,” which must be submitted by July 6 following the end of the UK tax year. Penalties can arise if companies fail to meet this obligation. A wide range of employee related stock transactions should be included on the form.
The article by Computershare discusses the final cost-basis regulations issued in 2013 and explains how they apply to stock compensation.
Many multinational companies have implemented equity plans in People’s Republic of China (“China” or PRC) and learned that it is not always a straightforward task. In addition to designing a suitable equity plan to support human resources and business strategies in China, companies should also consider various registration requirements from local compliance and planning perspectives.
For more details, download the full document.
The President of France announced two tax propositions in a televised interview last week that are of particular interest to multinational companies with employees in France. Most notably, he reintroduced the 75% tax rate
for highly compensated individuals.
The government of the United Kingdom (UK) has published their response to the UK Office of Tax Simplification’s (“OTS”) recommendations in respect to the simplification of unapproved share plans, published earlier this year (summarized in our February 2013 update).
When the High Council of Finance’s (HCF) Taxation and Para-taxation Division was established, the former Minister of Finance presented a list of propositions to simplify the tax legislation established by the tax administration. The current Minister of Finance is continuing this administrative simplification project.
In 2008, the various employee equity incentive schemes in Singapore were repackaged under a new umbrella
incentive scheme called the Equity Remuneration Incentive Scheme (ERIS).
In accordance with Federal law No. 173-FZ of December 10, 2003 “Currency Regulation and Currency Control” (hereinafter, the “Law”), Russian residents for currency control purposes (“Residents”) (who can be different from Russian tax residents) may open accounts with foreign banks provided that they notify the Russian tax authorities on the existence of those accounts within one month of such open
In recent years the Philippine tax authorities — the Bureau of Internal Revenue (BIR), has held different opinions on the taxability of the gain or income derived from the exercise of stock options granted to employees. There were rulings asserting that the gain on the exercise of stock options would be considered as additional compensation income subject to withholding tax to the employee, irres
This memo summarizes NASDAQ's new listing standards for compensation committee composition and independence. The SEC was required to direct the exchanges to adopt rules in this area under the Dodd-Frank Act. The rules enhance the requirements to establish the independence of compensation committee members and their advisors.
This memo summarizes the NYSE's new listing standards for compensation committee composition and independence. The SEC was required to direct the exchanges to adopt rules in this area under the Dodd-Frank Act. The rules enhance the requirements to establish the independence of compensation committee members and their advisors.
For the 2009–2011 tax years, employee share awards, such as free shares, restricted stock units (RSUs), performance shares, restricted shares, etc., were required to be reported by employers to Irish Revenue on the Form RSS1.
In 2010, several legislative amendments to the Russian Tax Code were adopted, including significant changes and additions regarding the rules governing employee stock plans. A literal reading of the amended legislation suggested that stock options received pursuant to an employee stock plan could be treated as a nontraded “Financial Instrument of a Term Transaction” (FITT) for tax purposes. As su
On 16 January 2013, the UK Office of Tax Simplification (OTS) published their recommendations in respect of the simplification of unapproved share plans. These recommendations followed the interim report, which invited stakeholders to identify areas of complexity in the tax treatment of share awards and options. This Global Reward Update summarizes the OTS’s recommendations.
Treasury regulations governing the treatment of incentive stock options.
This is a sample checklist for processes associated with stock ownership guidelines.
On January 16, 2013, the SEC finalized the NYSE and Nasdaq listing standards related to compensation committees and their advisors. Prior to the SEC's approval, both the NYSE and NASDAQ amended their listing standards one last time. The amended, and now final, rules make only a few minor clarifications to the original proposals and include no major changes.
NYSE listing standards relating to compensation committee independence, as updated to comply with Exchange Act Rule 10C-1 (enacted under Section 952 of the Dodd-Frank Act).
NASDAQ listing standards relating to compensation committee independence, as updated to comply with Exchange Act Rule 10C-1 (enacted under Section 952 of the Dodd-Frank Act).
Sample RFP to select a new stock plan administration provider
On 29 December 2012, France’s Constitutional Court issued its decision on measures in the 2013 Finance Law, concluding that all the measures affecting companies were valid, but striking down some controversial provisions relating to individuals. The decision cleared the way for the relevant finance laws to come into effect on 30 December 2012.
On December 14, 2012, Irish Revenue for the first time issued guidance on how Restricted Stock Units (RSUs) should be treated for Irish income tax purposes in cross border situations.
The employee stock option taxation rules are detailed in a Luxembourg tax authorities 2002 Circular (Circular LIR n°104/2 of January 11, 2002). The circular confirms that stock options will be treated as employment income under basic principles and makes a distinction between “transferable” and “nontransferable” stock options.
The purpose of this white paper is
to highlight the problems with using
beneficiary designations in equity
The French government announced on September 28, 2012, a series of measures that would significantly increase the taxes borne by wealthy individuals, with some of the proposed increases to apply to income earned as of January 1, 2012. The measures, which also include important changes affecting companies, are part of the draft finance bill for 2013.
The UK Chancellor recently announced plans for a new tax break for “owner-employees” of
Sample FAQ explaining to retirement-eligible employees how FICA taxes will be collected on RSUs that provide for accelerated or continued vesting upon retirement.
In recent months, a series of exchange control regulations have been implemented in Argentina. The Argentine government has tightened the Central Bank of Argentina’s control over residents’ access to the foreign exchange market to purchase foreign currency and remit funds out of Argentina in certain circumstances.
Earnings per share (EPS) is one of
the most common and complex performance
measurements that a publicly
held company presents in its quarterly
and annual reports. (See Josef Rashty and
John O’Shaughnessy, “Restricted Stock
Unites and the Calculation of Basic and
Diluted Earnings per Share,” The CPA
Journal, June 2011, pp. 40–45.) Accounting
Standards Codification (ASC) Topic 260,
“Earnings per Share,” covers guidance for
the calculation and presentation of basic and
diluted EPS, and ASC Topic 718,
“Compensation—Stock Compensation,” provides
guidance for certain unique characteristics
of stock compensation awards that
impact the EPS calculation.
A quick survey on staff levels and responsibilities for stock plan administration.
New Argentine Exchange Control Rules May Restrict Purchase of Shares under Equity Plans. Plus, Israeli Tax Authority Issues New Delivery & Deposit Rules for Trustee Plan Awards.
IRS procedures for excess tax withholding on stock plan transactions.
Our March 2012 Global Rewards Update introduced the new employer equity reporting requirement due to come into effect from January 1, 2013.
The supplementary budget act submitted on Tuesday July 3, 2012, to the Council of Ministers provides for a higher taxation of stock-based compensation and for a sharp rise in the “forfait social” on employee profit sharing schemes.
Unless an exemption applies, the European Union Prospectus Directive (EUPD) requires companies who offer securities in the European Union (EU) to publish a prospectus. There are several exemptions which can apply to employee share plan offers and in November 2010 the EUPD was amended to extend the scope of the exemptions.
To keep reading download the full document.
Employer withholding obligations on equity awards were first introduced in Ireland with effect from January 1, 2011. Given the short time frame in which these provisions were introduced, a number of practical and policy issues arose, which required further amendments to these obligations. Previous amendments have dealt with issues such as the introduction of a full employer Social Security exempt
Sample presentation for new hires on ESPP, stock options, and insider trading compliance program.
Earnings per share (EPS) is the most
common and complex performance
measurement that a publicly held
company presents in its quarterly and annual
reports (Josef Rashty and John
O’Shaughnessy, “Restricted Stock Units and
the Calculation of Basic and Diluted Earnings
per Share,” The CPA Journal, June 2011, pp.
40–45). Guidance for calculating and
reporting EPS can be found in two parts of
the Accounting Standards Codification
(ASC): Topic 260, “Earnings per Share,”
which provides for the calculation and
presentation of the basic and diluted EPS,
and Topic 718, “Compensation—Stock
Compensation,” which provides for certain
unique characteristics of stock compensation
that impact the EPS calculation.
On May 1, 2012, the Irish Parliament passed further legislation (the Social Welfare and Pensions Act 2012) amending the social insurance treatment for stock options, stock purchase rights, restricted stock units and other share-based remuneration in Ireland, as set forth below:
The Brazilian Tax Authorities have reviewed individual 2011 income tax returns and have discovered issues in relation to stock-based compensation benefits.
For more details, download the full document.
HM Revenue and Customs (“HMRC”) require companies to report any employee related stock or stock option transactions that have taken place during the UK tax year (April 6–April 5) and may fall into the UK income tax net. The relevant information must be reported on a “Form 42”, which must be submitted by July 6 following the end of the UK tax year. Penalties can arise if companies fail to meet this obligation. A wide range of employee related stock transactions should be included on the form.
This is a sample checklist of due diligence documents to be collected from the acquired company in a merger or acquisition.
This is an informal survey of NASPP members of practices around stock ownership guidelines.
Sample FAQ for employees on why company is no longer accepting contributions to its ESPP due to a shortage of shares available under the plan.
Sample FAQ for employees explaining payment in lieu of shares, due to a share shortfall in the ESPP.
Sample proposal to request additional shares for an ESPP.
In France, a specific tax regime is available for the grant of stock options, free shares, and Bons de Souscription de Parts de Créateurs d’Entreprise (BSPCE) when certain reporting requirements are met by the company and the beneficiaries.
New US FATCA Rules Mean Some Employees Need to Report Value of Equity Compensation on 2011 Tax Returns
New Draft Ordinance on Employer Tax Reporting Obligations
This article focuses on the many decision points and considerations that go into creating a post-IPO equity plan, including the critical role of a solid grant strategy and proactive communication with the key stakeholders.
After a prolonged and challenging budgetary negotiation process, a federal budget plan for 2012 has been agreed to. The changes under the Belgian Budget 2012 will have an impact on equity-based compensation, in particular, on stock options and dividends.
The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 as part of the US Hiring Incentives to Restore Employment (HIRE) Act and is intended to combat tax evasion by US taxpayers holding non-US assets. FATCA has two prongs. The first prong, which to date has received the most publicity, aims to reduce tax evasion by requiring non-US financial institutions annually to report directly to
This paper discusses the valuation of equity compensation in privately owned companies. The subjects presented in this paper include: an overview of equity plans, forms of equity compensation, and valuation methods.
The valuation of stock options, restricted shares, or other types of equity compensation in private companies can present some challenges. To help you avoid problems, this article offers a list of some key factors you should watch for.
Sample FAQ for employees on Forms 3921 and 3922.
Sample memo to employees explaining Form 3921 for incentive stock options (ISOs).
Sample memo to employees explaining Form 3922 for an employee stock purchase plan (ESPP).
Sample memo to employees explaining Form 3922 when the event triggering the statement is a subsequent transfer, rather than the purchase of shares under an employee stock purchase plan (ESPP).
This article summaries executive compensation strategies frequently utilized by private companies.
This article provides a summary of equity compensation practices at pre-IPO companies.
Where UK employees receive share-based payments after employment has ended and the payment was not taxed and reported on form P45 when the employee left, withholding must currently be operated at the basic rate of tax (20%). Her Majesty’s Revenue and Customs (HMRC) have recently confirmed their intention to amend the legislation so that, with effect from April 6, 2012, the 0T code should be applied to such post termination share gains.
A public company CEO recently consented to a federal district court
order requiring him to pay a $500,000 civil penalty for violating the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). The Antitrust Division of the Department of Justice (DOJ) charged the executive for failing to satisfy the notification and waiting period requirements of the HSR Act before acquiring common stock under his company's stock-based compensation programs.
On December 12, 2011 the Securities and Exchange Commission charged Stiefel Laboratories Inc. (“Stiefel Labs” or the “Company”)
and Stiefel Labs’ former chairman and CEO, with fraud in connection with the Company’s repurchases of its stock from employees and
former employees between 2006 and 2009. The SEC charged that Stiefel Labs repurchased its stock at undervalued prices and failed to disclose material, non-public information that affected the value of its stock and would have impacted its employee-stockholders’ decision to sell shares back to the Company.
According to the Finnish Income Tax Act, benefits from employee stock option plans are taxable as employment income. The concept of an employee stock option is very wide and basically covers all share based arrangements that are received as a result of an employment relationship.
On 7 December 2011, the Belgium Prime Minister announced to Parliament the measures to be included in the 2012
Statement of changes of beneficial ownership of securities.
Accounting Standard Codification Topic 260 (ASC 260), and formerly Statement of Financial Accounting Standards 128 (FAS 128), governs the computation of earnings per share (EPS), separating between basic and diluted EPS.
This interview with Joan M. D’Uva of EisnerAmper explains the rules that apply to valuation of private company stock for Section 409A purposes.
A checklist of tasks to complete as you prepare your stock plan for an IPO.
The steps summarize in this checklist are important to the transition process when a company with an employee equity compensation program and employee equity ownership is changing status from a private company to a publicly-owned entity. Accomplishing each step will provide a smoother path as you complete this complex process.
This is a document with a sample chart to aid in monitoring stock ownership guideline holdings.
The PRC State Administration of Taxation ("SAT") recently issued a tax circular, Bulletin  No. 27 ("Bulletin 27"), providing further clarification on the Individual Income Tax ("IIT") treatment of equity-based compensation. The Bulletin is effective from May 1, 2011 and substantially expands the beneficiaries of the preferential tax treatment available under Chinese law.
On March 4, 2011 new Spanish Law – Spain’s Sustainable Economy Law 2/2011 (Ley de Economía Sostenible)
(“the Law”) – was introduced. This new law includes an “additional provision” into the Spanish Personal Income
Tax Act, whereby the exercise of stock options granted annually will not benefit from the 40% tax reduction
contained in the Act.
A survey on administrative practices for restricted stock and unit awards.
This is a sample of a worksheet used to calculate the income allocation and tax withholding rate for an employee whose income is split between the U.S. and the UK. It is based on this particular company's own risk assessment and particular circumstances and may not be applicable to other company mobility scenarios.
As discussed in our March 2011 Ireland Global Rewards Update, the Minister for Finance clarified on March 18, 2011 that the charge to Pay Related Social Insurance (PRSI) (both employer and employee) introduced in Budget 2011 will not apply where the share-based remuneration was the subject of a written agreement entered into between the employer and the employee before January 1, 2011 (broadly, a
The UK tax authorities (HM Revenue & Customs) have withdrawn their revised position on the NationalInsurance Contribution (NIC) treatment of stock awards. The revised position, which had been confirmed only recently, had been expected to apply to stock awards granted on or after 28
December 2012 for cross border
moves to a country with which the UK has a social security agreement (a totalization country).
following the end of the tax year.the countdown to the deadline for flllng form 42 begins. In the subsequent 90 days, employers will need to collate the relevant data,accurately complete the form and submit it to HMRC on or by 6 July.Tax rules relating to 'not ordinarily resident' or 'non UK domiciled' empoyees will also have to be considered when reportlnevents on form 42.It pays to get form 42 completed on time and to et It rl ht.
Her Majesty’s Revenue and Customs (HMRC) amended the Pay As You Earn (PAYE) Regulations, with effect from April 6, 2011 to increase tax withheld on all payments made after employment has ceased and leaver form P45 has been issued to the employee.
The publication of the UK Finance Bill has revealed significant changes to the disguised remuneration proposal when compared with the first draft of the legislation released on December 9, 2010. For the most part, the changes contained in the Finance Bill give effect to carve-outs. While these carve-outs are welcomed, the scope of the legislation has also been widened in a number of respects and there are still many grey areas.
Further to our Global Rewards Updates issued in December 2010 and March 2011, the Irish Revenue has issued clarification on some of the issues arising from the recent changes to share-based remuneration announced in Budget 2011.
On March 31, 2011, the Bank of Italy released an official Message, which implements European Union (EU) Directive CRD III (Directive 2010/76/EU of November 24, 2010). This Message confirms the amendments which must be made, as of January 1, 2011, to the remuneration policies and incentive compensation practices at companies operating in the financial services sector.
Compared to other jurisdictions, the Russian Federation (RF) Tax Code contains very little formal guidance explicitly addressing share-based or other incentive compensation. The tax treatment applicable to stock options, including options granted by employers to their employees, has historically been based on a practical interpretation of general tax principles.
As discussed in our December 2010 Ireland Global Rewards Updates, the National Recovery Plan 2011-2014 introduced an employer and employee Pay Related Social Insurance (PRSI) charge on share-based remuneration (including employee stock options). These PRSI charges were adopted in the Finance Act 2011, as well as in Regulations promulgated by the Department of Social Protection.
On December 9, 2010 the UK Government published draft legislation aimed at capturing what they described as “disguised remuneration”. These measures were principally intended to capture tax avoidance using, for example: employee trusts, where loans to employees are used to reduce tax on employment income (often known as Family Benefit Trusts (FBTs)) and funded unapproved pension schemes (often known as Employer-Financed Retirement Benefit Schemes (EFRBS)).
This is an example of the formatting for the electronic filing for submitting Form 3921 to the IRS through the FIRE system provided to the NASPP by Stock & Option Solutions.
When companies make grants of equity awards prior to going public at share prices that are much lower than the initial public offering price (referred to as “cheap stock”), this could lead to accounting charges for the company and could highlight tax compliance issues under Section 409A. This article discusses the overlap of the accounting and tax issues.
At the end of 2010, the French government proposed, in the Loi de Finances Rectificative for 2010, the introduction of a new article 182 A ter to the French Tax Code (“article 182 A”). These proposals have since been adopted, and the new article 182 A will subject all equity awards held by French non-residents to income and social tax withholding at either vesting (e.g. in the case of restricted
Her Majesty’s Revenue and Customs (HMRC) has issued an amendment to the Pay As You Earn (PAYE) Regulations, which will come into effect on April 6, 2011. The amendment will change the applicable PAYE tax code and, therefore, the corresponding withholding rate in specified circumstances.
Two new Russian tax rules (FSFM Order Nos, 10-65 pz/n and 10-67 pz/n) were adopted December 12, 2010 and apply from January 1, 2011. These new rules, together with the provisions of Articles 212, 214.1 and 305.2 of the Russia Tax Code, arguably result in the following tax treatment of stock options and (probably) ESPPs:
This is an informal survey of NASPP members about their Section 16 procedures.
This article examines several executive compensation fundamentals for pre-IPO firms in the technology and life sciences industries, including the formation of an over-arching compensation philosophy, developing peer groups, and how best to balance compensation risks and rewards ahead of an IPO.
This is an example of the formatting for an electronic filing for submitting Form 3921 to the IRS through the FIRE system provided to the NASPP by Stock & Option Solutions.
The Nonqualified Stock Option Plan now allows certain plan participants to transfer their vested nonqualified options to family members. This communication outlines the purpose, tax consequences to U.S. optionees and procedures to transfer your options if you, upon the advice of your financial and/or tax advisor, determine that a transfer is appropriate for you. This outline is not intended to be exhaustive and does not address the taxation of options under the laws of any state, municipality or any non-U.S. jurisdiction in which you may reside.
The compensation discussion and analysis (CD&A) portion of the corporate proxy statement
has been a point of frustration for both issuers and investors since its adoption by the U.S.
Securities and Exchange Commission (SEC) in 2006. The compensation disclosure regime
was intended to help both shareowners and boards of directors make more informed
decisions concerning appropriate executive compensation practices. However, the CD&A
report, in its current format, has often resulted in frustration due to its length and complexity
and because such reports often focus on regulatory compliance to the detriment of conveying
the company’s compensation story in a concise and understandable manner.
CFA Institute, in partnership with the CD&A working group2 (the “working group”) offers
this CD&A template as a first step toward making compensation communications clearer
and more relevant to investors.
In the past three years, international regulatory focus on remuneration has gripped the globe. The heart of the debate which arose in the context of remuneration structures in investment banking and their contribution to global financial crisis has extended past this into remuneration across a broad range of industries. This past year has seen a number of developments which have intensified in both the UK and Europe as we draw close to the year end. We look back at the year and consider where regulation and industry guidelines have emerged in the context of pay structures and recent developments in the area of transparency and taxation. We also provide a comprehensive review of the hugely anticipated new remuneration code the final version of which was published by the Financial Services Authority last Friday.
The French government has adopted the 2011 French Tax Act and Social Security Financing Act (“new legislation”). This new legislation has raised tax rates generally, and in particular, those applicable to equity income in France.
In response to the fiscal crisis which Ireland faces, the Irish Government has unveiled a detailed National Recovery Plan (“Plan”). The Plan outlines a series of adjustments to the tax system, along with reductions in Government expenditures, which are to be introduced in the next four budgets to redress the financial deficit.
On December 7, 2010, the Minister for Finance, Mr. Brian Lenihan TD, presented his Budget to Dáil Éireann (the House of Representatives of the National Parliament). As expected, this Budget delivers on the promises set out in the Irish government's Four Year Plan (discussed in our Ireland Global Rewards Update issued earlier this month), which was published ahead of Ireland’s economic agreement w
Sample substitute Form 3922 (payee statement) to issue to employees.
Sample substitute payee statement for Forms 3921 and 3922, with all of a participants' purchases listed on one form.
Basis Reporting by Securities Brokers and
Basis Determination for Stock; Final Rule.
Equity-based compensation – whether in the form of stock options/stock appreciation rights (SARs), restricted
stock/restricted stock units (RSUs) or performance shares – is an integral part of executive long-term incentive
programs. A common provision in the governing documents addresses how an executive's unvested interests are
treated if there is a change in control of the company. Since a significant portion of an executive's wealth is often
tied to the value of equity-based compensation, the conditions for accelerated vesting are particularly important.
A list of questions to consider before converting data due to a merger or acquisition.
Many stock compensation arrangements include provisions where the employer will automatically withhold for taxes upon settlement of the arrangement with the employee. Under US GAAP, these net share settlement withholding arrangements generally do not require the arrangement to be classified as a liability, notwithstanding the fact that the employer ultimately settles a portion of the arrangement with cash when it pays the withholding tax to the government. The interpretations committee of the IASB, called IFRIC, recently met to consider whether this US GAAP treatment should likewise be applied under IFRS. This Alert describes the conclusions of the IFRIC, as well as the potential accounting implications of these arrangements under both US GAAP and IFRS.
Many stock compensation arrangements include provisions where the employer will
automatically withhold for taxes upon settlement of the arrangement with the employee. Under US
GAAP, these net share settlement withholding arrangements generally do not require the arrangement to
be classified as a liability, notwithstanding the fact that the employer ultimately settles a portion of the
arrangement with cash when it pays the withholding tax to the government. The interpretations
committee of the IASB, called IFRIC, recently met to consider whether this US GAAP treatment should
likewise be applied under IFRS. This Alert describes the conclusions of the IFRIC, as well as the
potential accounting implications of these arrangements under both US GAAP and IFRS.
The Organisation for Economic Cooperation and Development (OECD) has amended the Model Tax Convention's Commentary regarding the allocation of taxing rights for short term assignments. The content and background of this revised commentary was discussed in the HC Alert of 5 July 2010.
For more details, download the full document.
Due to the continual changes to Section 16 practice resulting from SEC staff interpretations and Section 16(b) litigation, companies and compliance personnel regularly are confronted with new challenges in keeping their advice and their compliance programs up to date. As reflected by the many questions posed daily on the electronic forums of Section16.net and Naspp.com, the issues you face today vary widely in scope and complexity.
This is an NASPP Quick Survey.
Important tax and work permit developments
Checklists of tasks for changing plan administrators and brokers.
As many of you are painfully aware, the Philippine SEC has imposed ever stricter requirements for companies granting equity awards in the Philippines to obtain an exemption from registration under the Philippine securities laws. One particular requirement that has been imposed for the last couple of years, as a condition to the Section 10.2 exemption, is that of providing a legal opinion from the
In our article “FINRA Reminds Securities Broker-Dealers Of Their
Duty Of Due Diligence To Prevent The Public Resale Of ‘Unregistered
Securities’ ’’ (Vol 37 Issue 3 Securities Regulation Law Journal 6 at
pp. 293–302), we discussed the duty of securities broker-dealers to
exercise due diligence to prevent the public resale of “unregistered
With most public companies focused on the amendments the Securities and Exchange Commission (the “SEC”) adopted
for its proxy disclosure rules on December 16, 2009, limited attention has been drawn to a key speech made one month
earlier by the Deputy Director of the Division Corporation Finance, Shelley Parratt, in which a tough new approach for the
Staff’s review of executive compensation disclosures was announced.
Late last year, the IRS issued final regulations affecting the form and operation of tax-qualified
employee stock purchase plans (ESPPs), as well as final regulations affecting the tax reporting of
transfers of shares acquired from ESPPs and exercises of incentive stock options (ISOs). These
rules went into effect Jan. 1, 2010.
The new ESPP rules include some important clarifications that may necessitate plan amendments or
changes in administrative practices (see our previous newsletter on the 2008 proposed regulations).
In addition, employees must receive information reports that meet updated requirements by Jan. 31,
2010, for ESPP and ISO share transactions that occurred in 2009.
This is a checklist of the communication tasks associated with an Employee Stock Purchase Plan.
This article provides an overview of the contributors and components of an educational
program for a Section 423 qualified ESPP offered to U.S. employees. To develop your own
educational program, it is necessary to understand who contributes to these programs and
the extent of information that can be communicated to employees.
This is a sample employee communication regarding the income and tax withholding from and RSU vest. It was included in the employee Form W-2 as an annual communication. This company uses Charles Schwab as the designated broker.
Treasury Regulations pertaining to Section 423 qualified employee stock purchase plans.
Cover letter for a report ESPP transactions distributed to participantes for tax purposes
On November 16, 2009, Treasury released for publication the
final regulations under section 6039 of the Code ("Final
Regulations") dealing with return and information statements for
incentive stock options (ISOs) and section 423 employee stock
purchase plans (ESPPs).
The Belgian Parliament will shortly give its final approval to the social security totalization agreement between Belgium and Quebec. It is possible that this agreement will enter into force as early as February 2010, although March or April 2010 is more likely due to some outstanding formalities.
Working well with your product and service providers is a key component to a successful equity
compensation program. Whether you utilize third-party vendors to support recordkeeping systems,
outsourcing, brokerage, or other advisory services, you depend on them to supply critical assistance to
keep the administration of your stock plans humming, your financial reporting and compliance
accurate, and your employee participants happy. When one of these relationships doesn’t work as
expected, this may present an opportunity to evaluate your current provider’s product offerings and
performance and determine if a replacement is needed.
The Belgian tax authorities recently issued an administrative circular which clarified that subject to certain conditions, companies are able to extend the exercise period for stock options offered between November 2, 2002 and August 31, 2008, without negative Belgian tax consequences.
For more details, download the full document.
Recent amendments to the Russian Securities Market Law will affect the ability of foreign (e.g., U.S. and other non-Russian) issuers to offer share-based awards to employees in Russia. These amendments are effective as of May 16, 2009. Although the Russian securities regulator, the Federal Service for the Financial Markets (the "FSFM"), is expected to issue guidance about the amendments soon, U.S
On March 30, 2009, the Ministry of Strategy and Finance (“MOSF”) released the amended Ministerial Ordinance prescribing detailed conditions for claiming a corporate tax deduction for employee stock option costs.
A Bill was submitted to the Belgian Parliament on February 3, 2009, proposing the extension of the term of an option without any adverse tax consequences.
For more details, download the full document.
This transcript of a NASPP webcast provides an action plan for searching for and implementing a new service provider.
Sample profile questionnaire to assist company with identifying needs to develop an RFP for a provider search.
Treasury regulations on withholding taxes on supplemental payments.
Many companies, knowing that out-of-the-money, or underwater, share options can affect
the morale and retention of key employees, are considering whether and how to modify
outstanding awards. Companies exploring strategies should understand their accounting
implications as well as the business, organizational, and regulatory concerns that are the
context for the strategies. This edition of Defining Issues describes the accounting implications
of the more common approaches and some basic factors that should be considered when a
company tailors a strategy to its specific circumstances.
The IRS, on January 9, 2009, issued Notice 2009-8 (the "Notice"),
its initial guidance interpreting Section 457A, which was enacted
on October 3, 2008 as part of the Emergency Economic
Stabilization Act of 2008 and which generally became effective
January 1, 2009.
We have prepared the attached detailed analysis of the Notice to
assist multinational employers in understanding Code Section
457A, given not only the potentially broad impact, but also the
limited transition period (until July 1, 2009, in some cases, and
December 31, 2011, in other cases) to make certain conforming
This GRU summarizes a number of recent updates from Korea which include updates on the Corporate Tax Law, the Individual Income Tax Law and the Tax Incentives Limitation Law.
This article provides answers on various aspects of Rule 10b5-1 trading plans, including protections provided by 10b5-1 plans, establishing a trading plan, plan elements, trading under a plan, modification and termination of 10b5-1 plans, interplay with other securities laws and company polices, and best practices.
On January 26, 2009, the U.S. Supreme Court, in Kennedy v. Plan
Administrator for DuPont Savings and Investment Plan (U.S., No. 07‐636),
unanimously ruled that a plan correctly distributed retirement benefits to a
participant's ex‐spouse who was named as the participant's beneficiary
under the plan, despite her purported waiver of the benefits in a divorce
On 16 September 2008, the Greek Parliament passed a new tax law which introduces significant changes to the taxation of individuals participating in employee share plans. The Greek Ministry of Finance has now issued a Circular clarifying the new laws.
This month, the Belgian tax authorities submitted a bill to Parliament concerning the taxation of stock
options. The bill is intended to help Belgian employees who were taxed on stock options at the time
of grant. Under the current Belgian tax regime for options, employees are subject to tax at grant if
they formally accept the option within 60 days of the offer date. The taxable event may be def
As part of an economic stimulus package, the Finnish government announced that the social security obligations paid by Finnish employers on employee income will be reduced in 2009 and eliminated in 2010.
Companies are considering accelerating vesting of time-based underwater stock options to
take the benefit of moving forward future stock option compensation expense into the current
reporting period. Some recent examples of companies taking this action are Dell and Linear
At first glance, companies conclude that the acceleration causes an immediate recognition of
unamortized option expense into the current quarter. However, there are some hidden
accounting consequences to consider prior to taking this action.
Section 409A of the Internal Revenue Code was enacted in 2004 and has been in effect since 2005, but the
comprehensive and complex final regulations interpreting the provision formally took effect only January 1, 2009.
As a result, “good-faith compliance” with the statutory provisions and transitional guidance is now no longer
enough. Plan documentation and operations now need to conform to the final regulations, with limited exemptions
for grandfathered deferrals earned and vested before 2005. Failure to abide by the final regulations comes with a
hefty price. Specifically, affected participants will be subject to accelerated taxation, a 20% tax penalty and
possibly additional interest.
This article provides a quick, English-language description of the
accounting, tax accounting, and EPS impact of exchanges to help you understand this side of the story.
On December 5, 2008, the Internal Revenue Service issued proposed regulations describing how to calculate amounts includible in income when a nonqualified deferred compensation plan or agreement fails to comply with the requirements of Section 409A(a) of the Internal Revenue Code.
A bill has been converted into law in September 2008 for the amendment of the Capital Gains Tax Act (L 187) to tighten exit tax rules on shares.
Republic Act (RA) No. 9504 became effective on July 7, 2008, the objective of which is to exempt minimum wage earners from income taxes and related withholding taxes, amongst other tax reliefs.
As a result of declines in employer stock prices, companies may consider strategies intended to maintain value or
provide alternative incentives associated with employee share-based awards that are "under water" (i.e., the award's
exercise price is greater than the current market price of the stock). Careful consideration should be given to the
accounting for such strategies. This HRS Insight discusses the accounting for various strategies that may be
considered and provides practical examples for each strategy.
Amid the turmoil in the stock markets, life goes on as companies prepare to make stock option awards on their
normal granting cycle. But uncertainties about the value of each option, which in turn affect how many options
each participant receives, complicate granting decisions compared to more tranquil market environments.
Sample for for making enrollment changes (increasing or decreasing contribution rates, withdrawing) in an employee stock purchase plan.
On 16 September 2008, the Greek Parliament passed a new tax law which introduces significant changes to the taxation of individuals participating in employee share plans. The three most relevant areas that are affected are the taxation of stock option plans, dividends and capital gains arising from the transfer of listed shares.
Law 3697/2008, recently published in the Official Gazette, introduces amendments on income tax rates for individuals, taxation of dividends, taxation of capital gains from sale of listed shares, and taxation of stock options.
The Hong Kong Inland Revenue Department (IRD) has updated the FAQ issued on January 30, 2008 for Share-Based Payment Transactions in August 2008.
In a recent ruling, the Finnish Supreme Administrative Court approved the deduction of compensation paid by a Finnish subsidiary to its US parent on the basis of the US parent’s computational expenses incurred in granting its own shares to the employees of the Finnish subsidiary.
Sample presentation to explain how an ESPP works.
This release covers ownership reports and trading by officers, directors and
principal security holders.
Failure to pay over withheld payroll taxes may get you a new roommate -- in jail. In United States v.
Easterday, No. 07-10347, 2008 U.S. App. LEXIS 18013 (9th Cir. August 22, 2008), the United States
Court of Appeals for the 9th Circuit affirmed a conviction and 30-month sentence for Mr. Easterday's
failure to pay over withheld payroll taxes to the Internal Revenue Service (IRS).
Read rule 10b5-1 in entirety.
discusses three tax issues arising from the accelerated vesting of RSUs of which employers
should be aware.
On July 2, 2008, the SEC staff issued a no-action letter to the Society of Corporate Secretaries and Governance Professionals permiting insiders to report same-day, same-way purchases and sales on an aggregate basis, i.e., on single line of Form 4 (or a late Form 5), even though the transactions occur at different prices.
Companies that issue share-based payments that entitle employees to receive dividends even if the awards do not vest may report lower earnings per share under the requirements of a new FASB Staff Position.
Sample employee FAQ on how an employee stock purchase plan works.
Use this checklist to administer (review and process) 10b5-1 plans for your insiders.
Ten reasons to implement net exercise as a tax withholding method for stock options.
This letter is from the Global Equity Services (“GES”) group in San Francisco, Chicago and New York. Attorneys in the GES practice group work extensively with multinational employers to design, implement, and maintain equity-based compensation programs, including stock option, stock appreciation rights, restricted stock, restricted stock unit and stock purchase plans for their employees, consulta
In the shift away from an exclusive reliance on stock options over the last several years, a number of large
employers have added restricted stock to equity awards in the mix of long-term incentives for executives.
This increased reliance on restricted stock has required companies to become more familiar with some relatively
subtle tax issues that can sometimes arise with respect to these types of awards. Recently, some companies have
discovered that they should have been reporting taxable compensation (and withholding tax from recipients) at the
time before the stock vests with respect to This article provides answers to questions to help you determine whether this problem applies to your company and, if
so, how it can be addressed.
Read the entire Rule 144 as amended.
Equity in a pre-IPO company is subject to much interpretation. However,
through thoughtful planning and communication, this powerful tool can have a strong
perceived value to the recipient, allowing companies to potentially offer below-market
base salaries, annual cash bonuses or both.
Sample form for enrollment in an employee stock purchase plan.
Sample withdrawal form for an employee stock purchase plan (ESPP).
We would like to remind you of some of the year-end reporting requirements for employee stock plans offered to employees in France, Italy, Malaysia,Thailand and Vietnam. It is easy to forget about these requirements, as we are all busy at the end of the year.That is why we are sending you this reminder alert. If you need more information or assistance with these filings, please let us know. Pleas
Department of Taxation and Finance Explains the New Method to be
Used by Nonresidents and Part-year Residents to Determine New
York Source Compensation Income Attributable to Stock-based
Guidance issued by the NY Office of Tax Policy Analysis, Taxpayer Guidance Division on the New York State tax treatment of stock options, restricted stock, and stock appreciation rights received by nonresidents and part-year residents.
This article provides a summary of key issues to consider when issuing stock options to service providers.
Sample template for surveying employee stock plan participants about qualifying dispositions.
The Bureau of Internal Revenue (BIR) had recently issued 2 rulings on the taxation of employee stock purchase plans (ESPP) in the Philippines. Although both rulings have different conclusions, it is important to note the differences between the plans in determining the taxability of ESPPs.
The Hong Kong Inland Revenue Department (IRD) has not formally issued guidance on the tax treatment it will apply in respect of stock plans. Existing practical guidance (Department Interpretation & Practice Note 38) is limited to the tax treatment in respect of stock options.
Revisions to Rule 144 and Rule 145 to
Shorten Holding Period for Affiliates and
Non-Affiliates; Proposed Rule.
The seventh installment of this series dealt with initial elections to defer compensation
and initial elections as to the time and form of payment of deferred compensation. This
installment covers Section 409A's specific requirements concerning subsequent changes
in those initial elections.
Section 409A of the Internal Revenue Code, as amended (the
“Code”), imposes significant requirements on “deferred
compensation.” As noted in our first e-Alert dated May 5, 2007,
deferred compensation under Code Section 409A includes
certain types of equity-based compensation arrangements that
are not usually thought of as deferred compensation, if no
exemption is applicable.
On April 10, 2007, the Treasury Department and the Internal Revenue Service released
final regulations providing additional guidance on deferred compensation arrangements under
Internal Revenue Code (the “Code”) Section 409A. These long-awaited final regulations take
effect as of January 1, 2008, but may be relied upon prior to that date and allow those affected by
the statute to take steps to ensure that outstanding compensatory arrangements having deferred
compensation implications comply with Section 409A before the compliance transition period
ends on December 31, 2007.
The Federal Trade Commission obtained a $250,000 civil penalty against James Dondero, the operator of the Highland Capital hedge fund and a director of Motient Corporation, for making a late Hart-Scott-Rodino Act filing in connection with his 2005 exercise of options to acquire 10,000 Motient shares.
The IRS recently issued final regulations under Section 409A of the Internal Revenue Code (the
Code) related to nonqualified deferred compensation. While the final regulations include many
clarifications, small wording changes and new examples, the new rules retain the same general
approach taken by the proposed Section 409A regulations with respect to the timing of deferral
elections and the distribution of deferred amounts. This alert focuses on the rules in the final regulations related to the timing of deferral elections and
the time and form of payment of deferred compensation, and provides our recommendations for
bringing your arrangements into compliance with the new rules.
The IRS recently issued final regulations under Section 409A of the Internal Revenue Code (the
Code) related to nonqualified deferred compensation. While the final regulations generally retain the
approach taken by the IRS in the proposed Section 409A regulations, the final rules include greater
flexibility with respect to severance pay arrangements. This alert summarizes the rules set forth in the final regulations with respect to severance
arrangements and provides our recommendations for bringing your arrangements into compliance
with the new rules.
The IRS recently issued final regulations under Section 409A of the Internal Revenue Code (the
Code) related to nonqualified deferred compensation. While the final regulations generally retain the
approach taken by the IRS in the proposed Section 409A regulations, the final rules are more
generous and include greater flexibility with respect to equity compensation arrangements. This alert summarizes the rules set forth in the final regulations with respect to equity compensation,
and provides our recommendations for bringing your arrangements into compliance with the new
This is the sixth in our continuing series of articles on significant issues under the
Internal Revenue Code (the "Code") Section 409A final regulations. In this installment
we analyze the impact of the new rules on nonqualified deferred compensation plans
that are "linked" to qualified retirement plans or other compensation arrangements. This
installment also addresses related issues involving offsets and the effect of elections
under other benefit plans on the compensation used to determine amounts deferred
under a nonqualified plan.
In this installment of McGuireWoods' comprehensive analysis of Section 409A and the
final regulations issued April 17, 2007, we identify who is considered a "specified
employee" for purposes of 409A and the special rules that apply to them. It is important
to understand whether the recipient of deferred compensation is a "specified employee"
for purposes of Section 409A. In addition to all of the other Section 409A requirements,
specified employees are subject to a six-month payment delay in receiving deferred
compensation on separation from service.
This is the third in a series of articles addressing significant issues under the new
Internal Revenue Code Section 409A rules for taxing "non-qualified deferred
compensation." In this installment we analyze the impact of Section 409A on severance
pay and benefits - what the Internal Revenue Service calls "separation pay
Section 409A has a significant impact on the design and operation of equity-based
incentive compensation plans of both public and private companies. All compensation
plans that use stock or stock equivalents should be reviewed to ensure there are no plan
document defects that could result in Section 409A violations. All companies should also
review their equity-award granting practices to ensure that their equity-based award
programs are operating in compliance with Section 409A.
The Greek Ministry of Finance has issued a written response to a specific query on the taxation of stock option plans operated by foreign companies in Greece either directly, or through their local affiliates.
This article summarizes how various types of stock awards impact diluted earnings per share and includes several examples.
The Internal Revenue Service (IRS) recently issued interim guidance on Section 409A of the Internal Revenue Code in the form of Notices 2006-100 and 2006-79.
Sample exercise notice for a stock appreciation right that can be settled in stock only. Permits choice in tax payment methods (cash, sale, or share withholding).
Section 409A: Withholding and Reporting Requirements
This article discusses administration of an employee stock purchase plan, starting with
drafting the plan document. The plan implementation process is described, from presenting
the plan to employees to surviving the purchase and its aftermath. The discussion is in
general terms and is meant to provide guidance only. Each company should feel free to
tailor the advice and guidance offered here to its own situation and plan.
A common feature of incentive plans, negative discretion provisions let compensation
committees use subjective criteria to reduce otherwise objectively determined awards, without
violating the performance pay exception to the Code section 162(m) limit on deductible
compensation. These provisions might, however, create unwelcome accounting results if used in
performance-based equity plans. According to some accounting firms, the possibility that a
compensation committee will exercise negative discretion suggests that the FAS 123(R) grant
date does not occur until the committee decides whether to use its discretion – so variable
accounting applies until that time. After introducing the key concepts, this article analyzes the
accounting issues and outlines steps companies may wish to take to avoid adverse accounting.
This article summarizes the final regulations to clarify the federal income tax withholding procedures that apply to supplemental payments. These regulations implement the JOBS Act amendment of Code Section 3402, which requires withholding at the maximum individual tax rate for annual supplemental payments (from the company or affiliates) in excess of $1 million.
This is an update to [Deloitte's] Global Equity Update of
Responding to a recent decision in Matter of
Stuckless, N.Y. Tax App. Trib. (8/17/06), which
addressed the allocation of income from stock options
exercised by a nonresident, on October 10, 2006 the
New York State Department of Taxation & Finance
issued a proposed allocation rule for certain
nonresidents and part-year residents who are granted
stock options, stock appreciation rights, or restricted
stock. The regulations apply to 2006 and subsequent
years. The Department has also announced its policy
for 2005 and earlier years that are open under the
statute of limitations.
This IRS notice covers additional transition relief under Section 409A of the internal revenue code.
Discussion from NY Office of Tax Policy Analysis, Technical Services Division on the Revised New York tax treatment of stock options, restricted stock and stock appreciation rights received by nonresidents and part-year residents.
Amid the turmoil in the stock markets, life goes on as companies prepare to make stock option awards on their normal granting cycle. But uncertainties about the value of each option, which in turn affect how many options each participant receives, complicate granting decisions compared to more tranquil market environments.
Previously, the Bureau of Internal Revenue (BIR) treated the spread on the exercise of a stock option (i.e. the excess of the fair market value of the shares at the time of exercise over the exercise price) as part of compensation income subject to income tax, regardless of the employee's level or position.
IRS Issues Procedures for Revoking Section 83(b) Elections
Last reviewed/updated: 5/5/2020
Major accounting firms recently have interpreted the guidance in FAS 123R in a manner that could lead to significant unanticipated compensation charges in connection with equity restructurings. Common antidilution adjustments that had no accounting consequences under APB 25 and FIN 44 could result in substantial additional compensation expense under FAS 123R if they are done on a permissive, rather than mandatory, basis.
FAS 123(R) requires that companies record expense for both service and performance
awards based on an estimated forfeiture rate (except for awards where vesting is contingent
on market conditions). While FAS 123 has always required this for performance awards, the
requirement is new for service-based awards, i.e., awards where vesting is contingent only
upon continued employment or service to the company. (FAS 123 did permit companies to
voluntarily apply an estimated forfeiture rate to service-based awards, but few companies
took advantage of this opportunity.) This article takes a practical look at how to apply
estimated forfeiture rates to service-based awards.
A transitional provision previously allowed employees with stock options in Malaysia to either adopt the previous legislation or current legislation for stock options granted prior to January 1, 2006, vested by December 31, 2005 and exercised no later than December 31, 2006.
Interim guidance with respect to the application of Section 409A to outstanding stock rights.
On February 3, 2006, the FASB released its fourth FASB Staff Position (FSP) providing interpretive and implementation guidance on the provisions of FASB Statement 123(R).
On September 30, 2005, the Finance Minister proposed a new tax treatment on employee stock option plans effective January 1, 2006 in the National Budget announcement. To date, the law has yet to add the amendments to the statutes; therefore, the proposed treatment of stock options as described below, may change.
On September 30, 2005, the 2006 National Budget proposed new laws to deal with the taxation of stock options. Under the budget proposal, the gross income in respect of any right to acquire shares in a company would be taxed in the year where the right is exercised, assigned, released or acquired.
The FASB proposed new Staff Positions on determining the grant date of a share-based payment
and on a simplified transition method for computing the available excess tax benefits in
additional paid-in capital at the time Statement 123R is adopted,
1 and the SEC’s economists
reported their analysis of using market instruments to value employee stock options.2 This
edition of Defining Issues summarizes the new guidance.
This GRIST was revised to provide further explanation of the old APB 25 and FAS 123 "grant date" definition and the changes in FAS 123(R) in the Grant date definition and Existing practice and new interpretation sections
Statement 123(R), Share-Based Payment, provides that share-based payments exchanged for employee services and classified as equity awards generally are measured at their fair value on the grant date.
OWNERSHIP REPORTS AND TRADING BY OFFICERS, DIRECTORS AND
PRINCIPAL SECURITY HOLDERS.
By now many of us have come to grips with FAS 123R's requirement for publicly traded companies to estimate the fair value of employee stock options at their grant date and to subtract this value from earnings. Determining the fair value is a process that has been receiving the most attention, but once we have the fair value, how do we determine expense?
This article will examine implied volatility and its applications to stock-based compensation valuation.
FAS 123R brought the valuation of share-based compensation from the opaque depths of financial statements footnotes to the forefront. It has created an immediate need for companies to understand the valuation models, key assumptions, and the financial implications. Setting assumptions is as important as selecting the valuation model. The volatility of the underlying stock price is among the most influential assumptions for an option valuation.
The SEC staff confirmed the latitude in Statement 123R’s provisions on selecting models for valuing share options and clarified other positions on accounting and disclosure for share based-payment arrangements.1 New Staff Accounting Bulletin 107 permits registrants to choose from different valuation models to estimate the fair value of share options, assuming consistent application, and also provides guidance on developing assumptions used in valuing employee share options, on related MD&A disclosures, and on the interaction between Statement 123R and ASR 268 and other SEC literature.
The Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board
(FASB) have released additional guidance in regard to the new stock option expensing
provisions of Statement 123(R) that are scheduled to become effective this July. While there
have been recent press reports suggesting the SEC may be sympathetic to a further delay in
Statement 123(R)'s effective date, neither the SEC nor the FASB to date have initiated steps to
effect such a delay.
After much debate, expenses related to options and other
share-based payments are now required to appear on companies’
income statements. This standard, the Financial Accounting Standards
Board’s Statement of Financial Accounting Standards No. 123 (revised
2004), or FAS 123R, is effective for periods ending after June 15,
2005. Beyond the complicated and controversial accounting standard
itself, public companies must consider the impact of FAS 123R on
Management’s Discussion and Analysis of Financial Condition and
Results of Operations, or MD&A.
This alert summarizes how awards that provide for accelerated or continued vesting upon retirement should be accounted for under FAS 123(R) (now ASC 718).
SEC guidance on implementation and valuation under SFAS No. 123(R)
While compensatory stock options are not considered property for general tax purposes, they are
generally viewed as assets subject to equitable distribution in matrimonial situations. As a result,
property settlements in a divorce often address stock options held by one of the spouses, and
they generally provide for one of the following outcomes: option retention, option transfer, or
assignment of option proceeds. Each of these alternatives has the potential to produce different
tax results. For the option transfer approach, recent IRS actions have greatly simplified the tax
consequences. This article discusses these alternatives and their attendant tax consequences.
The Internal Revenue Board of Malaysia (the "IRB") previously required that each grant of stock awards (i.e., stock options, purchase rights, restricted stock and RSUs) be reported on a Form BT/ESOS/2000. This form had to be filed with the IRB within 30 days of distributing the grant materials to the employees in Malaysia. In response to this report, the IRB would determine the taxable amount (if
International Alerts: Malaysia
Practice pointers for establishing Rule 10b5-1 plans and same-day sale (cashless) exercise procedures that don't violate the prohibition on loans under Section 402 of the Sarbanes-Oxley Act.
Notice 2005-1 provides guidance on the executive compensation provisions of
new section 409A of the Internal Revenue Code, which was added by the
American Jobs Creation Act of 2004. An advance version of the notice was
released to the public on December 20, 2004. Two small but helpful clarifications
are being added to the transition rules in the notice. Notice 2005-1, revised to
incorporate these two clarifications, will be included as scheduled in Internal
Revenue Bulletin 2005-2, to be published on January 10, 2005.
On December 16, 2004, the FASB released its new accounting standard for stock-based compensation. This standard supersedes APB Opinion No. 25, requiring companies to recognize an expense for all forms of stock-based compensation.
Notice 2005-1: Guidance Under § 409A of the Internal Revenue Code
Cover letter for report of taxable transactions in restricted stock, distributed to participants for tax purposes
Cover letter for a quarterly report of taxable option transactions that is distributed to participants
This Deloitte article summarizes the final ISO regs issued in 2004.
In August 2004, the IRS issued final regulations relating to incentive stock options (ISOs), which contain important guidance and changes relating to a number of issues affecting ISOs. This Perkins Coie Update summarizes some of the highlights of the final regulations and offers practical guidance.
We had previously reported in our third quarter 2003 Clients & Friends newsletter that the Inland Revenue Board of Malaysia (the "IRB") indicated that the taxable event for RSUs would be the vesting date, and that the taxable amount would be the fair market value of the shares on the vesting date. In response to a recent inquiry, the IRB has now backtracked on this position. According to the most
International Alerts: Malaysia
This ruling concludes that NQSOs and NQDC transferred by an employee to a former spouse incident to a divorce are subject to FICA, FUTA, and income tax withholding to the same extent as if retained by the employee. The ruling also provides reporting requirements applicable to the wage payments.
Guidance from Massachusetts on the taxation of income earned by nonresidents, including income from stock options.
Sample notice of option exercise for cash, same-day sale, sell-to-cover, and swap (stock-for-stock) exercises.
Arizona individual income tax treatment of stock options when there is a change in residency.
A recent IRS private letter ruling (PLR 200212021) is a reminder that the circumstances under
which an Internal Revenue Code section 83(b) election can be revoked are narrow.
The SEC provides an FAQ addressing questions related to electronic filing of Section 16 reports on Forms 3, 4 and 5.
NYSE Listing Standards Section 303A.08, which stipulates the NYSE's requirements with respect to shareholder approval of stock compensation programs.
NASDAQ Listing Standards section 5635, which stipulates the requirements for shareholder approval of stock compensation plans.
Instructions to IRS auditors on applying penalties for late deposits of tax withholding on NQSO exercises.
The SEC adopts rule and form amendments to implement the accelerated filing deadline applicable to change of beneficial ownership reports required to be filed by officers, directors and principal security holders under Section 16(a) of the Securities Exchange Act of 1934, as amended by the Sarbanes-Oxley Act of 2002. The amendments are intended to facilitate the statutory changes, which become effective August 29, 2002, consistent with their purpose.
This outline discusses the potential impact of the Sarbanes-Oxley Act of 2002 on executive and equity-based compensation and the amendments to Items 201 and 601 of Regulation S-B, Items 201 and 601 of Regulation S-K and Form 10-K, Form 10-KSB, and Schedules 14A and 14C under the Securities Exchange Act of 1934, promulgated by the Securities and Exchange Commission (the “Commission”) in Release Nos. 33-8048 and 34‑45189.
Revenue procedure that exempts brokers from issuing a Form 1099-B for same-day sale exercises is specified conditions are met.
This ruling concludes that a taxpayer who transfers NQSOs and NQDC to a former spouse incident to divorce is not required to recognize income upon the transfer. Instead, the former spouse recognizes income when he/she exercises the stock options or when the deferred compensation is paid.
The Corporate Counsel discusses an SEC interpretive letter reaffirming
its position that an independent trustee is not sufficient to distinguish the affiliate from the trust where the affiliate is the settlor and income beneficiary.
An outline of the characteristics of options that are transferable for estate-planning purposes, as well as the tax and legal considerations of these arrangements.
Massachusetts letter ruling on the treatment of incentive stock options