EMPLOYEE STOCK PURCHASE PLANS

EMPLOYEE STOCK PURCHASE PLANS: EMPLOYMENT

Labor Concerns

It is becoming more common for employees to claim they have entitlements under Plans. The risk of employee claims for additional benefits under a Plan can be reduced by having the employee agree to standard waiver and consent provisions.

Communications

The CONSOB (Italian Securities Commission) recommends that listed companies translate Plan documents into Italian. Employees should sign an agreement stating that they have read and accepted the terms of the Plan. Such agreement should be translated into Italian if employees are not fluent in English. Any government filings must be in Italian.

EMPLOYEE STOCK PURCHASE PLANS: REGULATORY

Securities Compliance

If the Issuer does not have securities listed on a regulated exchange in the EU, there may be a requirement to publish a prospectus which has been approved in the Issuer's Home Member State, e.g., if (i) the offer is made to 150 persons or more in any Member State and (ii) the price paid for Stock by employees throughout the EU is greater than €5m (when aggregated with offers of securities made in the EU in the previous 12 months) and having a total amount in the EU of less than €100k. If the Issuer has securities listed on a regulated exchange in the EU, it will be required to publish summary information about the Plan and the Stock offered to employees.

An Italian Subsidiary or affiliate of the Issuer may validly serve as a "financial intermediary" for the securities, provided that it is a duly authorised "financial intermediary", including for the purposes of a public offering taking place as "door-to-door selling". However assuming, for instance, that the Italian Subsidiary appointed to serve as "financial intermediary" for the securities is at the same time i) the employer of the individuals to which the securities are addressed and ii) already duly authorised to act as a "financial intermediary", it would not be necessary to fulfill the additional specific requirements in relation to "door-to-door selling", given that this special regulation does not apply if the proposal for the purchase of the securities is carried out at the registered office of the company appointed for the offer of such securities. In order to benefit from the status of "financial intermediary", the Italian Subsidiary should be either a SIM (società di intermediazione mobiliare), or a financial intermediary enrolled in the special register set forth by article 107 of Legislative Decree no. 395 of 1 September 1993 (Consolidated Law on Banking, or TUB), or a bank.

Foreign Exchange

Employees may have reporting obligations for foreign Stock held abroad. The Issuer may have reporting requirements depending on the total value of Stock issued in Italy.

Data Protection

Employee consent to the processing and transfer of personal data is a recommended method of compliance with existing data protection requirements. Generally, an employer must register with Italy's data protection authorities prior to processing employees' personal data.

EMPLOYEE STOCK PURCHASE PLANS: TAX

Employee Tax Treatment

Purchase rights are subject to tax on the spread at exercise, unless granted under a tax-favored purchase plan. Capital gains tax applies on the gain at sale.

Social Insurance Contributions

As a general rule, social insurance contributions are required on the spread at exercise. However, social insurance contributions are not due if i) acquisition rights are granted under a tax-favored plan or ii) the Plan is not broad-based and meets certain conditions (e.g. the beneficiaries are individual employees or restricted groups of employees or the Plan is aimed at achieving an employee retention/ incentive purpose). For the employer, social insurance costs for the benefits under a Plan can be significant.

Tax Favored Program

Income tax and social insurance obligations may be reduced under the tax-favored program, which is the broad-based grant program. Under a broad-based grant program, an employee may generally defer tax on up to €2,065 of the value of the shares annually, subject to a 3 year minimum holding period.

Withholding and Reporting

Unless the Stock is offered through a tax-favored program, withholding and reporting are required.

Employer Tax Treatment

The availability of a deduction by the Subsidiary is unclear. A tax deduction may be available if the Subsidiary reimburses the Issuer for the cost of the Plan benefits.

Tax Rates

Income tax is charged at rates of up to 43%.

Social taxes are levied on the employee at a rate of, in general, 9.19% on the amount recognized as income under the Plan (it can vary according to the sector and the size of the company).

For regular income, for most employees, there is a ceiling on income subject to social taxes of Euro 100,324.00 per year in 2016.

Where social taxes arise for the employer, these are levied having reference to the level of classification and the category of the employee within the company.

Any gain made on the sale of shares is taxed at a rate of 26%.

The rate of CGT on sale amounts to 26%, to be paid through the income tax return where the shares are not sold through an intermediary.

RESTRICTED STOCK and RSUs

RESTRICTED STOCK and RSUs: EMPLOYMENT

Labor Concerns

It is becoming more common for employees to claim they have entitlements under restricted stock and RSU plans. The risk of employee claims for additional benefits under a Plan can be reduced by having the employee agree to standard waiver and consent provisions.

Communications

The CONSOB (Italian Securities Commission) recommends, in relation to listed companies, that all Plan documents be translated into Italian to ensure that employees understand the terms of the grant. Employees should sign an agreement stating that they have read and accepted the terms of the Plan. In any event, If employees are not fluent in English, award agreements should be translated into Italian. Any government filings must be in Italian.

RESTRICTED STOCK and RSUs: REGULATORY

Securities Compliance

Neither the award nor the vesting of restricted stock or RSUs is likely to trigger any prospectus requirement, provided that the restricted stock or RSUs are awarded and vest free of charge.

Foreign Exchange

Employees may have reporting obligations with respect to foreign Stock held abroad. The parent company may have reporting requirements depending on the total value of Stock issued in Italy.

Data Protection

Employee consent to the processing and transfer of personal data is a recommended method of compliance with existing data protection requirements. Generally, an employer must register with Italy's data protection authorities prior to processing employees' personal data.

RESTRICTED STOCK and RSUs: TAX

Employee Tax Treatment

The employee is subject to tax on the spread between the price paid and the value of the Stock when the RSU award vests. Capital gains tax is due on the proceeds received from the sale of Stock which shall be calculated as the difference between the proceeds received by the employee from the sale of the Stock and the fair market value at the time of vesting (already taxed as employment income).

Social Insurance Contributions

Social insurance contributions are payable on the benefit received under a Plan, unless (a) acquisitions rights are granted under the tax-favored program, or (b) the employee receives the Stock (and not the related proceeds), as provided by Article 82, paragraph 24 of Law Decree 112/2008. For the employer, social insurance costs for the benefits under a Plan can be significant.

Tax Favored Program

Income tax and social insurance obligations may be reduced under the tax-favored program, which is the broad-based grant program. Under a broad-based grant program, income from employment is equal to zero if the value of the shares is not higher than Euro 2,065.83 and the following conditions are met (Article 51, paragraph 2, letter g) of Presidential Decree 917/86):

  • the shares are offered to all the employees; and
  • the shares are not repurchased by the Issuer or the employer or, in any event, transferred before at least three years have elapsed.

If, at the time of the subsequent sale of the shares, the employee obtains a "capital gain" (positive difference between (i) amount collected from the sale and (ii) value of the shares already subjected to taxation as employment income), such capital gain will be subject to substitutive tax of 26%.

Withholding and Reporting

Unless the RSU is offered through a tax-favored Plan, withholding and reporting are required.

Employer Tax Treatment

The availability of a deduction for the Subsidiary is unclear. A tax deduction may be available if the Subsidiary reimburses the Issuer for the cost of Plan benefits and if the Plan has been resolved by the Subsidiaries' board of directors.

Tax Rates

Income tax is charged at rates of up to 43%.

Social taxes are levied on the employee at a rate of, in general, 9.19% on the amount recognized as income under the Plan (it can vary according to the sector and the size of the company).

For regular income, for most employees, there is a ceiling on income subject to social taxes of Euro 100,324.00 per year in 2016.

Where social taxes arise for the employer, these are levied having reference to the level of classification and the category of the employee within the company.

Any gain made on the sale of shares is taxed at a rate of 26%.

The rate of CGT on sale amounts to 26%, to be paid through the income tax return where the shares are not sold through an intermediary.

STOCK OPTIONS PLANS

STOCK OPTIONS PLANS: EMPLOYMENT

Labor Concerns

It is becoming more common for employees to claim they have entitlements under Plans. The risk of employee claims for additional benefits under a Plan can be reduced by having the employee agree to standard waiver and consent provisions.

Communications

The CONSOB (Italian Securities Commission) recommends that listed companies translate all Plan documents into Italian to ensure that employees understand the terms of the grant. Employees should sign an agreement stating that they have read and accepted the terms of the Plan. In any event, if employees are not fluent in English, the option agreement should be translated into Italian. Any government filings must be in Italian.

STOCK OPTIONS PLANS: REGULATORY

Securities Compliance

If the Issuer does not have securities listed on a regulated exchange in the EU, the grant and/or exercise of employee options in Italy may give rise to a requirement to publish a prospectus approved in the Issuer's Home Member State, unless one of the exemptions or exclusions in the Prospectus Directive is satisfied, e.g. there are fewer than 150 offerees in each Member State or the value of the securities being offered is less than €5m calculated within the EU, subject to certain conditions, having a total amount in the EU of less than €100k. If the Issuer has securities listed on a regulated exchange in the EU, it will be required to publish summary information about the Plan and the Stock offered to employees.

An Italian Subsidiary or affiliate of the Issuer may validly serve as a "financial intermediary" for the securities, provided that it is a duly authorised "financial intermediary", including for the purposes of a public offering taking place as "door-to-door selling". However assuming, for instance, that the Italian Subsidiary appointed to serve as "financial intermediary" for the securities is at the same time i) the employer of the individuals to which the securities are addressed and ii) already duly authorised to act as a "financial intermediary", it would not be necessary to fulfill the additional specific requirements in relation to "door-to-door selling", given that this special regulation does not apply if the proposal for the purchase of the securities is carried out at the registered office of the company appointed for the offer of such securities. In order to benefit from the status of "financial intermediary", the Italian Subsidiary should be either a SIM (società di intermediazione mobiliare), or a financial intermediary enrolled in the special register set forth by article 107 of Legislative Decree no. 395 of 1 September 1993 (Consolidated Law on Banking, or TUB), or a bank.

Foreign Exchange

Employees may have reporting obligations with respect to foreign Stock held abroad. The parent company may have reporting requirements depending on the total value of Stock issued in Italy.

Data Protection

Employee consent for the processing and transfer of personal data is a recommended method of compliance with existing data protection requirements. Generally, an employer must register with Italy's data protection authorities prior to processing employees' personal data.

STOCK OPTIONS PLANS: TAX

Employee Tax Treatment

Options are subject to tax on the spread at exercise unless granted under the tax-favored program. Capital gains tax applies on the gain at sale.

Social Insurance Contributions

As a general rule, social insurance contributions are required on the spread at exercise. However, social insurance contributions are not due if i) stock options are granted under the tax-favored program or ii) the Plan is not broad-based and meets certain conditions (e.g. the beneficiaries are individual employees or restricted groups of employees or the Plan is aimed at achieving an employee retention/ incentive purpose). For the employer, social insurance costs for the benefits under an option plan can be significant.

Tax Favored Program

Income tax and social insurance obligations may be reduced under the tax-favored program, which is the broad-based grant program. Under a broad-based grant program, in general, the value of the shares does not constitute income from employment (and, therefore, it is not subject to income tax) up to an amount not exceeding €2,065.83 in the calendar year, provided that, inter alia, the shares are offered to all employees and are not sold for at least three years.

Withholding and Reporting

Unless the Stock is offered through a tax-favored option plan, withholding and reporting are required

Employer Tax Treatment

The availability of a deduction by the Subsidiary is unclear. A tax deduction may be available if the Subsidiary reimburses the Issuer for the cost of Plan benefits.

Tax Rates

Income tax is charged at rates of up to 43%.

Social taxes are levied on the employee at a rate of, in general, 9.19% on the amount recognized as income under the Plan (it can vary according to the sector and the size of the company).

For regular income, for most employees, there is a ceiling on income subject to social taxes of Euro 100,324.00 per year in 2016.

Where social taxes arise for the employer, these are levied having reference to the level of classification and the category of the employee within the company.

Any gain made on the sale of shares is taxed at a rate of 26%.

The rate of CGT on sale amounts to 26%, to be paid through the income tax return where the shares are not sold through an intermediary.