Belgium Introduces New Capital Gains Tax, Excludes Listed Shares Acquired via Employee Equity Awards
Effective 1 January 2016, the Belgian government adopted new legislation that imposes a 33% capital gains tax (referenced locally as the "speculation tax") on gains realized upon the sale of listed shares, listed options/warrants on listed shares and certain listed derivatives pertaining to listed shares held for a period of less than six (6) months from the date of acquisition. The new speculation tax only applies to covered assets sold on or after 1 January 2016, and the taxable amount generally will equal the difference between the sales proceeds and the acquisition cost of the covered asset. However, in a last minute change favorable to multinational companies granting employee equity compensation awards to employees in Belgium, the Belgian government specifically excluded gains derived from "listed shares, listed options and listed warrants acquired within the framework of professional activity (e.g., employment, consulting services) and of which the acquisition may have given rise to taxable income" (e.g., listed shares acquired via stock options and restricted stock units and shares acquired via employee stock purchase plans). To the extent you have any questions about the new speculation tax, please contact your GES attorney for additional information.
Selective Inclusion of Non-PRC Nationals Permissible in SAFE Registration
Based upon continued discussions with SAFE officials and in conjunction with recent applications for SAFE approval, our colleagues in Shanghai have concluded that companies selectively can pick and choose which non-PRC nationals will be covered under its SAFE-approved regime for equity compensation awards. More specifically, our Shanghai office now considers it permissible to include select non-PRC national employees in a company’s application for SAFE approval and such inclusion would not obligate the company to include all non-PRC national employees in China in the application. Similarly, companies may choose to include select non-PRC national employees in their application for SAFE approval for one type of equity compensation award (e.g., restricted stock units) without triggering an obligation to include the same employees in the application for SAFE approval for any other type of equity compensation award (e.g., employee stock purchase plan). Previously, we generally understood that if a company wanted to include any individual non-PRC national in their application for SAFE approval, the company needed to cover all non-PRC nationals for allequity compensation award types being covered by the SAFE approval. It is important to note that any non-PRC nationals covered by a company's SAFE approval will be subject to the same requirements and restrictions as PRC national employees (e.g., mandatory repatriation of sales proceeds to China, forced sale of shares upon termination of employment), and the various SAFE bureaus always can change their practices in the future. To the extent your company is interested in covering only select non-PRC nationals in its application for SAFE approval, please contact your GES attorney for additional information.
U.S.-EU Data Privacy Safe Harbor Invalidated
On October 6, 2015, the Court of Justice of the European Union invalidated the U.S.-EU Data Privacy Safe Harbor program (“Safe Harbor”) that allowed the cross-border transfer of personal data between the United States and EU member states by U.S. companies that self-certified under the Safe Harbor. As a result, U.S. multinationals that originally collected and processed personal data of employees of its European subsidiaries and affiliates on the basis of the Safe Harbor certification are scrambling to determine the impact on their operations and determine viable options for sharing vital employee information for global HR functions. For an alert issued by our data privacy colleagues on this topic, please click here.
Increased Individual Remittance Allowance
Effective 1 June 2015, the Reserve Bank of India ("RBI") increased the annual outbound remittance threshold under the Foreign Securities Regulations of the The Foreign Exchange Management Act, 1999 (“FEMA”) from USD 125,000 to USD 250,000. Generally, RBI approval is required for employees to purchase and hold foreign securities (in connection with stock option grants and ESPPs) unless the requirements of the "General Permission" are met or employees use the annual remittance threshold under the “Liberalized Remittance Scheme” ("LRS"). Companies should ensure that their current grant materials reflect the updated annual remittance threshold, especially if the company is relying on the annual remittance threshold in connection with the offer of equity awards. For additional information about the annual remittance threshold and the specific procedures for outbound remittances under the LRS, please contact your GES attorney.
Securities Law Treatment of Equity Awards Clarified
In connection with recent guidance provided to a U.S. publicly-traded multinational company granting stock options and RSUs to employees of its Moroccan affiliate, our colleagues in Morocco clarified that the grant of such awards would not constitute a public offering of securities in Morocco to the extent (1) the awards were non-transferable, and (2) award recipients were not required to make any payment upon the grant of the awards. If, however, in the unlikely event that the grant of equity awards would constitute a public offering of securities in Morocco, the granting company/issuer would be required to obtain the prior approval of the Moroccan Department of Finance and would need to prepare a French-language "note d'information" for approval of the Moroccan securities regulator (Le Conseil Déontologique des Valeurs Mobilières or "CDVM") unless awards were limited to individuals who serve in a management position for the Moroccan affiliate ("direction ou gestion"), which includes (but is not limited to) the chairman, CEO, members of the board of directors/management board/supervisory board, the general counsel and other senior executives. For additional information about whether your company's grant of equity compensation awards will constitute a public offering of securities in Morocco and will trigger the foregoing approval requirements, please contact your GES attorney.
New Tax Exemption for Stock Options
Effective 1 January 2016, Romania adopted a new tax exemption applicable to the grant of stock options that will allow award recipients to avoid paying income tax or social security contributions on stock option income realized upon exercise. Previously, award recipients were subject to taxation on the date of exercise of stock options on an amount equal to the difference between the fair market value of the acquired shares and the exercise price paid for such shares. Under the new exemption, award recipients will not be subject to taxation on their stock options so long as the stock options are not exercised for at least one (1) year from the date of grant. In remains unclear whether the exemption will apply to other types of equity compensation and we are attempting to obtain clarification on this point. For additional information on the new tax exemption, please contact your GES attorney.
Cash-Settled Awards May Avoid CMA Approval Requirements
In conjunction with one U.S. publicly-traded company's recent evaluation of its notification obligations to the Capital Markets Authority (the "CMA") for equity awards granted to employees in Saudi Arabia, the CMA expressed the view (through discussions with the company's Authorized Person) that cash-settled awards do not fall under the Offer of Securities Regulations and therefore do not require the submission of a notification statement for CMA approval. Further, the CMA indicated that where outstanding awards are amended to provide for cash-settlement (vs. awards originally granted subject to cash settlement) after the original submission of a CMA notification statement, the company needed to submit a separate notification explaining that the outstanding equity awards had been amended to provide for cash settlement and also had to provide a copy of any resolutions approving such amendment. Although not fully consistent with prior commentary from the CMA, the current views expressed by the CMA represent potentially a favorable development for companies seeking to grant some form of equity compensation award to employees in Saudi Arabia without triggering the costly and time-consuming CMA notification requirements. As such, companies seeking to avoid the CMA notification requirements via the grant of cash-settled awards should contact their GES attorney to discuss available alternatives and the potential for submitting an inquiry with the CMA (through the Authorized Person) requesting confirmation of this approach.
Securities Law Exemptions Available for Equity Compensation Awards
In conjunction with recent equity compensation grants made by various U.S. multinationals to employees in South Africa, our colleagues in Johannesburg have reminded and cautioned companies to carefully consider and fully comply with the provisions of the Companies Act governing equity compensation grants in South Africa. In general, the Companies Act provides that any public offering of securities must be made pursuant to a registered prospectus amongst other requirements. Notwithstanding, the Companies Act contains two notable exemptions from the definition of a public offering of securities that potentially apply to the grant of equity compensation awards. First, under the "small offering exemption" of Section 96, companies can make a single offering of securities with a total value of R 1 million or less (approximately USD 60,000 at the time of writing) to 50 or fewer persons during a 12 month period without any further action. For purposes of the foregoing, stock option grants are valued at an amount equal to the aggregate number of stock options being granted multiplied by the exercise price, while RSU grants are valued at nil (on the basis that award recipients do not pay for the shares acquired upon vesting). In addition, under the "employee share scheme" exemption of Section 97, companies can grant equity compensation awards pursuant to an equity compensation plan without triggering the prospectus requirements provided all of the following requirements are satisfied: (1) the grant of equity compensation awards are made solely to employees, officers and other persons closely involved in the business of the issuer or a subsidiary of the issuer; (2) the issuer must appoint a compliance officer to be responsible for administering the equity compensation plan in South Africa; (3) the compliance officer must notify participants of the particulars of the nature and risks of the equity compensation plan, and provide information relating to the issuer including its latest annual financial statements, the nature of its business, and its profit history for the last three years; (4) the compliance officer must, within 20 business days of establishment of the plan, prepare and submit various documents with the Companies and Intellectual Property Commission of South Africa (these documents include Form CoR 46.1, a copy of the applicable resolutions whereby the issuer has appointed the compliance officer in South Africa, copies of the issuer’s most recent annual reports for the prior two years, and other grant-related materials); and (5) the compliance officer must within 60 business days after each financial year submit a prescribed form certifying compliance with the requirements of Section 97. Because the availability of the exemptions under Sections 96 and 97 are dependent upon each company's particular circumstances, and in light of the various requirements and obligations arising under each exemption, companies should give early consideration to each contemplated grant in South Africa to determine the appropriate exemption and the related actions. Please contact your GES attorney for additional information on the Section 96 and 97 exemptions, including our Section 97 compliance checklist.
Availability of €12,000 Tax Exemption Significantly Curtailed
Pursuant to the recently released Personal Income Tax regulations interpreting Spain's new tax laws that apply to all taxable events occurring on or after 1 January 2015, the Spanish tax authorities confirmed that the €12,000 exemption allowing employees to avoid taxation on equity compensation awards only will apply for offers made “under the same conditions to all employees of a company, its corporate group or subgroups.” For purposes of the exemption, variances in awards made to all employees attributable to job title, salary, and other individual criteria (which often is the case) will preclude the use of the exemption. In the case of employee stock purchase plans ("ESPPs"), the €12,000 exemption will be available where all employees are offered ESPP participation and can contribute the same percentage of salary towards the purchase of company shares (even where employees actually elect to contribute different amounts on an individual-by-individual basis). Further, although it is unclear and the Spanish courts have not yet addressed the scenario, the €12,000 exemption also should be available where the contribution percentage applicable to individuals employed by one subsidiary/legal entity are different from the contribution percentage applicable to individuals employed by a different subsidiary/legal entity. For additional information about the new requirements for the €12,000 exemption and whether the exemption will be available for awards granted to employees in Spain, please contact your GES attorney.
IRS Issues New Audit Techniques Guide on Equity Compensation
In August 2015, the U.S. Internal Revenue Service ("IRS") released a new techniques guide for the audit of equity-based compensation that provides insight into the areas of focus for U.S. companies granting equity compensation awards. IRS audit guides are intended to provide examiners instruction on issues that may arise during an IRS audit, and the release of the new guide on equity compensation potentially signifies further scrutiny on the tax treatment of stock options, RSUs, performance awards and other forms of equity compensation. In the new audit guide, the IRS addresses a variety of equity compensation arrangements and discusses what auditors should be looking for on examination. More specifically, the audit guide provides that "equity" includes any compensation paid to an employee, director or independent contractor, that is based on the value of specified stock (e.g., stock options, stock appreciation rights, restricted stock, restricted stock units, phantom stock plans, stock warrants, etc.). Further, the audit guide identifies the litany of documents that examiners should consider when conducting an audit of equity compensation, including SEC filings (e.g., Form 10-K annual reports, Form 4 statement of changes in beneficial ownership and Proxy Statements), employment agreements and Board of Director/Compensation Committee resolutions, meeting minutes and reports. The materials identified for review by the IRS suggest that companies granting equity compensation would be well-served by renewing their efforts to carefully draft and review all equity compensation-related materials to ensure they are clear, simple and easily understood. For additional information on the new audit techniques guide and suggestions for minimizing equity compensation audit risks, please contact your GES attorney.