In this section, we highlight some recent legislative changes which may affect your equity plans around the world.
On 13 September 2010, important guidelines were issued by the Italian tax authorities concerning the reporting of financial transfers totalling over EUR 10,000 in relation to assets held abroad or foreign income. These guidelines expand on the current requirements for a financial monitoring form to be attached to the tax returns of individuals making these transfers. Further obligations include ensuring that vested stock options are valued at their option price and assets held jointly or via separate legal and beneficial holders are reported by all individuals concerned. Tax residents who make such transfers should ensure they comply with these reporting requirements so that they do not face onerous financial penalties (which can be up to 50% of the value of the unrecorded transfer or asset).
Revised income tax brackets introduced by the Ministry of Finance have been implemented by Law No.6009. These new tax brackets will apply retroactively from 1 January 2010 and result in income levels of over TRY76,000 (previously TRY50,000) being taxed at the highest income tax bracket of 35%. It will be possible for employers to offset any overpaid tax under the previous tax brackets for the period of July to December 2010.
Companies are advised to review their current equity-based compensation plans in light of pension reform legislation due to be voted on by the French Parliament by the end of 2010 . This legislation is set to increase employer and employee social tax rates on qualified share plan income, with employee rates due in the year of sale rising from 2.5% to 8% and employer rates at grant rising from 10% to 14%. The legislation also proposes to increase marginal income tax rates by 1% from 40% to 41% and is likely to contain provisions increasing withholding tax rates on dividends and from fixed investments. Other measures may result in the elimination of tax credits on dividends along with the removal of the current capital gains tax exemption on gains below the EUR 25,830 threshold.
Brazil’s Federal Revenue Department has stated that, when a tax payer is granted options at no cost, there is no taxable income to report at the time of grant. The ruling helps shed some welcome light on the taxation of employee stock options.
In the recent case of Accenture Services Pvt. Ltd (Taxpayer) and others, the Mumbai Income Tax Appellate Tribunal confirmed that costs relating to the establishment and operation of an employee stock purchase plan are considered as wholly and exclusively incurred for carrying out the business purposes of the taxpayer and, as such, are corporation tax deductible. This ruling helps to clarify the position of deductible expenditure for employers operating employee share purchase plans.
In a recent judgement concerning Vodafone International Holding BV (a Dutch based member of the Vodafone Group Plc), the Indian Supreme Court held that the company’s acquisition of the majority stake in an Indian company, Hutchison Essar Ltd, had a sufficient financial connection for the Indian tax authorities to have jurisdiction to examine the transaction and, consequently, impose tax on Vodafone.
This case illustrated a move by Indian tax authorities to increase their focus on examining offshore transactions to determine whether they have a fiscal nexus in India and are therefore eligible to be taxed by the Indian authorities. This will undoubtedly have important implications on how cross-border transactions may be carried out in order to mitigate the risk of such tax liability arising.
As of 2011, the rate of Russian social contributions will increase from 26% to 34%. Once this occurs, any in-kind and monetary benefits received by employees (including free shares or share-based bonuses received under restricted stock, restricted stock units and share appreciation rights plans) will be subject to social contributions at the increased rate.
However, the assessment base for social contributions will still remain capped at RUB 415,000 annually (approximately USD 14,000 or EUR 10,000, subject to annual indexing which should soon be established for 2011). This implies that benefits received under equity-based compensation plans should not be subject to additional social contributions with respect to employees whose annual remuneration exceeds the above threshold.