Global Tax Treatment of Equity Awards - American Chronicle

Global Tax Treatment of Equity Awards

By
Neuhauser, Derrick

More and more companies operate on a global
basis to expand their market reach, create cost efficiencies, and
leverage their resources. To attract, motivate, and retain their
employees, rhese multinational companies reward their worldwide
workforce with equity grants. In the past, the long-term incentive
generally was a plain vanilla stock option granted at fair market value
(FMV), with a ten- year term and vesting period of three or four years.
However, with the U.S. adoption of Statement of Financial Accounting
Standards (FAS) No. 123R, Share-Based Payment, which requires stock
options to be expensed on the balance sheet, companies have granted more
and more equity alternatives, including restricted stock, restricted
stock units, stock appreciation rights, phantom stock, and indexed
options. When granting a stock option before the adoption of FAS 123R,
multinational companies faced difficulties in complying with the various
tax and accounting rules that were unique to each country. This task
has become even more difficult with the granting of these various other
long-term incentives.

Another compounding problem is that
although U.S. tax laws regarding equity awards have remained fairly
consistent over the past 15 or 20 years, international tax laws have
not. Many foreign countries' equity requirements for income and social
tax and withholding obligations change annually, and sometimes more
often than that. Foreign countries have also been slow to adapt and
provide guidance for the many long-term equity award alternatives such
as restricted stock units and indexed options. Therefore, careful
consideration is needed before a company begins to issue long-term
incentives in foreign tax jurisdictions.

The following is a
brief review of recent developments in four countries.

Italy

In the past, Italy had one of the most share scheme-favored regulations
in Europe. In recent years, however, Italy has imposed regulations that
are increasingly strict and challenging

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