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Scott Barrall, Sr. Manager, Deloitte Tax LLP (US)Suzie Bentley, Dir. Stock Admin & 401k,NVIDIA Corporation (US)
Trish Boepple, SVP, Global Client Ops, Global Shares (US)
Transactional Nightmare or Organized Chaos?
Tracking Funds and Data
The Cast
Upfront Preparation
Stock Option Same-Day-Sale Flowchart
RSU Sell-to-Cover Withholding Flowchart
ESPP Purchase with Payroll Withholding Process Flowchart
Cost Recharge Flowcharts
Process Documentation Recommendations
Transactional Nightmare or Organized Chaos?: Tracking Funds and Data
Transaction Nightmare or Organized Chaos?
The Cast BOD
CEO HR
CFO Mobility
Tax Payroll
Treasury Joe the Employee
Stock Admin
Broker Tax Authorities
Transfer AgentTransaction Nightmare or Organized Chaos?
Upfront Preparation• Understand types of awards outstanding in each country and tax timing and
taxable value for each
• Understand employer withholding and reporting obligations in each country• Qualified Plans
• Withholding: Methods - Payroll Cash, Sell-to-Cover, Share Withholding & Tax Rate Precision
• Mobile Employees: Movement History, Tax Equalization, Tax Status in Jurisdictions
• Impact of Cost Recharges where in effect
• Define the data requirements and configure systems
• Develop process documentation and educate global management as well as local HR, Payroll, Tax, Legal and Treasury personnel
• Award review and employee demographic data updates
• Employee communications
Transaction Nightmare or Organized Chaos?
Share Transaction Flowchart ParametersSingle “captive” broker and In-House Stock Admin
Globally non-qualifying stock compensation for employees
• Current payroll reporting and tax withholding
• Annual income reporting (W-2 and equivalents)
Not a mobile employee (single jurisdiction employment during sourcing period)
Financial Accounting & Legal data flows not considered
CC’s on data flows not reflected
Company Stock Compensation Portal not reflected
Transaction Nightmare or Organized Chaos?
Stock Option Exercise with Same-Day-Sale
Common Process Variations – Stock Options
• Step 2: Many brokers and systems support exact tax rates per employee or differentiated rates for groups of employees
• Step 3: Often the company will handle the request/issuance of shares• Steps 6 & 9: Some companies have the broker wire taxes withheld
directly to non-U.S. local payroll in local currency; Actual Remittance of Estimated Broker Tax Withholding Funds vs. Netting off / intercompany book entry accounting
• Step 7: Most brokers can pay proceeds in local currency or in US$• Step 8: Converting US $ transaction data into foreign currency
reportable amounts – Stock Admin vs. Local Payroll• Step 9: May use corporate exchange rate (as determined by company)
or remittance date rate; will incur currency gains or losses
Stock Option Exercise with Same-Day-Sale
Controls – Stock Options• Track and Tie-out Cash (Exercise Price and Tax Withholding) received
from Broker
• Compare Shares sent to Broker by Transfer Agent to Shares Exercised (maintain Control Log)
• Regularly Audit Income and Estimated Withholding Processed by Local Payroll matches exercises in administrative system
• Separation of Duties – Finance vs. Legal vs. Stock Administration
Process Distinction• Option Exercise is Employee Initiated Transaction – unpredictable
timing, requires ongoing accuracy of exercisable option data at broker
Stock Option Exercise with Same-Day-SaleStock Option Exercise with Same-Day-Sale
RSU Sell–to-Cover Withholding
Variations - RSUs
• Step 5: Tax Rate Specificity – Highest vs. Indiv. Marginal & Cumulative Pay over/under Social Tax Caps
• Step 5 and Step 9: Process for Fractional Shares/Fractional Share Cash left from Broker Sell-to-Cover
• Step 7: Broker may Remit Taxes Directly to Local Payrolls in Local Currency
• Step 8: Converting US $ transaction data into foreign currency reportable amounts – Stock Admin vs. Local Payroll
• Step 9: May use corporate exchange rate (as determined by company) or remittance date rate; will incur currency gains or losses
RSU Sell–to-Cover Withholding
Additional Pre-Share Release Steps• Terminations – Need for Most Current Demographic Data to be
reported by HR or Local Payroll to Stock Administration• Brokerage Account Activation• Grantee Consent to Sell-to-Cover• Check that all Grantees have W-9 or W-8BEN on file with Broker
before Vest/Release Date
Transaction Process Controls• Track and Tie-out Gross and Net Shares and Tax Withholding $ per
Broker, and # of Awards, Employees• Compare Shares sent to Broker by Transfer Agent to RSUs
Vested/Shares Released (maintain Control Log) • Regularly Audit Income and Tax Withholding Processed by Local
Payroll Matches Transaction Data in Administrative System
RSU Sell–to-Cover Withholding
ESPP Purchase with Payroll Withholding
Common Process Variations - ESPP• Step 5: Funds may be kept with General Company Funds and may not
be held in a Separate Bank Account
• Step 7: Actual Remittance of ESPP Contributions vs. Netting off/intercompany book entry
• Step 8: Fractional Share Contribution Amount may be Refunded
• Step 11: Converting US $ transaction data into foreign currency reportable amounts and computing special taxable value – Stock Admin vs. Local Payroll
• Step 12: Shares could be Sold to Cover Tax Withholding as with RSUs (Actual Remittance vs. Netting book entry)
ESPP Purchase with Payroll Withholding
Additional Pre-Purchase Process Steps• Terminations and Withdrawals need to be reported by HR or Local
Payroll to Stock Administration• Refunds of Current Offering Period Deductions by Local Payroll• Refunds of Prior Offering Period Contributions Coordinated between
Stock Administration and Local Payroll (Currency Exchange Rate issues)
Controls• Compare Shares sent to Broker by Transfer Agent to Shares Purchased
(Control Log)• Audit Income Reported by Local Payroll Matches Discount on Share
Purchase (unless taxable value exception applies)• Occasionally Audit that Local Payrolls are taking the appropriate
Contribution Amounts (Rates and Eligible Compensation)
ESPP Purchase with Payroll Withholding
Recharge of Share-based Compensation: A recharge agreement is a formal legal agreement between the US parent and foreign subsidiary. Under the arrangement, the foreign subsidiary agrees to reimburse the US parent for the “cost” of providing equity compensation to employees of the subsidiary.
• Tax free repatriation of cash back to the US ($75 in following flowchart)
• The recharge may secure a local corporate tax deduction (of $75 in following flowchart), create a Deferred Tax Asset, which lowers net GAAP award expense, and decrease the effective corporate tax rates around the world
• In most cases, the recharge is not treated as a payment of a dividend
• In some countries the recharge of costs can change the tax character of the benefit to the employee and subsidiary employer reporting and withholding obligations for stock-based compensation, but does not generally impact compensation design considerations
Recharge of Costs
U.S. Parent
Local Subsidiary
Employeepays strike price
of $25 to U.S. ParentU.S. Parentdelivers $100 of stock to employee
Local Sub reimburses U.S.
Parent for “spread” of $75 pursuant to Reimbursement
Agreement
Employee provides services to Local Sub
Rec
harg
e A
gmt
Recharge of Costs – Direct Charge
U.S. Parent
Local Subsidiary
Employeepays strike price
of $25 to U.S. Parent
U.S. Parentdelivers $100 of
stock to employee
Local Sub reimburses Holding
Company which reimburses U.S.
Parent for “spread” of $75 pursuant to Reimbursement
Agreements
Employee provides services to Local Sub
Rec
harg
e A
gmt
Holding Company
Rec
harg
e A
gmt
Recharge of Costs – Indirect Charge
U.S. Parent
Local Subsidiary
Employeepays strike price
of $25 to U.S. Parent
U.S. Parentdelivers $100 of
stock to employee
Holding Company reimburses U.S.
Parent for “spread” of $75 pursuant to Reimbursement
Agreement
Employee provides services to Local Sub
Holding Company
Rec
harg
e A
gmt
Recharge of Costs – Holding Co. Charge
Recharges - Additional Tax, Reporting, Withholding ObligationsCountry Additional
TaxesReportingTriggered
WithholdingTriggered
Belgium Social taxes Report exercise spread for options accepted after 60 days
Social Tax
Brazil MaybeSocial taxes
Maybe Maybe
Czech Republic
Social taxes Yes Yes
Mexico MaybeSocial taxes
Maybe Maybe
South Korea Social taxes Yes YesThailand No Yes Yes
Recharge of Costs Payroll Implications
Internal Process Documentation – Employee Transactions
Recommendations for Internal Process Documentation
• Create Flowcharts for your specific process
• Show timing requirement for each step (T–1, T, T+3, etc.)
• Support with “Step Process List” to provide details of requirements and actions and timing, including:
• One Step Process Document per country• Pre-transaction preparatory steps, such as updating demographic data
and activation of brokerage accounts• Responsible local country contact names (principle and secondary)• Money transfer details and G/L Account #s
• Distribute, educate, keep centrally accessible, adhere to the steps
Internal Process Documentation - Recharges
Recommendations for Recharge Process Documentation • Global Recharge Matrix should include, for each country:
• Whether Recharge to be made• Is Written Agreement in Place, Names of Entities, Expiration Date• Treasury Shares or Newly Issued Shares required• Rechargeable Amount (FMV per plan, T-share cost, lower of, other)• Impact to Employer Reporting Obligations• Impact to Employer Withholding Obligations• Impact to Social Tax Liability
• Schedule for Settlement of Recharged Amounts
• Quarterly Reconciliation of Recharged Amounts
• Distribute, Educate, keep centrally accessible, adhere to the steps
Internal Process Documentation - Recharges
Other Internal Process Documentation Needs
• Non-Employee Directors (W-9 and W-8BEN collection, Potential Tax Withholding, Income Reporting)
• Mobile Employees (Identification, Movement Data, Tax Positions, Transaction Process Intervention, Tax Equalization Cost Accruals)
• Grant Approval Process (General Design and Variations, Board/Committee Resolutions and Minutes, Grant Documents, Employee Notification, Grant Acceptance)
• Dividend & Dividend Equivalent Processes
• Employee Communication Timeline, including Internal Review Steps
This presentation contains general information only and the respective speakers and their firms are not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. The respective speakers and their firms shall not be responsible for any loss sustained by any person who relies on this presentation.
Transactional Nightmare or OrganizedChaos?: Tracking Funds and Data
Transactional Nightmare or Organized Chaos? Tracking Funds and Data
Scott Barrall Suzie Bentley Trish Boepple Deloitte Tax LLP NVIDIA Corporation Global Shares
[email protected] [email protected] [email protected]
(408) 704 – 1071 (408) 566 – 6591 (408) 219 – 4150