Assumptions

Our database is based on the following assumptions:


1     Which shares are covered?

The shares used in a share plan are:

  • fully paid ordinary shares in the company, including Depository Shares where these are listed on a recognised exchange;
  • new issue shares, treasury shares or existing shares either purchased in the market or transferred out of an employee trust.

If the shares are in a private company (not listed on any market), a closely held company or listed on other exchanges, it can impact on the securities law position and the tax treatment.

If your plan uses other securities in the business, for example Contingent Capital (Co-Cos) or 'Bail-in Bonds' these are not covered but talk to us and we can show you how best to deal with your global compliance.

2     Who makes the offer, grant or award?

The offer, grant or award is being made by:

  • the parent company; or
  • by another group company (but not the local employing company).

This does not include offers, grants or awards by a trustee or other third party such as a bank. This can impact on the securities law position.

3     Who participates?

The offer, grant or award is only made to ‘Eligible Employees’. These are employees in the parent company and any subsidiary (over 50% owned by the parent). If employees are in a complex group structure with different levels of ownership, please discuss this with us.

This database will not be suitable for use if your participants are not employees, including:

  • workers;
  • consultants;
  • franchisees or employees of franchised businesses;
  • non-executive or independent directors (that is, they do not have an employment relationship with the company);
  • employees of joint ventures which are 50:50 owned - ‘dead-lock’;
  • employed by a partnership (including limited liability partnerships).

If you would like to make offers, grants or awards to any of these types of workers, please contact us. We can discuss how best to approach legal and tax global compliance.

For the purposes of the securities laws and exchange control data, employees are assumed to be ordinarily resident in the relevant country. Please note that securities laws can also apply to employees who are temporarily in a country at the time of offer, grant or award.

For the purposes of the tax data, the employees are assumed to be local tax resident and domiciled in the relevant country. This database is not suitable for mobile workers.

4     Which plans are covered?

Our database covers the most popular plans. Before you first use our database, please do let us see your plans and we will confirm that your plans are covered by the database. If you change your plans over time, you may introduce features which may not be covered by the database so please do contact us, we will be very happy to review and confirm.

The plans covered by our database are:

4.1   Option Plan

  • An option is granted to acquire shares of the parent company.
  • The exercise price may be at market value or at a discount to market value.
  • The option is non-transferable except in the case of death, when it can be exercised by the legal representatives of the deceased's estate.
  • The option can be exercised after a set period.
  • The options may be exercised early in specified limited circumstances like redundancy, ill-health and death.
  • The exercise of the option may depend on the fulfilment of a performance condition set at the date of grant. In some cases, the performance condition may be waived in circumstances which give rise to early exercise. The exercise may be conditional on saving for a period.
  • No dividends, or “dividend equivalents” are paid under the option.

4.2   Nil-Cost Option Plan

  • An option is granted to acquire shares of the parent company.
  • The exercise price is zero (or a nominal amount like £1 or $1 to exercise the whole option).
  • The option is non-transferable except in the case of death, when it can be exercised by the legal representatives of the deceased’s estate.
  • The option can be exercised after a set period. If it is not exercised by the date before it is due to lapse it can be exercised automatically on behalf of the participant.
  • The option can be exercised early in specified limited circumstances like redundancy, ill-health and death.
  • The exercise of the option may depend on the fulfilment of a performance condition set at the date of grant. In some cases, the performance condition may be waived in circumstances which give rise to early exercise.

4.3   Free Shares (or Conditional Free Shares) - Restricted Stock Unit Plan (RSUs)

  • Sometimes called a Performance Share Plan or Long Term Incentive Plans (LTIPs).
  • Employees are granted a conditional right to be given shares for free on vesting.
  • Before vesting, some or all of the shares subject to an award may be held by the Company or in a trust or new shares may be issued if and when the award vests.
  • Before vesting, the employee has no rights to dividends, to vote on the shares or to call for the shares.
  • On or shortly after vesting, the shares are issued or transferred to the participant.
  • Dividends are paid after the award vests.

4.4   Stock Settled SARs:

  • The RSU information, in combination with the option plan information, will give you a good indication of the relevant issues for most types of stock settled SARs.
  • These are where employees are granted an option over a "notional" number of shares at a "notional" option price - usually market value.
  • They are exercisable in the future. On exercise, no funds are required from the participant. Instead, the participant receives a number of shares equal to the difference between the notional option price and the market value at exercise (or a capped amount).
  • However, the tax issues should be specifically checked with local lawyers.

4.5   Restricted Shares/Restricted Stock

  • Shares are given to a participant at the start but are subject to restrictions on disposing of the shares (or an interest in the shares) for a period of time. The shares are not subject to a risk of forfeiture once they have been given to a participant.
  • The shares may be held by a third party during the restricted period, like a trustee.
  • The participant is entitled to the dividends.
  • The restrictions may be lifted in specified circumstances like redundancy, ill-health and death.

4.6    Share (Stock) Purchase Plan or Employee Share (Stock) Purchase Plan

  • Employees are offered the right to purchase shares.
  • The terms of the purchase are usually beneficial for the employees in that there may be, for example, a discount or a cheap dealing facility.
  • Prior to purchase the employee has no right to dividends or to vote on the shares. After purchase the employee becomes the unrestricted owner of the shares.

4.7    Share Matching (Co-Investment) Plan

  • The participant is invited to make a contribution by way of deduction from after tax salary or bonus.
  • The contribution is matched by the conditional award of shares. The additional shares will vest (and be released to the participant) after a period and sometimes if performance conditions are satisfied.
  • The shares may vest early in specified circumstances like redundancy, ill-health and death.

4.8    Deferred Bonus Plan

  • ​An award is made in the context of a discretionary annual bonus plan;
  • Before the award is made, the participant has no contractual right to an award and no rights as a shareholder;
  • Part of the bonus is deferred and is awarded as a conditional right to acquire shares in the future;
  • The deferral is mandatory, the participant has no choice;
  • The award is conditional on the participant remaining in employment until a vesting date.

4.9    Cash Plan

  • A cash plan can be structured in various ways. It can be a pure cash plan or it could relate to shares in various ways, for example, as a cash settled option plan (sometimes called a Stock Appreciation Right (SAR)) or a cash or phantom RSU.
  • The participant is not entitled to and will have no rights to or interest in shares.
  • The employee is only entitled to cash.

5       Savings arrangements

If there are any contributions from the participant it is assumed that the deductions are made from salary or bonus and remitted by the local employer to an authorised savings provider or to the parent company.

Our database does not cover the regulatory requirements of any third party recipient of the funds.

6       Financing facilities

We assume that any finance or brokerage facility provided to participants is provided by a licensed third party.

7       Local company contributions (Recharge) and deductions

  • Depending on whether you select Recharge or not, the data will show the consequences of the local employing company making a payment or not. This is high-level information. We can provide specific tax advice if required.
  • Transfer pricing issues are not covered. We can provide this on request.
  • Cash Plans (Recharge): in a cash plan, if the cash is delivered by the employing subsidiary through payroll to the participant and the parent is not involved in any hedging arrangement, there may not be any recharge. On the other hand, if the parent hedges the liability and delivers the cash either directly or indirectly to the participant, then there may be a recharge. There may also be a recharge in relation to administrative costs. The company should therefore carefully consider where the cash will come from and how it will be delivered on settlement.

8       Data privacy

We assume that:

  • if the plan is subject to the GDPR and UK GDPR, there is a valid basis for processing;
  • if the plan is outside the scope of the GDPR and the UK GDPR, that the plan rules contain a provision stating that the participant consents to allowing information about them to be transferred between group companies, plan administrators etc. and to be transferred out of the participant's home country, and there is a statement to this effect in a communication received by the participant if they do not receive the plan rules; and
  • any general data filing or registration required under local law has been done.

9       Withholding

If there is uncertainty in relation to whether or not withholding for tax or social security is required in a jurisdiction, the database adopts a cautious view and assumes that withholding is required. This position will protect the employer from any action by the local revenue in the event that the revenue determines that the employer should have withheld the tax. However, if in fact withholding was not required and the employer does withhold, this may adversely affect the employee. For example, the employee will suffer a cash flow disadvantage and may be adversely affected if the share price rises between the date of withholding and the time when tax may have been due by self-assessment.

10     Taxation of awards

The exact structure of an award is crucial to the way that award is taxed. For example, if beneficial ownership does not transfer to the participant until a vesting date sometime in the future, tax is usually deferred until that future date. On the other hand, if beneficial ownership transfers at the time of award, tax is often due at the start. However, this clear distinction between ownership passing at the start and at the end can become blurred by several factors, including a restriction on the ability to sell the shares and by clawback. If the shares are in some way restricted - in that they cannot be freely sold - then sometimes the tax is reduced or deferred to reflect that restriction. If the awards are subject to clawback then, depending on the terms of that clawback, this may be seen as a forfeiture provision which may reduce or defer the tax until the clawback period falls away. Companies have subtly different clawback terms and may impose subtly different restrictions on shares. It is important, therefore, that, if companies want detailed and specific tax advice for their plans, then local counsel needs to be instructed about the detail of how the specific plans work. The database can only give generalised tax advice.

When calculating an individual’s taxable income there are many detailed factors which may be relevant including:

  • What event triggers the tax? For example, is it vesting or settlement? This fixes the date the share price is used to calculate the tax due.
  • What is the method for establishing the share price on that date. For example, is it the closing price or the mid-market price or something else?
  • Are there any rules about how the foreign exchange rate is set? For example, do you have to use a particular central bank FX rate and do you have to use the same rate to calculate the gain made as is used when shares are sold to pay tax?

Most companies use a globally consistent method to calculate individual taxable amounts. In some countries there may be no particular rules and so companies should use a reasonable and consistent method. OnTap covers the first of these factors but does not cover the second and third factors for all countries.

11     Financial Services Companies

Many financial regulators have issued rules and/or guidelines which regulate remuneration in the financial services sector. These are additional rules and/or guidelines which generally do not apply in other sectors.

Some general principles of these regulations include: risk management; mandatory deferral; mandatory holding periods; mandatory payment in equity or other instruments; mandatory inclusion of 'malus' and 'clawback' provisions; and general good governance and oversight.

For example, the EU has issued a range of legislation which regulate remuneration, including:

  • The Capital Requirements Directives and Regulations;
  • The Undertakings for Collective Investment in Transferable Securities Directive (UCITS V);
  • The Alternative Investment Fund Managers Directive (AIFMD);
  • The Solvency Directives and Regulation;
  • The Investment Firms Directive and Regulation; and
  • The Markets in Financial Instruments Directive II and Regulations (MiFID II).

This is a complex area. OnTap does not cover these issues but Tapestry advises many firms on their compliance with financial services remuneration rules and guidelines, and can provide specific advice.

12     Disclaimer

The information we provide in the database is general commercial information only and is subject to the Terms and Conditions.