Global Stock Plans: Good News For Equity Awards In China, Denmark, And Sweden

Here at myStockOptions.com, we keep a healthy world view. In addition to being fun and informative, this is also necessary at a practical level for the upkeep of our Global Tax Guide, which covers the tax treatment of equity awards in almost 40 countries.

Lately we have seen some good news and interesting developments for stock grants outside the United States. Specifically, favorable tax treatment for equity awards is being either extended or proposed in China, Denmark, and Sweden. In addition, there is an intriguing proposal for a new type of stock option right here in the United States.

China: Preferential Tax Treatment For Certain Unlisted High-Tech Companies

Deloitte has issued an update memo about equity compensation in China. The tax treatment of grants made by listed companies in China will now also be extended to grants made by certain unlisted high-tech companies. (The memo calls these companies "high-new technology companies," though we think the intended sense is "new high-technology companies.") The new guidance, issued in Circular 116, permits preferential individual income tax treatment for employees at qualified "high-technology enterprises."

Denmark: Taxation Of Equity Awards Becomes More Favorable

On July 1, 2016, the tax treatment of qualified equity awards in Denmark will revert to the tax rules that applied before November 2011, when the tax laws changed. Currently, income from equity awards is taxed as employment income when the recipient acquires the underlying shares. The new tax treatment will shift taxation to the time when the shares are sold. It will also tax the income as capital gain rather than employment income, meaning a lower tax rate for many employees (27% or 42% on capital gains instead of income tax rates, which can be as high as 56%). Among other requirements, to qualify for the new tax treatment the equity award must not be transferable, and its value must not exceed 10% of the employee's annual salary at the time of grant. PricewaterhouseCoopers notes that companies will have special reporting requirements, such as those involving purchase prices and shares, that must be made to Skatteministeriet, the Danish tax authority (see PwC's Recent Legislative Updates, May 2016).

Sweden: Government Explores New Type Of Tax-Qualified Stock Option For Startups

A committee set up by the Swedish government has recommended changes in the taxation of restricted stock and stock options, as explained in an update memo from Deloitte. Under the proposal for restricted stock, a grant with a sale restriction of two years or less would be taxed on the value at grant, not at vesting. Restricted stock grants with a sale restriction of more than two years, or with any type of forfeiture risk (even less than two years), would continue to be taxed on the value at vesting. The committee also recommended the introduction of a special tax-qualified stock option for small startup companies in which no tax would apply to the income at exercise. Instead, the optionholder would pay just capital gains tax upon the sale of the shares, at a rate of 25% or 30% instead of the employment income rate, which can be as high as 55%. This tax-qualified stock option would be available only to companies that employ no more than 50 people, bring in net annual sales of SEK 80 million or less, and have been in business for no more than seven years. Large tech companies in Sweden are urging the government to provide similar tax treatment for their option grants, as reported by Bloomberg last month.

United States: New Type Of Stock Grant Proposed

Under a new president next year and perhaps a new majority party in the House or the Senate, new types of tax-preferred equity compensation may be considered (along with potential tax restrictions on the current types).

The Expanding Employee Ownership Act of 2016 (HR 4577) is currently being mulled by the House Ways and Means Committee. By the standards of tax legislation, the full text of the bill is brief (8 pages), though it is no easier to understand than the typical legislative tract. As we read it, the proposed bill would introduce a new type of stock option in which employer securities received as compensation for services would be excluded from the employee's gross income if the stock were held for at least ten years. If the shares were held for more than five years but less than ten years, it appears that the the value of the shares received would still not be taxed but that the capital gains would be. The bill's co-sponsors are Rep. Dana Rohrabacher (R–CA) and Rep. Collin Peterson (D–MN). Rep. Rohrabacher, who was a speechwriter for Ronald Reagan during the 1980s, wrote in The Washington Times on May 26 that his motives for proposed this new type of stock option include its potential as a "way for employers to get more stock into the hands of employees and ensure they hold their shares."

Trends (And Gaps) In Employee Stock Plan Communications Revealed By Survey Of Multinational Companies

If you're as much into stock plan education as we are, you're probably also really into survey data. That makes today a good day for both of us at this blog.

We have been perusing the 2015 Global Equity Incentives Survey by PricewaterhouseCoopers and the NASPP. The survey presents questionnaire data from 245 multinational companies with employees in 75 countries. The researchers found that the use of equity awards by the surveyed companies generally continued to grow in 2014 and 2015, after falling in 2009–2011 and rebounding in 2012. With this growth in the use of equity has come an expansion in stock plan education and communications. While most of the surveyed companies (73%) communicate with plan participants at the time of grant, a widespread traditional practice, 47% of the companies now also communicate with participants again at the time of vesting, exercise, or payout. This figure rose from 37% in 2012. Some companies report that they communicate with participants at other times as well (or instead).

According to the researchers, the increasing frequency of interaction with plan participants "demonstrates how more companies realize the need to communicate to employees on their equity awards on a more consistent basis throughout the life of the equity award." This is a message that we at myStockOptions.com have been preaching since we started our website 15 years ago.

The survey found the following about the timing or availability of stock plan communications among the surveyed multinationals.

Stock plan communication	Percentage of companies
At every grant date	73%
Information always available on a website	69%
At vesting/payout/exercise	47%
Annually with a total rewards package	41%
Upon board approval of the grant	28%
At the time of the first grant	25%
When tax rules or regulatory requirements change in the employees' country	16%
When equity awards are modified	11%
When required by the exchange listing the stock	9%
Periodically between grants	7%

The methods by which multinational companies explain stock compensation to employees outside the United States are similarly diversifying. Although some companies still cling to printed materials, most are now using online forms of communication. Alongside the prevalence of electronically delivered information, some companies arrange in-person one-on-one meetings or group presentations, and some make help available by telephone. The survey revealed the following about the ways in which companies educate non-US employees about their stock compensation.

Techniques used for global stock plan education	Percentage of companies
Letter from senior management	48%
Printed materials	44%
Individual meeting between employee and supervisor	33%
Presentation from a service provider	31%
Help line connecting to a person at the company	30%
HR meeting at the local office	28%
Corporate video	16%
Corporate webcast	16%

Nevertheless, despite all of this communication, 66% of the companies reported that among stock plan participants "there is not a strong understanding of plan benefits." The survey researchers theorize that the decreasing tendency to translate stock plan documents into local languages may be contributing to the knowledge gap. However, as they point out, English continues to grow as the common language of international employment, so language barriers cannot account for all of the shortcomings of stock plan communication. Indeed, it remains true that, no matter how often communication occurs, stock plan education can always be better.

We at myStockOptions.com spend much of our working lives in making complex stock plan concepts clearly understandable and relatable. Visit the "About Us" section of the website to find out more about what we do for companies seeking to improve their stock plan education and communications. If you will be at the upcoming NASPP conference in San Diego, you can also visit our booth to speak with us about our corporate services.

Restricted Stock Units In France: Tax Treatment Improved For New Grants

If making taxation complicated were an Olympic sport, France would be a contender. However, complexity is not necessarily bad: the latest statutory twist in the taxation of French qualified restricted stock units (RSUs) eases the tax rules for employees who receive new RSU grants under plans approved after August 7, 2015.

La Loi Macron

Qualified RSUs in France are made under plans that meet certain statutory requirements. Revised tax rules for qualified RSUs were included in the so-called Macron Law (loi Macron), a broad package of tax changes developed in 2014 by the French economy minister (Emmanuel Macron) and passed by the French legislature in August of this year. The new rules apply only to grants of qualified RSUs approved by shareholders after August 7, 2015. Different tax rules apply to earlier grants.

For grants of qualified RSUs approved by shareholders after August 7, 2015, the Macron Law reduces the required minimum vesting and share-holding periods from the aggregate of four years mandated by the prior tax regime to just one year of vesting and one year of holding the shares. Moreover, if the vesting period is two years or longer, the holding period is waived, letting employees sell shares immediately upon delivery at vesting. While the income recognized at vesting continues to be taxed at progressive rates, the amount of tax can be reduced by 50% if the shares are held for between two years and eight years or by 65% if the shares are held for longer than eight years.

The Macron Law also changes the employee social taxes incurred at sale on RSU income received at vesting. For grants after August 7, 2015, just one social tax of 15.5% applies instead of the two separate social taxes mandated under the prior tax regime (8% social tax plus 10% employee social contribution). The Macron changes are beneficial to companies as well: the social tax paid by employers drops from 30% at grant to 20% at share delivery.

Additional Reading

For further information about the changes in the taxation of French qualified RSUs, see commentaries from Deloitte and Baker & McKenzie.

To learn the details about the taxes on all types of equity compensation in France, including the tax treatment that applies to qualified RSUs granted before the effective date of the Macron Law, see the Global Tax Guide at myStockOptions.com. Covering almost 40 countries, our Global Tax Guide is regularly reviewed and updated as needed. In addition to revisions for the tax changes in France, other recent revisions include updates for major tax developments in Australia, Spain, and the United Kingdom.