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Traveling with Equity Geoffrey Hammel, PricewaterhouseCoopers Eileen Lacamera, Pfizer Inc. Craig Long, Bank of America Mer...
Agenda/Contents <ul><ul><li>Challenges of Global Equity </li></ul></ul><ul><ul><li>Inconsistent Tax Rules Between Countrie...
Mobile Employees – Who are they? <ul><ul><li>Expatriates </li></ul></ul><ul><ul><li>International Transferees </li></ul></...
Does your company track the movements of expatriates/cross-border employees from the time of grant of an award through set...
If your company tracks the movements of expatriates/cross-border employees from the time of grant of an award through sett...
If your company does not track the movements of expatriates/cross border employees, why not?
Does your company source equity income in relation to awards provided to expatriates or cross-border employees?
Does your company consider trailing liabilities once an expatriate/cross-border employees leaves a particular country?
Inconsistent Tax Rules between Countries   <ul><ul><li>Timing of tax event varies (grant, exercise, exit or sale) </li></u...
U.S. Withholding Rules <ul><li>Withholding is due at exercise, payroll taxes must be remitted in accordance with the compa...
Foreign Withholding Rules <ul><ul><li>Most countries require some form of “real time” wage withholding  </li></ul></ul><ul...
Trailing Liabilities Issues  <ul><ul><li>Identifying affected individuals (expatriates, short-term assignees/permanent tra...
International Plan Administration <ul><ul><li>Tracking </li></ul></ul><ul><ul><li>Coordination with providers </li></ul></...
International Plan Administration – Timing is everything <ul><ul><li>Process with broker/admin provider </li></ul></ul><ul...
Tax Withholding and Accounting  <ul><ul><li>Participant pays cash: Compensation/wage withholding determined at source, emp...
Tax Withholding and Accounting  <ul><li>Compensation/wage withholding determined at source, employer provides information ...
Net Share Withholding <ul><ul><li>Employee receives the number of shares less the shares retained to satisfy the withholdi...
Net Share Withholding Considerations  <ul><ul><li>Liability Accounting under FAS 123R </li></ul></ul><ul><ul><li>Liability...
Sourcing – Recharge agreements & DTAs   <ul><ul><li>Income allocation between countries </li></ul></ul><ul><ul><li>Impact ...
Slide  NASPP Conference 2007 Global Equity Incentives Survey Results
Slide  NASPP Conference 2007 Global Equity Incentives Survey Results
Employee Communications  <ul><ul><ul><li>HR, Equity, Tax work together to educate employees going on assignment </li></ul>...
Lessons Learned <ul><ul><ul><li>Tracking mobile employees needs to be “sponsored” by a global executive </li></ul></ul></u...
Lessons Learned <ul><ul><ul><li>Establish a working team with major stakeholders managers (Stock Team, HR, Tax, Global Pay...
Lessons Learned <ul><ul><li>While there are tools and tricks that help, presently it will remain partly manual until featu...
Bank of America Merrill Lynch Disclaimers <ul><li>Bank of America Merrill Lynch and its representatives do not provide tax...
Questions? All charts and graphics on pages 4 – 21 are reproduced from the 2009 PricewaterhouseCoopers LLP Global Equity I...
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TRAVELING WITH EQUITY - NY NASPP Chapter Meeting - 12/11/2009

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Equity Compensation issues, concerns, solutions associated with Global Mobility, as well as State to State Mobility.

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  • Date
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  • Date Here each company can identify the number of employees falling in each category and please be prepared to discuss how you track employees
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  • Date Sun calls frequent travelers the business travelers. Cisco went live with a new administrator system in November 2008, HR datafeed identifies transfers, soon they will also track historical movement of employees (once IT is done helping with load from HR) SUN – has a department tracking assignees, and 1/3 party advisor tracks the mobile employees, for international transferee, they look at the user field of grant country and compare to country of employment. This is easier for RSUs than stock options (but 95% of all options are underwater) START TRACKING PROCESS EARLY Cisco - tracks location at grant, at vest and at exercise, so Int’l Assignees information is fed to vendor who determines what to withhold. Sun location at grant, vest &amp; option exercise. - Vesting/option exercise information forwarded to vendor for income sourcing and tax withholding calculations - Tax Withholding – reported and processed by Local Country Payroll based on information provided Julie to discuss process at Amgen
  • Date Please each of you add a few bullets to describe the players in your plan administration – broker, process of vesting or exercise transaction, communication of gains to payroll, tax withholding methodology that you have decided to use How quickly you determine tax liability, whether you estimate first to determine each employee’s tax withholding rate upon vesting, etc… RSUs – 5 days pull data, sent to vendor, Sun – RSUs: UK, Scotland: net share withholding Stock options – when broker notifies that IT has exercised and gather all information – process daily feed. A few days later, get the backup data for mobile employees, data is then fed to broker for withholding purposes (can be x$, or tax percentage is provided for each country). Tax is collected by payroll. OR on hold – do a manual exercise, can’t exercise on line. The manual exercise is reported to Sun who gathers all data and send to their vendor to source the income Cisco – Options: If same day sale, tax w/h from net proceeds, otherwise, employee must pay extra to exercise in cash - RSUs: net share issuance in all countries using actual rate for each employee (reaching out 7 days prior vesting to estimate tax rate with added gain)
  • Date Here I can ask each of you how you are operating the tax withholding
  • Date Here I can ask each of you how you are operating the tax withholding
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  • Transcript of "TRAVELING WITH EQUITY - NY NASPP Chapter Meeting - 12/11/2009"

    1. 1. Traveling with Equity Geoffrey Hammel, PricewaterhouseCoopers Eileen Lacamera, Pfizer Inc. Craig Long, Bank of America Merrill Lynch
    2. 2. Agenda/Contents <ul><ul><li>Challenges of Global Equity </li></ul></ul><ul><ul><li>Inconsistent Tax Rules Between Countries </li></ul></ul><ul><ul><li>Administrative process </li></ul></ul><ul><ul><li>Tax Withholding methodologies </li></ul></ul><ul><ul><li>Employee Communications </li></ul></ul><ul><ul><li>Lessons Learned </li></ul></ul>
    3. 3. Mobile Employees – Who are they? <ul><ul><li>Expatriates </li></ul></ul><ul><ul><li>International Transferees </li></ul></ul><ul><ul><li>Local Nationals </li></ul></ul><ul><ul><li>Business Travelers </li></ul></ul><ul><ul><li>Example of Trailing liability: </li></ul></ul><ul><ul><ul><li>John worked in the U.S., received RSUs, was relocated to the U.K. where he vested in the first tranche, then to Switzerland where he vested in the second tranche. Is the RSU value allocated to countries where he resided? </li></ul></ul></ul>Slide NASPP Conference
    4. 4. Does your company track the movements of expatriates/cross-border employees from the time of grant of an award through settlement date?
    5. 5. If your company tracks the movements of expatriates/cross-border employees from the time of grant of an award through settlement date, how do you do so?
    6. 6. If your company does not track the movements of expatriates/cross border employees, why not?
    7. 7. Does your company source equity income in relation to awards provided to expatriates or cross-border employees?
    8. 8. Does your company consider trailing liabilities once an expatriate/cross-border employees leaves a particular country?
    9. 9. Inconsistent Tax Rules between Countries <ul><ul><li>Timing of tax event varies (grant, exercise, exit or sale) </li></ul></ul><ul><ul><li>Amount subject to tax varies - Italy : average price over the prior month - China/Taiwan : closing price on date of transaction </li></ul></ul><ul><ul><li>Sourcing rules vary (location at grant/vesting, grant to vest, grant to exercise, treaty sourcing rules) </li></ul></ul><ul><ul><li>Withholding rules vary from income tax rules </li></ul></ul><ul><ul><li>Sourcing of Social tax rules often different than income taxes. </li></ul></ul><ul><ul><li>Reporting – when and how much </li></ul></ul><ul><ul><li>Many countries tax a portion of the award even if employee is no longer present at taxable event (trailing liabilities) </li></ul></ul><ul><ul><li>Qualified or tax favored plans </li></ul></ul><ul><ul><li>Chargebacks </li></ul></ul>Slide NASPP Conference
    10. 10. U.S. Withholding Rules <ul><li>Withholding is due at exercise, payroll taxes must be remitted in accordance with the company’s normal remittance timeframe. </li></ul><ul><ul><ul><li>Federal Income Tax Supplemental federal withholding rate: 25% if less than $1,000,000; 35% on any excess </li></ul></ul></ul><ul><ul><ul><li>State Income Tax - State specific withholding requirements and supplemental withholding rate - Not all states follow federal sourcing rules </li></ul></ul></ul><ul><ul><ul><li>Social Security OASDI 6.2% on annual wages up to $106,800; Medicare 1.45% on all income. Consider state SDI </li></ul></ul></ul>Slide NASPP Conference
    11. 11. Foreign Withholding Rules <ul><ul><li>Most countries require some form of “real time” wage withholding </li></ul></ul><ul><ul><li>Most countries require withholding at individual rates depending on: </li></ul></ul><ul><ul><ul><li>- Employee’s marginal tax bracket </li></ul></ul></ul><ul><ul><ul><li>- Various deductions / exemptions / martial status, etc. </li></ul></ul></ul><ul><ul><ul><li>- Social tax wage caps often applied on a monthly basis </li></ul></ul></ul><ul><ul><li>Consequently, withholding rates vary by individual and may vary during the course of the year </li></ul></ul><ul><ul><li>Determination of “minimum statutory withholding” is a challenging </li></ul></ul><ul><ul><li>Some countries do not require personal income tax withholding (e.g. Australia, France, Hong Kong); may still require reporting and impose social taxes </li></ul></ul>Slide NASPP Conference
    12. 12. Trailing Liabilities Issues <ul><ul><li>Identifying affected individuals (expatriates, short-term assignees/permanent transfers, international transferees, business travelers) </li></ul></ul><ul><ul><li>Prior work/home location </li></ul></ul><ul><ul><li>Applying income tax withholding correctly to allocated awards </li></ul></ul><ul><ul><li>Remittance of taxes when employee is no longer on payroll and taxes due with non-resident tax return filing </li></ul></ul><ul><ul><li>Tax equalization </li></ul></ul><ul><ul><li>Employee communication </li></ul></ul>Slide NASPP Conference
    13. 13. International Plan Administration <ul><ul><li>Tracking </li></ul></ul><ul><ul><li>Coordination with providers </li></ul></ul><ul><ul><li>Tax Withholding </li></ul></ul><ul><ul><li> </li></ul></ul>Slide NASPP Conference
    14. 14. International Plan Administration – Timing is everything <ul><ul><li>Process with broker/admin provider </li></ul></ul><ul><ul><ul><li>RSUs </li></ul></ul></ul><ul><ul><ul><li>Stock options </li></ul></ul></ul><ul><ul><li>Communication with Payroll </li></ul></ul><ul><ul><li>Communication with HR </li></ul></ul><ul><ul><li>Communication with Employees </li></ul></ul>Slide NASPP Conference
    15. 15. Tax Withholding and Accounting <ul><ul><li>Participant pays cash: Compensation/wage withholding determined at source, employee tenders cash for liability </li></ul></ul><ul><ul><ul><li>Requires pre-education, communication, employee readiness </li></ul></ul></ul><ul><ul><li>Compensation/wage withholding determined at source, parent withholds shares using tax estimate and releases net shares </li></ul></ul><ul><ul><ul><li>Local true-up generally required </li></ul></ul></ul><ul><ul><ul><li>Potential conflict with accounting requirements for US Co’s </li></ul></ul></ul>Slide NASPP Conference
    16. 16. Tax Withholding and Accounting <ul><li>Compensation/wage withholding determined at source, employer provides information to local payroll, local payroll provides withholding amount to parent and associated shares are withheld </li></ul><ul><ul><ul><li>Precise withholding but delay in share release </li></ul></ul></ul><ul><li>Compensation/wage withholding estimated in advance by local payroll using estimated compensation amount </li></ul><ul><ul><ul><li>Parent withholds shares using estimated withholding, minimal local true up needed </li></ul></ul></ul><ul><ul><ul><li>Shares can be released immediately </li></ul></ul></ul>Slide NASPP Conference
    17. 17. Net Share Withholding <ul><ul><li>Employee receives the number of shares less the shares retained to satisfy the withholding taxes. </li></ul></ul><ul><ul><li>The employer pays, with company funds, the amount of tax equal to the FMV of the number of shares not delivered to satisfy withholding taxes via the local country payroll. </li></ul></ul><ul><ul><li>Actual shares retained by the employer are not issued (and do not become part of treasury stock). </li></ul></ul><ul><ul><li>Rounding? </li></ul></ul><ul><ul><li>IFRS implications </li></ul></ul>Slide NASPP Conference
    18. 18. Net Share Withholding Considerations <ul><ul><li>Liability Accounting under FAS 123R </li></ul></ul><ul><ul><li>Liability Accounting also applies to hypothetical tax </li></ul></ul><ul><ul><li>Implications to qualified plan treatment </li></ul></ul><ul><ul><li>Share withholding will result in a cash drain on the company. For foreign operations, will this be funded locally or through contribution to capital by parent? </li></ul></ul><ul><ul><li>When the company withholds in shares, the employee cannot elect a higher withholding amount </li></ul></ul>Slide NASPP Conference
    19. 19. Sourcing – Recharge agreements & DTAs <ul><ul><li>Income allocation between countries </li></ul></ul><ul><ul><li>Impact of amounts recharged? </li></ul></ul><ul><ul><li>Impact on DTA’s </li></ul></ul>Slide NASPP Conference
    20. 20. Slide NASPP Conference 2007 Global Equity Incentives Survey Results
    21. 21. Slide NASPP Conference 2007 Global Equity Incentives Survey Results
    22. 22. Employee Communications <ul><ul><ul><li>HR, Equity, Tax work together to educate employees going on assignment </li></ul></ul></ul><ul><ul><ul><li>Mobility Team educates employees on impact of assignments on stock grants as part of overall mobile employee education </li></ul></ul></ul><ul><ul><ul><li>Hire consultant to advise of procedure and in-country regulation </li></ul></ul></ul><ul><ul><ul><li>Tax advisor engaged by company provides support/assistance to employees while on assignment </li></ul></ul></ul>Slide NASPP Conference
    23. 23. Lessons Learned <ul><ul><ul><li>Tracking mobile employees needs to be “sponsored” by a global executive </li></ul></ul></ul><ul><ul><ul><li>Administration can never be fully automated (in this lifetime) </li></ul></ul></ul><ul><ul><ul><li>One process does not fit all </li></ul></ul></ul><ul><ul><ul><li>Functional limitations of Host and Home Country Payroll Systems may require exception/manual processing for mobile employees </li></ul></ul></ul><ul><ul><ul><ul><li>*Primary hurdle in implementing a global process </li></ul></ul></ul></ul><ul><ul><ul><li>Under a distributive payroll organization, Global Payroll Executive must take active roll in driving processes through his/her organization </li></ul></ul></ul><ul><ul><ul><li>Enlist support from Internal Audit Department to ensure compliance by making tax compliance review as part of the regular country audit program </li></ul></ul></ul><ul><ul><ul><ul><li>*Start with a pilot program as proof of concept </li></ul></ul></ul></ul>Slide NASPP Conference
    24. 24. Lessons Learned <ul><ul><ul><li>Establish a working team with major stakeholders managers (Stock Team, HR, Tax, Global Payroll) to ensure operation compliance </li></ul></ul></ul><ul><ul><ul><ul><li>*Forum to discuss issues and share new information </li></ul></ul></ul></ul><ul><ul><ul><li>100% compliance with all global tax regulations/obligations by a Plan Sponsor is often difficult to obtain </li></ul></ul></ul><ul><ul><ul><li>Considerations </li></ul></ul></ul><ul><ul><ul><ul><li>*Prioritize based on countries with the highest financial and business risk </li></ul></ul></ul></ul><ul><ul><ul><ul><li>*Establish a Global Compliance team (Legal/HR/Stock team) to establish priorities </li></ul></ul></ul></ul><ul><ul><ul><li>It is better to at least start tracking than to keep ignoring. </li></ul></ul></ul><ul><ul><ul><li>Start somewhere… </li></ul></ul></ul>Slide NASPP Conference
    25. 25. Lessons Learned <ul><ul><li>While there are tools and tricks that help, presently it will remain partly manual until features are added to the software and countries become more consistent with taxation practices </li></ul></ul><ul><ul><li>Check for updates frequently (rates, laws, addresses!) </li></ul></ul>Slide NASPP Conference
    26. 26. Bank of America Merrill Lynch Disclaimers <ul><li>Bank of America Merrill Lynch and its representatives do not provide tax, accounting or legal advice.  Any tax statements contained herein were not intended or written to be used, and cannot be used for the purpose of avoiding U.S. federal, state or local tax penalties.  Please consult your own independent advisor as to any tax, accounting or legal statements made herein. </li></ul><ul><li>Bank of America Merrill Lynch is not affiliated with PricewaterhouseCoopers LLP or Pfizer Inc. </li></ul><ul><ul><li>Bank of America Merrill Lynch is a marketing name for the Retirement & Philanthropic Services businesses of Bank of America Corporation.  Banking and fiduciary activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC.  Brokerage services are performed globally by brokerage affiliates of Bank of America Corporation, including Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPFS). MLPFS is a registered broker-dealer, Member SIPC, and a wholly owned subsidiary of Bank of America Corporation. </li></ul></ul><ul><ul><li>Investment products: </li></ul></ul><ul><ul><li>Bank of America Merrill Lynch makes available investment products sponsored, managed, distributed or provided by companies that are affiliates of Bank of America Corporation or in which Bank of America Corporation has a substantial economic interest, including Columbia Management, BlackRock, and Nuveen Investments. </li></ul></ul>The following disclaimers are applicable to pages 22 through 25 only.  May Lose Value Are Not Bank Guaranteed Are Not FDIC Insured
    27. 27. Questions? All charts and graphics on pages 4 – 21 are reproduced from the 2009 PricewaterhouseCoopers LLP Global Equity Incentive Survey. This presentation and underlying documents should not be relied upon as constituting tax advice to attendees and the materials were not intended or written to be used, and they cannot be used, for the purpose of avoiding U.S. federal state or local tax penalties. © 2009 PricewaterhouseCoopers LLP. All rights reserved. &quot;PricewaterhouseCoopers&quot; refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, other member firms of PricewaterhouseCoopers International Ltd., each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP. 
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