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January 2023
Tapestry
Alert: Worldwide Wrap-Up
Tap-in to our
global knowledge!
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Dear Client
Happy New Year and we hope that you
had a relaxing break over the Holidays.
Staying ahead of the curve on regulatory and tax compliance is a
never-ending task for companies. To help you keep on top of
recent developments, here is our first quarterly Worldwide Wrap-Up
of 2023, with some of the most recent changes that should be on your
radar. We have summarised these topics briefly in this alert,
however they will be covered in more detail along with other recent
developments on our 11
January webinar, which you can register for here.
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Australia - employee share scheme reforms
tweaked
We have covered the reforms to the Australian
share plan securities rules, which took effect on 1 October 2022,
in previous World Wide Wrap-Ups. Following a consultation with
industry stakeholders, the regulator, ASIC, issued a new
legislative instrument at the end of 2022 to address some technical
issues raised by advisers. These include:
- A broader exemption for secondary sales
of quoted financial products.
- More options for the financial
information that foreign companies can provide to ESS
participants.
- Clarification that financial products
offered outside Australia do not need to be included when
calculating the issue cap.
The
new ESS regime is intended to replace ASIC’s existing Class Order
relief for employee incentive schemes. Offers under the Class
Order relief can continue to be made until 1 March 2023, so long
as the offer can be accepted before 1 April 2024 (previously the
cut off dates were 31 December 2022 and 31 January 2024,
respectively).
Tapestry comment
Advisers continue to dig into the
details and companies are still considering how the new rules
apply to their current and future share plans. We would always
advise obtaining specific advice for share plan offers in
Australia, but this is particularly important while the new rules
settle in.
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Canada - trust reporting delayed - again
In
our World Wide Wrap-Up in May last year (here),
we reported that the much delayed implementation of additional
reporting for trusts in Canada was firmly back on the agenda and
due to come into force at the end of 2022. Under Bill C-32,
Fall Economic Statement Implementation Act 2022, which received
Royal Assent on 15 December 2022, the new trust reporting rules
will now apply to taxation years ending after 30 December 2023
(rather than after 30 December 2022). This means that,
for trusts with a calendar year-end, the new reporting rules will
apply one year later, beginning with the 2023 taxation year.
Tapestry comment
This is clearly a useful
breathing space given the additional detail to be reported
(including details of all trustees, beneficiaries and settlors of
the trust, as well as any person able to exert control over trust
decision making). The additional reporting will capture trusts
that will be reporting for the first time and it is crucial to
make use of this delay, either to ensure that that the trust will
be able to comply or to restructure the plan to remove the trust
arrangement.
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India - new foreign exchange rules
In August 2022, India introduced new foreign
investment rules, aiming to liberalise India’s regulatory
framework and replace the existing regulations facilitating
overseas investment by Indian residents. The new rules (the
OI Regime) are wide ranging and the impact on employee share
plans (ESOPs) is covered in detail in our alert (here).
Specific points to note are:
- Exemption: For an Indian resident to participate
in an ESOP, the individual must obtain Reserve Bank of India
(RBI) approval or come within an exemption. Under the OI
Regime, all ESOPs must come within the General Permission.
There are no other exemptions.
- Cashless ESOP: The previous exemption for a cashless
ESOP no longer applies.
- Liberalised
Remittance Scheme (LRS): Under the LRS, Indian residents are
permitted to send up to USD250,000 offshore each year
without seeking RBI consent. Any amounts invested in foreign
shares under an ESOP must come within an individual’s LRS
limit.
- ESOP reporting by
employer:
Employers are required to make semi-annual filings on Form
OPI within 60 days of each of 31 March and 30 September and
late filing fees apply. This filing replaces the
previous annual filing requirement.
- Repatriation of
funds: Strict
repatriation requirements for proceeds of sale and dividends
will not apply under the OI Regime so long as the funds are
reinvested under the terms of the General Permission within
180 days of receipt.
Tapestry comment
Foreign exchange rules in India
continue to be complex. To some extent, the OI Regime appears not
to have made significant changes to the operation of global
employee share plans in India, but there are important updates
that companies will need be aware of - in particular, the
new twice yearly reporting system (and the first report is
already due). Other changes are more subtle and companies
will need to review their share plans to ensure that they comply
with the revised General Permission.
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Russia - update on the impact of
counter-sanctions regime
The practicalities of offering shares to
Russian resident employees continue to be challenging. In
our webinar, we will address some of the common concerns that
companies have when considering whether and how to include
Russian employees in their global share plans. We will provide
our latest updates on the following questions:
- Can we grant awards to our Russian
resident employees?
- Are Russian employees able to receive
shares in foreign companies?
- Is it possible for a Russian employee to
send funds outside Russia to purchase shares in an ESPP?
- What is the position if a Russian
employee wants (or needs) to sell the shares?
- Can the employee receive income from the
shares?
- What other practical issues do we need to
consider?
Tapestry comment
Under the
circumstances, there are no simple or straight forward answers
and we continue to proceed with caution. However, there are
alternatives available for companies that still wish to include
Russian employees in their share plans. Whether those
alternatives will apply to a particular company and a specific
plan will need to be considered on a case-by-case basis.
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USA - SEC adopts rules on clawback
On 26 October 2022, the SEC adopted final rules on clawback, as
required by the Dodd-Frank Wall Street Reform Act 2010. Under the
new rules, US securities exchanges are required to adopt listing
standards that require all listed companies (including foreign
issuers) to implement a clawback policy, providing for the
recovery of erroneously awarded incentive-based compensation
received by current or former executive officers, based on
certain financial information in the event of an accounting
restatement. US securities exchanges have until 26 February 2023
to propose listing standards that implement the final rules and
the new listing standards must become effective by 28 November
2023.
Tapestry comment
To comply with
the SEC clawback rules, companies will need to review their
existing clawback policies or put in place new policies.
Companies should also review relevant employment contracts and
remuneration arrangements (including equity and other types of
incentive plans) to ensure that they comply with the amended/new
clawback policies.
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Global tax rates
For many countries, revised tax rates start on
New Year’s Day. Often, the rates are only announced in the last
days of December, and in some cases the final figures are not
available until well into January, sometimes later. Our
international advisors provide us with new rates to update OnTap
as quickly as they become available. Recent announced
changes include:
- Croatia: Croatia adopted the Euro on 1 January,
so tax and social security rates are now expressed in EUR.
- Finland: The split between national and
municipal tax has changed, with the state taking over health
care from the municipalities. The top combined rate of tax
has increased slightly from 57.06% to 57.36%.
- Russia: Under the new Social Fund of Russia,
employers contribute at a flat rate of 30% (capped) and
15.1% above the cap.
- Scotland: The higher rate is due to increase from
41% to 42% and the top rate from 46% to 47%. The new rates
will take effect on 6 April.
Tapestry comment
The above list
is not exhaustive and we will discuss the detail of these changes
in our 11 January webinar. Many countries have made adjustments
to tax bands and to social security caps. If you need specific
advice for any jurisdiction, please let us know.
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