Global Regulatory and Tax Update: August 2016

In this month’s update, important information about Canada, the United States, the United Kingdom, and New Zealand.


us United States of America

Proposed regulations to clarify 409A points issued

On June 21, 2016, the IRS issued proposed regulations to clarify or modify various aspects of the current Code Section 409A (“409A”) regulations that were issued in final form in 2007.  While these are only proposed regulations there are a number of points of interest for equity compensation including the following highlighted below:

  • Additional Exception to Short-Term Deferral Rule.  Under the short-term deferral rule, an award can be exempt from 409A if it is settled within 2.5 months following the end of the later of the employer or employee’s tax year in which the award vests (often by March 15 where both the employee and employer are calendar year taxpayers). While there are exceptions that allow for payment after this short-term deferral period without violating 409A the proposed rules aim at creating an additional exception available if the issuer reasonably anticipates that making the payment would violate “Federal securities laws or other applicable law,” provided that the payment is made as soon as practicable once the risk of such violation no longer applies.
  • Permissible Delayed Cash-Out of Options and SARs in Connection with Transactions.  Under the current 409A regulations, deferred compensation subject to 409A that is tied to the value of the employer’s stock can generally be paid on the same schedule and terms that the transaction consideration is paid to shareholders. This could of course assist where there is a change of control or takeover issue.
  • Transfer of Unvested Restricted Stock as Payment of Deferred Compensation. The proposed regulations clarify that a grant of unvested restricted stock to satisfy a deferred compensation obligation will not be considered a 409A-compliant payment of the deferred amount unless the employee makes a Section 83(b) election to be taxed on the restricted stock at grant or the grant is made in accordance with 409A’s subsequent deferral election rules.

The proposed rules are subject to comment for 90 days following their publication in the Federal Register (i.e., until September 20, 2016).  Taxpayers may rely on the proposed rules before they are published as final regulations, and the IRS will not assert positions contrary to those set forth in the proposed regulations –  at least until final regulations are published.

Solium comments:

Section 409A is a complex piece of legislation and many (particularly non US) companies can find the intricacies of the legislation confusing. Any clarification of these rules is to be welcomed and we will be monitoring the situation carefully.


gb  United Kingdom

HMRC updates guidance on penalties for not meeting the requirements for tax advantaged share schemes

On 14 June 2016 HM Revenue & Customs (HMRC) in the UK published a factsheet to provide updated guidance about the penalties that it would impose where the four tax-advantaged share schemes fail to meet the requirements for tax-advantaged status (CC/FS33).

HMRC may charge a penalty if it decides following a compliance check that the scheme does not meet the requirements for tax-advantaged status.

The amount of penalty would depend on whether the error was deemed to be “serious” or “less serious” considering the relevant facts and circumstances and whether the disclosure to HMRC was prompted or unprompted or there was no disclosure. The guidance note sets out the details of how the penalty would be calculated under different circumstances and the different reductions that are available.

HMRC will request that “less serious” errors are repaired or corrected within 90 days of either the end of the appeal period against the decision or the date on which any appeal against the decision is determined or withdrawn. If these errors are not repaired or corrected within this timeframe, HMRC will charge a further penalty.

In the case of disagreement with HMRC, there is an appeal process with three different options and in addition the possibility that an HMRC specialist officer may be able to act as a neutral facilitator to help resolve the dispute under an “Alternative Dispute Resolution” process (the availability of this process will depend on the circumstances of the matter).

Solium comments:

Companies should take care when self certifying their tax advantaged plans that they fully meet the criteria outlined by the HMRC.


ca Canada

Proposed amendments to the TSX company manual

The Toronto Stock Exchange has published proposed amendments to the TSX Company manual, and is reviewing public comments in response to these proposed changes.  The amendments will become effective upon approval by the Ontario Securities Commission.

The proposed changes include a requirement for issuers to maintain a publicly accessible website that includes, among other documents, current copies of security based compensation arrangements (e.g., employee share plans), and certain corporate governance documents, as well as introducing additional disclosure requirements for Annual Meetings regarding outstanding awards and burn rates.

While some of the documents which are proposed to be available on the public website may be currently available on the System for Electronic Document Analysis and Retrieval (SEDAR), these may be difficult to find due to different practices by issuers for identifying and filing materials.  The proposed website is intended to make the documents more accessible to the investing public.


nz  New Zealand

FMA announces new exemptions for overseas issuers

Our partner law firm, MinterEllison, has provided the following update on the new securities law exemption for overseas issuers:

The Financial Markets Authority (FMA) has approved a series of new class exemptions for overseas issuers. This is on the basis that, when an overseas issuer is subject to regulation in their overseas jurisdiction that is equivalent to New Zealand’s, the costs may outweigh the benefits of full compliance with the Financial Markets Conduct Act 2013 (FMC Act).

The exemptions may provide an alternative to full compliance with the FMC Act Overseas issuers who are intending to offer financial products in New Zealand, or who have already offered financial products in New Zealand under a previous exemption. The FMA intends to finalise the exemption notices and publish them by the end of July 2016.

The exemption notices will exempt overseas issuers from various requirements of the FMC Act four main areas:

Offers by overseas issuers

There are two types of exemption covered by this item:

The first will continue the relief available under the Securities Act (Overseas Companies) Exemption Notice 2013. For an offer made to existing holders of financial products that have a primary listing on an overseas exchange in a jurisdiction with high quality regulation, issuers will receive complete exemption from the disclosure, governance, and financial reporting requirements of the FMC Act. The FMA has not yet stated what the relevant jurisdictions will be.

The second will continue the relief available under the Securities Act (Overseas Listed Issuers) Exemption Notice 2002. For overseas issuers with a primary listing on either main board of the NYSE, the NASDAQ or the London Stock Exchange, the overseas issuer can rely on the equivalent regulation in their overseas jurisdiction in extending offers into New Zealand, but must also prepare a warning statement, appoint an agent for service in New Zealand, and must lodge specified documents with the New Zealand Companies Office.

Financial reporting and audit

An exemption is being granted for overseas issuers with a primary listing on a market in a high quality jurisdiction to use their overseas financial statements and auditors as an alternative to those required under the FMC Act. The FMA has not yet stated what the relevant jurisdictions will be. This will be as an alternative to the financial statement and audit requirements in Part 3 (PDS disclosure) and Part 7 (ongoing financial reporting) of the FMC Act. The exemptions only apply when:

  • the financial statements of the overseas issuer are prepared in accordance with accounting standards that are broadly comparable
  • to New Zealand GAAP; and
  • the auditor is subject to audit standards that are broadly comparable to those that apply in New Zealand, including independent auditor oversight.

Securities already issued

As a result of the transitional provisions of the FMC Act, without an exemption overseas issuers will be subject to the full requirements of the FMC Act for securities already issued under a Securities Act 1978 exemption. To remedy this problem, the FMA will grant exemptions from the disclosure, governance and financial reporting parts of the FMC Act, when an offer of securities has been made under any of the following Securities Act exemptions:

  • Securities Act (Overseas Companies) Exemption Notices
  • Securities Act (Overseas Listed Issuers) Exemption Notices
  • Securities Act (Overseas Employee Share Purchase Schemes) Exemption Notices
  • Securities (Australian Transitional Issuers) Exemption Notice 2013 and the Securities Act (Australian Issuers) Exemption Notice 2002
  • Securities Act (Australian Registered Managed Investment Schemes) Exemption Notices
  • Securities Act (Great Britain Collective Investment Schemes) Exemption Notices
  • Securities Act (French Issuers Employee Share Purchase Schemes) Exemption Notice 2010
  • Other Securities Act individual exemptions granted to overseas issuers for incidental offers or ancillary offers.

Additional exemptions

The FMA has also approved two class exemptions to remedy technical issues in the Financial Markets Conduct (Overseas Registered Banks and Licensed Insurers) Exemption Notice 2015.

When an overseas custodian already has a robust assurance engagement in its overseas jurisdiction it will be exempt from the requirement to obtain an assurance engagement from a New Zealand qualified auditor. Additionally, overseas registered banks and licensed insurers will be able to engage Australian auditors to audit their New Zealand business and financial statements and remove the New Zealand specific requirements when they are not aligned with the home jurisdiction.

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