In this month’s update: important information from Ireland, Belgium, and the United States.
New share-based incentive arrangement for SMEs proposed
The Irish Minister of Finance has announced a new share-based incentive arrangement for medium-sized enterprises will be introduced. This arrangement will come into effect in the 2018 budget as part of the commitment to encourage employee financial participation and the tax treatment of share based remuneration.
Ireland currently has two qualified plans: the “Save As You Earn” plan and the “Approved Profit Sharing Scheme.” Both must be approved by the Irish Revenue and have annual filing obligations.
This initiative by the Irish government is further evidence of its commitment to employee ownership, which will be well received by companies and employees.
Is social security payable on equity payments?
In Belgium, social security (and withholding) would only be due on equity awards if the local employer bears the cost of the awards, and to a lesser extent, is involved in the plan.
However, what “bears the cost” means can be difficult to define, as is the “involvement” of the local company. In a recent case, the Belgian Social Security Administration considered that the local company was involved in the plan purely because it was responsible for deciding how many and to whom the shares are granted.
This decision seems to contradict the established practice and some advisers consider it may be very specific to this case. Nevertheless, companies should be aware of the decision and – where they are not recharging the cost to the local company, and therefore, not paying social security – they may wish to review their documentation and/or any involvement by the local company.
It is recommended that companies review the involvement of the Belgian entity in the grant-making process to mitigate the risk of social security contributions becoming due on equity award income where there is no recharge.
The Internal Revenue Service (IRS) issued final regulations and eliminated the requirement for taxpayers making a Section 83 (b) election to include a copy of the election in their annual tax return.
Under Section 83(b), a taxpayer who receives transfer of property under an unvested award (eg. a Restricted Stock Award) according to Section 83 (b) may wish to be taxed upon receipt of grant and not upon vesting of shares. This is done by filing with the IRS within 30 days of the grant date.
It was previously not possible to file an annual tax return electronically if a Section 83 (b) election copy was included thus it is hoped that the new regulations will encourage taxpayers to file electronically. The change applies to property transferred on or after January 1, 2015.
If an employee is making an 83(b) election, they must still submit a manual copy to their employer in order to meet tax withholding and reporting obligations.
It is advised that companies review their plan prospectuses and employee communications to ensure that their employees are apprised of their elections for the purposes of filing awards subject to Section 83 (b).
In the light of this change, U.S. employers should communicate the new filing regulations to their employees.
No regulatory updates this month.