CEP Global Equity & International Programs Flashcards

What is a 'cashless participation' feature that some countries require in equity plan designs?

Answer: Mandating that employees receive only the net after-tax proceeds in cash rather than actual shares, due to securities law restrictions on share distribution in that country

In countries where distributing shares is legally complex or prohibited, companies may offer a cash-settled equivalent (phantom stock or SAR) so participants receive the economic benefit without receiving actual shares.

What is a Stock Appreciation Right (SAR) and how is it typically used in global equity programs?

Answer: A right to receive the appreciation in share value (spread) over a set price, often settled in cash, used in countries where distributing actual shares is legally or administratively difficult

SARs deliver the value of stock price appreciation without requiring the issuance of shares, making them ideal for countries with share distribution restrictions or complex securities laws.

What does 'bilateral tax treaty' mean in the context of equity compensation for internationally mobile employees?

Answer: An agreement between two countries that allocates taxing rights and may provide relief from double taxation on equity income earned by residents or citizens of either country

Bilateral tax treaties between countries (e.g., the US-UK tax treaty) can reduce or eliminate double taxation on equity income by allocating primary taxing rights and providing foreign tax credits.

In Canada, how are stock options granted by a Canadian-Controlled Private Corporation (CCPC) taxed differently from public company options?

Answer: CCPC options defer the employment income inclusion until shares are sold rather than at exercise, which is more favorable than public company treatment

For CCPC options, the taxable employment benefit is deferred until the shares are disposed of rather than at exercise, providing a cash-flow advantage over options issued by non-CCPCs.

What is the Foreign Account Tax Compliance Act (FATCA) and how might it affect equity plan participants?

Answer: A US law requiring foreign financial institutions to report accounts held by US persons, which can affect employees who hold equity award proceeds in foreign brokerage accounts

FATCA requires foreign financial institutions to identify and report US account holders to the IRS; US employees who hold equity proceeds in overseas brokerage accounts may be subject to FATCA reporting and withholding.

What is the significance of the OECD Model Tax Convention's Article 15 for equity compensation of mobile employees?

Answer: It provides the framework for allocating employment income (including equity) between source and residence countries based on where services are physically performed

OECD Article 15 (Income from Employment) is the primary treaty article applied to equity compensation of cross-border employees, directing that compensation be taxed in the country where services are rendered.