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Analysis

Global equity tax equalization survey

Managing the tax costs of equity awards and stock-based compensation

Our annual survey explores the extent to which companies are providing tax equalization to international mobiles to address the assignment-related tax costs of equity awards, including stock-based compensation.

Explore the results of the inaugural survey

Our inaugural global equity tax equalization practices survey gathers feedback from organizations spanning a range of sizes, industries, and geographies on tax equalization policy trends for equity-based compensation—including the types of equity compensation being equalized, policy features and limitations, how they manage the company's "actual tax" obligations, and consideration of the potential impact of US tax reform.

Global equity tax equalization survey results

Let’s look at the year-one tax equalization practices survey numbers

The majority of respondents (79 percent) provide some form of incentive equity-based compensation to employees. And even more respondents (82 percent) use tax equalization as a form of assignment-related tax cost reimbursement for some or all of their international mobiles.

Yet 39 percent of respondents say their companies do not include equity awards in their tax equalization policy.

Of those that do, the types of equity awards being offered to international mobiles vary—and tax equalization is widespread.
Restricted stock units (RSUs) are a highly-favored form of equity award at 91 percent.

Almost all respondents that offer stock options, RSUs, and RSAs are tax equalizing (either fully or with limitations).

Of the 62 percent of respondents offering stock option awards to their international mobiles, only 2 percent report not tax equalizing for the awards.

Of the 91 percent of respondents offering RSUs to their international mobiles, only 2 percent report tax equalizing for these equity awards.

Of the 31 percent of respondents who award RSAs to their international mobiles, all report that they tax equalize for these equity awards—with 82 percent equalizing fully.

While nearly one-third of respondents who offer an employee stock purchase plan does not equalize for the potential related tax costs.
Of the 52 percent of respondents who offer a stock purchase plan to their international mobiles, only 30 percent report that they are not tax-equalizing for this equity award offering.

Exploring tax equalization policies

More than two-thirds of respondents report applying consistent tax equalization policies to all eligible employees equally

The majority of respondents report applying consistent policies to all eligible employees equally, while 27 percent employ some manner of exception in the application of their policies.

Regarding the use of caps under tax equalization policies, only a small percentage of respondents cap the amount of equity-based compensation they tax equalize
Of those responding, only 13 percent report a cap on the extent to which equity-based compensation is tax equalized under their company’s policy.

How are the caps determined? Responses indicate a range of approaches is used.
Of the 13 percent of respondents who report a cap on the extent to which their companies tax equalize equity-based compensation, 20 percent report the cap is determined as a function of salary, 40 percent determined under fixed monetary amount, and 40 percent as being determined by some other method.

Caps based on fixed amounts fall either below $30,000 or above $70,000.
Of the 40 percent of respondents who report their company policy includes a cap on the extent to which equity-based compensation is tax equalized based on a fixed amount, 50 percent report the cap amount to be in a range between $10,000 and $30,000, while the other 50 percent report a cap amount above $70,000.

Caps based on a function of salary tend to be modest—two times base salary or below.
Of the 20 percent of respondents who report their company policy includes a cap on the extent to which equity-based compensation is tax equalized based on a function of salary, half report the cap amount is below two times base salary, while the other half report a cap amount of two times base salary.

Tax withholding practices: The withholding of hypothetical tax is a common practice and more than half of respondents use a service provider to perform the withholding calculations.
More than 85 percent of respondents report their companies to withhold hypothetical tax as part of their tax equalization policies, with more than 56 percent of those noting that the withholding calculations are performed by a service provider.

 

How are companies managing their “actual tax” obligations? A real-time remittance of applicable home and host taxes approach is used by the majority of respondents.
With respect to the managing of their company’s “actual tax” obligation, relating to the equity-based compensation of their international mobiles:

  • The majority of respondents (62 percent) report real-time remittance of applicable home and host taxes
  • Seventeen percent of respondents report that home and host taxes are calculated and trued-up at year-end
  • Fifteen percent report that actual tax remittances are addressed when an employee’s individual tax return is prepared by the company’s tax service provider
  • Only 7 percent report that taxes are withheld from the employee and remitted as actual tax in their home country

Has US tax reform impacted policies?
While more than a third of respondents have reviewed their tax equalization policies for the potential impact of recent US tax reform, the majority of respondents (47 percent) have not, with 36 percent of those noting it is not an immediate priority. Companies who haven’t done so yet may want to analyze the potential for global mobility program cost increases sooner rather than later.

Map your way forward on tax equalization policies

In a competitive labor market where companies rely on the deployment of talent worldwide to enable business growth, tax equalization of international mobiles’ compensation and assignment-related benefits has become common practice. But how they approach the tax equalization of equity-based compensation could help them attract and retain valuable employees.

About the survey

• Conducted during October and November of 2018
• 253 respondents employed by companies globally across various industries
• Company size of respondents ranges from under 10,000 to over 100,000 in worldwide employee headcount
• Functions/roles of respondents span accounting, finance, HR, legal, and tax
• Job titles of respondents include stock option/plan, payroll, benefits, compensation, or mobility

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