Post on 08-Aug-2020
SESSION 9.3
Presto! Managing LTIPs in Italy
Sandra Sussman – Gilead SciencesOlivia Cattaneo – BNP Paribas Securities ServicesStefano Bondioli – BNP Paribas Securities Services
Sandra Sussman – Gilead Sciences Olivia Cattaneo – BNP Paribas Securities Services Stefano Bondioli – BNP Paribas Securities Services
Session 9.3 Presto! Managing LTIPs in Italy
Agenda
The Italian environment
• Placement services
• Tax implications for the employees
• Tax obligations for the employers
Gilead Sciences experience
The Italian environment
• Managing global LTIPs plans is always a challenge, in particular in a fast-changing environment like the Italian one
• Our focus is the very specific Italian regulatory framework to answer to the following questions:
• How to present and promote the plan in compliance with Italian rules?
• How to help employees and employers avoid burdensome tax calculations and declarations?
Background
• Italian rules prescribe measures to protect final potential investors and define specific procedures to follow when managing Share Purchase Plans
• The promotion and placement of financial instruments outside the premises of the issuer and addressed to the public is considered in Italy “door-to-door selling”
• The local rules state that the “door-to door selling” must be mandatorily managed by an accredited financial salesman (“Promotori Finanziari”) of an authorised financial intermediary
Who is the Financial Salesman “Promotore Finanziario”?
• The Promotore Finanziario is an individual who is registered in a specific roll held by CONSOB (independent administrative authority responsible for regulating and supervising the Italian securities market; its activity is aimed at the protection of investors)
• In order to become a Promotore Finanziario the individual must meet specific requirements in terms of professional experience and honorability
When is the “Promotore Finanziario” required?
• It is not mandatory when the plan provides for free assignments, such as: • RSUs • Stock option plans which allow only for
“cashless/sell all” methodologies • Preferred shares • Stock awards
• The Promotore Finanziario must intervene when the participation in a share compensation scheme implies disbursement of cash by the employee, e.g., • ESPPs • Stock option plans which allow for “exercise and hold” or “sell to cover”
methodologies
• Local rules implementing MIFID require an authorised intermediary to enter into a placement agreement with each single beneficiary
• The placement agreement must include pre-defined annexes, among which: • A questionnaire for the evaluation of the
appropriateness of the investment • A remote identification form for anti-money
laundering purposes
The impact of MIFID Directive
Focus on the appropriateness questionnaire
• The aim of this test is to evaluate whether the investment is appropriate for the employee, i.e., if the employee has the knowledge and experience/competence to fully understand the consequences, fiscal implications included, of the investment
• The answers are recorded and a grade is assigned to the employee
• If the assigned grade is lower than a certain level, then the investment is not appropriate
Focus on Identification for Antimoney Laundering
• Legislative decree n. 231/2007 obliges financial intermediaries to proceed with anti-money laundering identification
• Alternatives for the employee: • Direct identification by
meeting the PF • Indirect identification (the
employee asks his/her bank to sign the remote identification form)
• By a wire transfer including a code pre-agreed between the Bank and the Issuer
The Roadshow
• It is not mandatory, and some companies decide not to promote the plan through a tour of presentations, but to inform the employees only through the information kit
• Nonetheless, if the company decides to perform the roadshow, the plan must be presented by a Promotore Finanziario to explain the financial and fiscal aspects and to answer to potential questions raised by the beneficiaries
• The presentations can be organised when the plan is launched or periodically when new employees are hired
• During the whole life of the plan, the financial intermediary should establish and maintain a dedicated telephone number or e-mail adddress, available for the employees to ask for any clarification
How to match Italian rules and US habits?
• Italian rules allow companies to inform the employees through their intranet site
• Nonetheless, the enrollment/participation in the plan cannot be completed without the intervention of an Italian financial intermediary
• Some phases of the standard process (e.g. online enrollment) must be adapted to be compliant with Italian regulations
• A strict co-operation between the local HR department and the Italian financial intermediary is a key factor for success
Italian tax implications: the background
• Financial instruments, and more specifically shares, are subject in Italy on taxes:
• At sale (capital gain tax) • At dividend payments
• When foreign shares are subscribed and held abroad, the employee must declare his foreign holdings to the Italian tax administration and pay capital gain taxes presenting a complete tax return declaration
• in Italy employees normally are not required to present complete tax return forms to Italian tax authorities: Italian employees usually present simplified forms
• this is perceived as a burden which spoils the value of the plan itself
Taxes to be paid by the employees
First solution: the custody of the shares in Italy
Issuer
Central Share Administrator
Italian employees
The central broker manages all the holdings except Italian employees
After the assignment/exercise
The Local Administrator is responsible for: • The custody of the shares • The sale/transfer of the shares • The Italian tax application
• Highlights: • The beneficiary has a local contact and feels at ease • The company cannot have a complete view of its plans • Italian custody accounts are subject to an annual stamp duty of 32 € (43 USD)
Italian Share Administrator
• Highlights • The cost of Italian custody accounts is avoided • Beneficiaries can benefit from services offered centrally for the world-wide plan • The company can maintain a complete overview of its plans • The co-ordination between the Central Share Administrator and the Italian Tax
agent is crucial
Second solution: the appointment of an Italian tax agent
Issuer
Central Share Administrator
Italian employees
The central broker manages all the holdings including Italian employees
At the sale / payment of dividends
The Italian tax agent is responsible for: • The collection of financial revenues • The Italian tax application
Italian Tax agent
Italian tax implications: the background
Taxes to be paid by the employer
• Benefits connected to the incentive plans (e.g. the discount in case of ESPPs or the gain deriving from stock option exercise) are considered as salary
• Employers often consider the benefit calculation as complex and time consuming
• They need to cope with the “funding issue” in case of huge benefits (such as for stock options)
Focus on the obligations for the employer
• At the assignment: the difference between the value of the shares at their attribution and the purchase price (net of a tax bonus amount, where applicable) represents employee income
• the income taxable amount must be calculated • sell-to-cover procedures could solve the funding issue
• During the plan’s life: a minimum lock-up period of three years is required to benefit from the tax free amount
• the minimum holding period should be monitored • in case of sales before the end of the lock-up period, due taxes should be applied
on the tax free amount
Employee share purchase plans / RSU / Preferred shares
Stock option plans • Taxation of exercise gains: the difference between the value of the shares at
their attribution and the strike price represents employee income
Highlights on US plans: Gilead Sciences
• Began using financial intermediary in 2008 • ESPP and stock options • Placement/custody services; no tax services • Participation rate fell from nearly 70% to 44% after first full year with
intermediary • Banca Euromobiliare exited the financial intermediary business at
the end of 2009 • Participation rate fell to 42% upon announcement • Required speedy search for new intermediary • Opportunity to revisit needs and value-added solutions for all
Highlights on US plans: Gilead Sciences
• Rules clarified – custody in Italy not required! • Opportunities for better employee experience • Streamlined processes
• Tax services introduced • Mitigates risk of error • Frees up internal resources • Benefits both the employer and employees
• Coordination with US provider • Foreign disbursement account in US, cash account in Italy • Monitor ESPP share sales
• Coordination with former Italian provider • Upload share positions from prior purchases • Transfer shares to US accounts
Highlights on US plans: Gilead Sciences
Tax Authorities
Gross sale price / stock options gain Italian employees
Purchase dates
Sales
Empl 1 “tax acct” 1
“tax acct” 2
“tax acct” n Empl 2
Empl n
Tax prices
Income taxable amount
Empl 1 “tax acct” 1
“tax acct” 2
“tax acct” n Empl n
Empl 2 Income tax
Income taxable amount
CG Tax
Net proceeds
Information flows
Cash flows
Highlights on US plans: Gilead Sciences
• Challenges • Coordinating with US provider for best solution to
transfer sale proceeds • Obtaining employee authorization for movement of
cash • Moving shares from former Italian provider to US
accounts • Linking and communicating benefits of the new Italian
provider together with benefits of ESPP participation
Highlights on US plans: Gilead Sciences
• Benefits – Employees • One stock plan account for employees • No additional account-maintenance costs • Shares immediately sellable; no delay due to transfer from
US to Italy • Holding periods monitored • Income and capital gains tax assistance
• Benefits – Gilead • One stock plan account for employees • No additional account-maintenance costs • Holding periods monitored • Income/social tax calculation and withholding assistance
Happy Endings
Work with an Italian partner to leverage available solutions and—presto!!—you can
manage your LTIPs in Italy