NASPP Regional Conference: What the FICA? Sandy Shurin Deloitte Tax LLP Amy Reina Deloitte Tax LLP.

NASPP Regional Conference: What the FICA?

Sandy ShurinDeloitte Tax LLP

Amy ReinaDeloitte Tax LLP

© 2013 Deloitte LLP.

What is the issue?

Social Security Internationally• US FICA• Brazil• Germany• United Kingdom

Approaches to Addressing Global Social Security Obligations

Agenda

What is the issue?


• Companies moving employees across borders, in which they receive compensation that is earned in more than one jurisdiction

• How to obtain data to track employees and ensure employer tax compliance in more than one jurisdiction and

• Dealing with multiple sets of social security regulations and obligation

• Keeping up with tax legislative changes

What is the issue?


Employee Social Tax Globally

* Effective social tax rates on US $100,000 of compensation

Belgium Brazil France Greece Italy Norway Switzerland United States United Kingdom

0%

5%

10%

15%

20%

25%

Employee Effective Social Tax Rates


Employer Social Tax Globally

* Effective social tax rates on US $100,000 of compensation

Belgium Brazil France Greece Italy Norway Switzerland United States United Kingdom

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Employer Effective Social Tax Rates


• Any employee that provides services in more than one tax jurisdiction:

‒ Expatriates‒ Permanent Transfers‒ Temporary Assignees‒ Split Jurisdiction / Split Payroll Employees‒ Cross border Commuter Employees‒ Business Travelers

Who/What do we mean by “mobile employee”…?


• An employee may be granted an equity award in one country, vest in that award in a second country, exercise in a third country, and ultimately sell the shares in a fourth country

• There could be employer reporting and withholding as well as individual tax implications in each jurisdiction

Globally mobile employees – What is an equity award trailing liability?

Brazil

Grant Vest Exercise SaleNotional Exercise

Belgium Australia Hong Kong United States

Stock options

1 2 3 4 5


Global issues to consider – Income Tax

• Timing of taxation varies between countries:‒ Most countries tax options at exercise‒ Some countries tax at grant, vest, or sale‒ Exit and trailing taxes

• Amount subject to tax varies between countries:‒ Even for those that tax options at exercise, there may be differences between the

statutory definition of fair market value

• Income tax sourcing rules vary


International Social Security - Basic Principles

• Why have Social Security Treaties? What is the rationale behind them?‒ Contribution related, but benefits driven‒ Generally concluded when there bi-lateral movement of people

• Are there any consistent themes in international agreements?‒ Home country employment‒ Track record of paying contributions in home location‒ Typically 5 year maximum‒ Special Circumstances


Global issues to consider – Social Tax

• The issues associated with income tax withholding may impact social security as well

• Social security rules not necessarily align with income tax rules

• Qualified Plans, favorable Grant Terms, and Elections

• Totalization agreements

• Treatment of cash may differ from shares

Social Security Internationally

United States


• Issue: Company that has employees, both nonresident aliens (“NRAs”) and United States citizens and greencard holders (“US Taxpayers”), who perform services for the company inside and outside of the United States. Income tax sourcing rules not expressly extended to social security rules.

‒ Excluded from wages for FICA purposes amounts paid by an American Employer outside the United States to a non-US Taxpayer or by an employer outside the United States that is not an American Employer.

‒ One approach is amounts subject to FICA taxation in the same proportion that wages are subject to federal income taxation

‒ Another approach may be referred to as the “all or nothing approach”

‒ Hybrid approach

United States

Brazil


• Historically, view has been that where the costs are recharged to or borne by the Brazilian entity, income and social tax is due and there is withholding and reporting by the Brazilian entity; and conversely, no social tax absent a recharge.

• Increased audit activity in recent years regarding payment and collection of social tax with respect to compensation paid abroad.

• Companies’ local practice varies based on risk tolerance.

Brazil

Germany


• General rule for inbounds – social security payable on German-source income (note wage caps)

• General rule for outbounds – social security payable on German-source income; however, keep in mind “March clause”

Germany

United Kingdom


• UK social tax obligation should consider participant’s social tax status at the time of grant and taxable event; other variables to account for:

‒ Approved plans

‒ Certificate of Coverage / E101

‒ Local hire vs. assignment

‒ Totalization agreements

‒ Age

‒ Joint National Insurance election

United Kingdom


• Coordinate Mobility, Tax, Payroll and other impacted stakeholders

• Assess obligations on an employer and employee-specific basis‒ Organization structures, local agreements, and other factors may make your situation unique

• In the absence of definitive legislation addressing certain scenarios, assess risks and possible solutions that can reduce risk exposure, such as local rulings.

• Develop network of resources knowledgeable in local legislation, market practice, and views of regulators

• Determine whether bespoke policy or other solution is necessary‒ Review plan optimization and cost savings opportunities



Questions?


Amy ReinaSenior ManagerDeloitte Tax LLP+1 203 708 [email protected]

Sandy ShurinManagerDeloitte Tax LLP+1 212 436 [email protected]

Contact information

mailto:[email protected]

mailto:[email protected]


This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.

About DeloitteDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2013 Deloitte Development LLC. All rights reserved.Member of Deloitte Touche Tohmatsu Limited

http://www.deloitte.com/about

http://www.deloitte.com/us/about

NASPP Regional Conference: What the FICA? Sandy Shurin Deloitte Tax LLP Amy Reina Deloitte Tax LLP.

Documents

Transcript of NASPP Regional Conference: What the FICA? Sandy Shurin Deloitte Tax LLP Amy Reina Deloitte Tax LLP.