Going Global: A Practical Survival Guide for Canadian …m.acc.com/chapters/ontario/upload/Going_Global... · · 2015-06-12Baker & McKenzie LLP is a member firm of Baker & McKenzie
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Introduction‒ Welcome remarks‒ Agenda The Current Landscape for Global Expansion Getting the Structure Right, Early Tax Opportunities and Pitfalls Realities of Global Employment Equity Compensation
Traditional Growth – Formation of Subsidiaries, Branches and Other Presences– Subsidiary – legal entity separate from parent company– Branch - extension of main company, fully operational– Representative / Liaison Office – limited to non-income
generating activities (e.g., “preparatory and auxiliary”)– Joint ventures
Drivers for Choice of Presence– Business considerations (e.g., legal restrictions on scope of activity)– Marketplace perception – Management structure – Ongoing cost of maintenance– Timing constraints – Employment / Immigration, Work Permits– Tax considerations (e.g., permanent establishment, utilization of
projected losses, access to Canada’s foreign affiliate system, transfer pricing)
Pick the Right Engaging Entity: Key Considerations – It’s All Interrelated!– Canadian tax consequences / local country tax consequences– Taxable presence or permanent establishment– Doing business requirements– Employment law requirements Mandatory benefits requirements Foreign exchange control Immigration
– Employee benefits entitlements– Local country pension issues– Eligibility for equity grants
Who is Being Hired / Engaged?– Director / manager v. non-manager – Employee v. independent contractor Ensure the nature of the relationship is properly classified, i.e.,
reality v. the “label” Continued / extensive use of independent contractors globally
raises misclassification risks worldwide– Employee through third party employer– Employee on expatriate assignment / secondment / TCN
Setting Up: Payroll, Benefits, CBAs– Local payroll and benefits provider?– Do application forms comply with local requirements?– Limits / requirements on pre-employment checks? – Do documents require translation?– National Collective Bargaining Agreements?– Additional government filing requirements?
Documenting the Hire– PIIAs Included in employment contracts v. free-standing Intellectual property protection Confidentiality Non competition / solicitation Enforceability of restrictive covenants
‒ Key Policies Handbooks, work rules, internal regulations, etc. Codes of Conduct
Equity Awards: Best Practices– Parent company (Issuer) should administer awards and minimize
involvement by local employing entity Ensures consistent approach in all countries Avoids possible plan compliance violations for issuer Decreases risk of vested rights / entitlement and other labor law
issues– Avoid mentioning awards in employment-related documents from
local employing entity– Use separate equity offer letter (side letter from issuer) to
– Impact of Canadian securities requirements on global awards
National Instrument 55-104 Insider Reporting Requirements and Exemptions requires certain insiders of reporting issuers to report their personal holdings on Sedi (System for Electronic Disclosure by Insiders)
• includes the CEO, CFO and CCO of a major subsidiary of the issuer
• also includes a person responsible for a principal business unit, division or function of the issuer
• catch-all for any other insider that has routine access to material or undisclosed information and exercises significant power or influence over the business, operations, capital or development of the issuer
If dual-listed in the U.S., SEC Form S-8 requirement applies to equity compensation plans that have U.S. participants
TSX / TSXV rules apply to security-based compensation arrangements if it involves the granting of listed securities or securities convertible into listed securities regardless of where the grantee(s) is resident
Evergreen plans are subject to maximum of 10% of the issued and outstanding shares of the issuer
Insider participation under all of the issuers security based compensation arrangements is limited to 10% of the issued and outstanding shares
‒ Both TSX and TSXV require shareholder approval for any equity compensation plans or amendments if listed shares will be issued
‒ ISS and Glass Lewis Canadian Proxy Voting Guidelines not necessarily the same as the U.S. version be careful when structuring plans and check both sets of
Equity Awards: Securities Laws – Other Jurisdictions– Securities Laws – generally territorial, usually exemption
available (but understand thresholds and / or necessary disclosure) & typically applies at grant (but may be applicable at issuance) Key problem countries: Australia, Japan (options/ESPP), EU
(ESPP), Italy (financial intermediary), Malaysia, New Zealand, the Philippines, and Saudi Arabia
– Exchange Controls – generally based on residency, may restrict funds or shares, usually an employee (not company) obligation & be careful about repatriation Key problem countries: Argentina, China, Ukraine, Vietnam;
also India and Russia (repatriation)– Foreign Asset Reporting – mature shares and even equity awards
may be reportable as “foreign assets.” Brokerage accounts used for plan administration may be reportable as “foreign accounts.” Use of trusts can also implicate local reporting requirements A few examples of countries with these requirements include:
Belgium, India, Spain, US (FATCA individual reporting)
Equity Awards – Tax Issues– Although Canadian tax rules generally prohibit a corporate tax
deduction for equity compensation, this is not the case in a number of other countries
– However, a reimbursement of the equity compensation “costs” by the foreign subsidiary may be required in order for the foreign subsidiary to be eligible for a corporate tax deduction
– Also need to consider whether such reimbursement triggers other withholding requirements or social taxes which would not otherwise apply
– Revisit tax / compliance issues on regular basis and adjust award practices accordingly
– Create tools to manage ongoing compliance (e.g., grant checklist, compliance chart, grant document chart)
– Take advantage of free information on global equity NASPP Global Portal Global Equity Organization (Toronto Chapter) B&M GES website – www.bakermckenzie.com/ges