What are the reporting/notification/filing requirements applicable to an incentive plan?
Except for compliance with securities laws of certain US states discussed below, it is not necessary to file the plan with a government regulator or to seek permission from the government to use the plan in the US unless request is made by an authority for a copy of the plan.
It is, however, necessary for a US employer to report income related to plan awards to the IRS, the Social Security Administration (”SSA”)and any applicable state and/or local tax authorities. The resulting income must be reported to participants on a Form W-2 after the close of year in which the income-producing event occurs.
Employers are required to furnish an informational report, Form 3921, Exercise of Incentive Stock Option, to participants to whom stock was transferred in the previous calendar year pursuant to the exercise of an ISO. Similarly, employers are required to furnish Form 3922, Transfer of Stock Acquired Through an Employee Stock Purchase Plan, when shares are transferred pursuant to an ESPP. Copies of each form are also sent to the IRS.
Employers have significant tax withholding obligations for equity incentive awards. Whenever a federal tax arises upon vesting, exercise or settlement of an equity award, the US employer must remit the employee’s and employer’s portions of federal income, Social Security and Medicare taxes to the IRS and SSA, generally within 1 business day of the tax event. Form 841 must be filed quarterly to report the amounts withheld.
Provided the incentive plan is not a public offering and does not entail a retirement benefit, there is no requirement to file or notify the plan before any Mexican government agency. However, if the incentive plan is granted directly by the Mexican employer or if the Mexican employer is charged for the cost arising from the incentive plan by a related legal entity, the costs of the plan must be reported in the general accounting structure of the local entity to the Mexican Revenue Service through its electronic platform.
The share option schemes (regardless if they qualify as non-taxable benefits or not) should be based on structured plans that represent supporting documentation from a tax perspective. Such documentation does not need to be filed with the authorities, but should be readily available and provided to the authorities upon their request.
Moreover, implications from a capital markets perspective should be considered - for this, please see below our input to question 13.
If an Incentive Plan is subject to the Danish Stock Option Act, the employer is obligated to draft an employer-declaration (in Danish: arbejdsgivererklæring). The employer-declaration shall include all the details in the Incentive Plan, including:
- the granting day,
- the criteria or conditions for granting Shares to the employee,
- the day when the employee can purchase the Shares in the Company,
- the price under which the employee can purchase the Shares,
- the employee’s rights, if the employment is terminated and
- the economic consequences for an employee to participate in an Incentive Plan.
The employer-declaration must be in Danish and should be given to the employee at the time as the Incentive Plan becomes a part of the employment agreement.
If the employee is not given the employer-declaration, the employee will be entitled to a compensation in accordance with the level in the Danish Employment Agreement Act (in Danish: ansættelsesbevisloven).
Furthermore, the employer is obligated to report payments under an Incentive Plan to the Danish tax authorities. If the granting is subject to the 7P Scheme, the employer must also register as reporting to a share-register of the Danish tax authorities. Subsequently, a grant under an Incentive Plan on which the 7P Scheme applies must be filed to this share-register. Reporting obligations also applies when a foreign group company has granted the Incentive Plan directly to the employee.
There are no official proceedings or requirements. Incentive plans must be mutually agreed by employer and employee or be part of a company’s internal policies.