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

Agenda What is the issue? Social Security Internationally US FICA Brazil Germany United Kingdom Approaches to Addressing Global Social Security Obligations

What is the issue?

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

Employee Social Tax Globally * Effective social tax rates on US $100,000 of compensation

Employer Social Tax Globally * Effective social tax rates on US $100,000 of compensation

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

Globally mobile employees – What is an equity award trailing liability? 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 Brazil Grant Vest Exercise Sale Notional 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

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

Brazil

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.

Germany

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”

United Kingdom

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

Approaches to Addressing Global Social Security Obligations

Approaches to Addressing Global Social Security Obligations 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?

Contact information Amy Reina Senior Manager Deloitte Tax LLP +1 203 708 4622 amyreina@deloitte.com Sandy Shurin Manager Deloitte Tax LLP +1 212 436 4309 ashurin@deloitte.com

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