1 International Legal and Tax Updates/Issues for Global Employee Stock Programs Presented by: Jennifer George, Partner, Orrick, Herrington & Sutcliffe, LLP Laurie McCarthy, Global Payroll & Equity Manager, Sensata Technologies, Inc. Boston NASPP Chapter Meeting February 13, 2012

2 Agenda NEW DEVELOPMENTS AROUND THE WORLD: IMPORTANT ISSUES FOR GLOBAL PLANS: — Mobile Employees — Performance Plans  Australia  Israel  Belgium  Japan  Brazil  Pakistan  China  Russia  EU  United Kingdom  France  Venezuela  Ireland  Vietnam

3 Australia – Tax Rules Not much new here, but important to keep in mind that the taxable event is usually when there is no longer a substantial risk of forfeiture and performance awards must have a least a 6 month initial vesting period. When rolling out new terms/plans/aware types, remember to consider the tax implications to ensure that the taxable event is not earlier than anticipated Be particularly careful with performance awards

4 Belgium – Taxation Percentages of taxable income for stock options that are taxed at grant proposed to increase by 3% (non undertaking)/ 1½% (undertaking) Proposal to start taxing capital gains

5 Brazil – Increased Tax Enforcement Brazilian IRS announced increased efforts to ensure employees are paying income tax on equity awards Generally, no employer withholding/reporting obligation so important to make sure that employees understand that they are responsible for paying any and all taxes due.

6 China - Exchange Control Approval SAFE approval is required for all “equity plans” if PRC nationals are offered plans Dedicated foreign exchange bank account through which all funds into or out of China must be remitted Annual quotas have to be obtained for inward and outward remittances (in some provinces) Proceeds from sale of shares must be repatriated to China Locally offered and paid cash only programs OK Many companies still “somewhere” in approval process

7 China - Exchange Control Approval Latest Developments Getting more difficult to get $ into China without SAFE approval Shanghai SAFE reluctant to approve high annual quotas Most companies not converting funds in to RMB (leaving $ in US dollars) Increased interest in offering ESPPs in China

8 EU Prospectus Directive Update EU Parliament Amendments (July 2010) to Directive included following key changes: €2.5 million Exclusion To Increase to €5 million – Exclusion from Directive where total consideration to be paid is less than €5 million in the EEA over any rolling 12 month period Under 100 Person Exemption To Increase to Under 150 – No prospectus required if offer of securities is to less than 150 offerees per member state Extension of Employee Share Schemes Exemption to Non-EU Listed Companies – Companies offering share plan to employees that have securities admitted to trading on a non-EU regulated market are exempt from the obligation to file a prospectus, provided: (i) offerees are given adequate disclosure document; and (ii) the EU Commission deems the particular non- EU regulated market “equivalent” to EU-regulated market Required to be implemented in each EU country’s law by June 30, Delays expected for EU determining “equivalent” markets

9 France – Qualified Plans/ Other Tax Changes Effective January 2011, tax favored plans cost more! — Employer paid social charges on qualified awards will increase from 10% to 14% — Employee paid social charges on qualified awards will increase from 2.5% to 8% (exception if grant value less than a certain amount) Plus income tax rate, investment social surtaxes and capital gains rates also went up Effective April 1, 2011 withholding required on sale of shares for non-French tax residents Still not clear how withholding for non-residents will be implemented Changes in wealth tax/exit tax

10 France – New Dividend Bonus Law Effective for dividends declared on or after January 2011 Basically, if dividend declared by French company (including French subsidiary of U.S. parent company) and company has at least 50 employees and the dividend per share is higher than the average amount of dividends per share distributed during prior 2 years, all the French employees must receive a bonus.

11 Ireland – Taxation Changes Finance Bill 2010 introduced mandatory employer tax reporting for all types of equity awards — Annual employer reporting for all equity awards now required — New Universal Social Charge on all stock awards plus employee PRSI — Changes in employer tax withholding obligations — Differences between “stock awards” and stock options? — Grandfathering for awards for which employer and employee entered into written agreement prior to January 1, 2011 (until August amendments made; now, no grandfathering beginning January 2012) — No employer social charges due

12 Israel – Changes to Trustee Plan Requirements: Can elect to do exchange rate conversion at date of taxable event Trustee treatment only available to employees of Israeli employers Supervisory trust application changes Proposal to cut back on tax savings available under these plans

13 Japan – Securities Law Changes Exemption to filing requirements (which generally apply to grants of options or ESPPs offered to 50 or more people with an offering value > 10 million Yen) loosened to now apply if Japanese subsidiary is wholly owned, but a second tier subsidiary (previously, had to be 1 st tier subsidiary) Exemption changes not retroactive (i.e., doesn’t help if already a “continuous disclosure company”)

14 Pakistan – Exchange Control Approval Tightened Approvals from State Bank of Pakistan more difficult to obtain Continuing reporting may be required upon each ESPP purchase Repatriation to be enforced

15 Russia – Uncertainty on Taxation of Options Tax legislation effective January 1, 2011 which sets forth valuation rules for financial derivatives appears to provide that all financial derivatives (including stock options) are subject to tax at grant. Legislation does not specifically address stock options and legislative intent does not indicate that the tax authorities intended to start taxing stock options at grant. Some companies considering obtaining tax ruling to clarify as uncertain at this point whether tax is due at grant. Generally, no employer tax withholding or reporting obligation for stock options.

16 United Kingdom – More Tax Changes HMRC announced in November 2011 that if amendments are made to UK approved option schemes, companies do not need to notify the HMRC of the changes unless the changes due to “key features” of the scheme Change in withholding rate for terminated employees (PAYE Code)

17 Vietnam – Taxation of Equity Awards October 2009 Official Letter issued to “clarify” treatment of options and share bonuses (RSUs) under Personal Income Tax law that took effect 1/1/09 Income taxed as both: Employment income — May need to be calculated on basis of accounting expense! Income from securities transfer — Employee to choose between.1% of sale price or 20% of gain (difference between sale price and “non-preferential purchase price”) (possibly the accounting expense) Still Unclear! Withholding obligation

18 Mobile Employees Continued enforcement/interest in many countries to get share of tax revenues Track and develop plan for complying (at least in high risk countries)

19 Performance Plans Very popular Unique tax and legal issues Make sure your company is obtaining appropriate advice as issues can be different/surprising!

20 Questions? Jennifer George Partner, Orrick, San Francisco Office Laurie McCarthy Global Payroll & Equity Manager Sensata Technologies, Inc