Series “Key Global Mobility Issues Facing Tax Directors” — Intercompany Chargeback Agreements A local tax deduction may be available if a reload agreement exists. However, exchange restrictions limit the ability to charge the cost of clearing shares. Chantal: Thank you for joining us today, Vasu. If people who listen to this podcast have questions about these types of agreements, Vasu`s contact information is listed on our PwC podcast website under www.pwc.com/ca/taxtracks. Foreign Parentco charged its Canadian companies less than C$16,667 under the equity reload agreement. This amount corresponds to the period during which Mr. X worked in Canada during the closed session. Vasu: Of course. In general, companies follow one of two methods of paying compensation per share.
The first method is to hand over shares to the employee. In addition, in some countries, the deduction can only apply to shares acquired on the open market and not to newly issued shares. Vasu: The method of accounting for equity transactions may be influenced by the settlement options offered. Therefore, companies must take this into account and not deal with the issue of the deduction of corporation tax in isolation. If the corporation holding the shares of Canadian employees is a non-resident trust, the recently adopted non-resident esc escling rules must be taken into account to ensure that there are no negative tax consequences. To learn more about these rules, see PwC`s latest tax insights publication: Canada`s New Trust Rules for Non-Residents: What They Mean for Global Equity Plans. Suppose we have a business in Canada that is 100% owned by a foreign corporation. We will call the foreign company “the foreign parent company”. The foreign parent company undertakes to issue shares to an employee of the Canadian company under its incentive compensation plan.
We will call the Canadian company “the Canadian submarine.” This employee only worked in Canada. If the shares are issued to the employee, the foreign parent company of the Canadian sub-corporation will charge an amount equal to the value of the shares issued to the employee. In general, there are agreements on the collection of these amounts. These are commonly referred to as “equity chargeback agreements.” Other countries, such as the Netherlands, generally do not allow a deduction, even if there are costs for a local unit. In addition, in some jurisdictions, such as the . B China, invoicing may not be possible for exchange control reasons. Companies should assess both the legal considerations and the tax implications that a supplemental agreement would have in the jurisdiction of the foreign subsidiary; it is also a question of determining whether the foreign country allows a tax deduction for these additional payments and whether foreign withholding taxes are incurred […].