Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USAUnited States of America6.2 Incentive stock options: If the employee holds the shares received upon theexercise of the ISO for one year from the date he or she exercised such ISO andfor two years from the date he or she was granted such ISO (collectively, the“ISO Holding Period”), then the employee will not have any compensationincome upon exercise, but will recognise long-term capital gain (or long-termcapital loss) upon a subsequent sale of the shares. The amount of long-termcapital gain (or loss) recognised is equal to the difference between the amountrealised upon the sale of the shares and the purchase price for such shares (i.e.the exercise price of the ISO). The employer would not be entitled to a relatedcorporation tax deduction. (Special rules may apply in the case of non-cashexercises).If, however, the employee makes a disposition of the shares prior to theexpiration of the ISO Holding Period (a “disqualifying disposition”), the employeegenerally will recognise ordinary income, and the employer generally will beentitled to a corporation tax deduction, in each case equal to the excess of thefair market value of the shares on the date of exercise over the exercise price.Any excess of the amount realised upon such disposition over the fair marketvalue on the date the ISO Holding Period began will be long-term or short-termcapital gain depending on the holding period (as determined for purposes of thecapital gains rules) involved.7. Employee benefit trustsEmployee benefit trusts are not generally used for share-based schemes in theUSA. Any employee benefit trust for executives would generally need to be a“rabbi trust” and therefore subject to claims of general creditors of the employer.Non-U.S. trusts relating to arrangements not exempt from Section 409A couldcause immediate taxation (and penalties) upon vesting of an employee's interestpursuant to Section 409A.8. Data protection8.1 With respect to share plans and incentive compensation, there is nocomprehensive data protection law that covers all personal data. Instead, thereis a collection of various sector-specific federal and state laws that regulate onlycertain classes of data. 19to persons other than (A) a person with respect to whom such income is not subject to acomprehensive non-US income tax, and (B) a tax-exempt organisation.19Excluding the health care and background-check contexts, most employee information is not coveredunder these sector-specific laws.UK/1729295/03 213 September 2010