Extending a share plan internationally is no longer an exception and the considerations for a small organisation extending participation into three jurisdictions and a multinational group operating a plan in 80 countries will be the same.
The employer should first determine its objectives in extending the plan overseas, typically to strengthen group identity and cohesiveness.
If the UK plan is a tax-advantaged arrangement, for example, an all-employee sharesave plan, the employer should decide whether it wishes to operate the plan, where possible, on a tax-efficient basis overseas. This may require changes in its operation, so that if simplicity is a stronger preference, this objective will be disregarded.
Due diligence of the countries in which the plan will be operated is strongly advised, to pick up any showstoppers, such as exchange control or securities requirements, or prohibitions on local residents owning foreign assets. A phantom arrangement, not using actual shares, can instead be offered in the relevant jurisdiction(s).
Will a basic due diligence check, also known as a database or desktop review, providing non-specific information on key due diligence areas or a full due diligence check, involving liaison with local lawyers for specific advice on the employer’s circumstances, be used? This will depend on matters such as the number of employees in a relevant jurisdiction, if a jurisdiction is known as being tricky, and the employer’s budget. Many organisations apply a combined approach, using a database due diligence in some countries, and a full due diligence exercise in others.
The tax rules in each country should be understood, as well as local cultural and religious practices. For instance, adaptations may be necessary to take account of Sharia law requirements. Likewise, employers may translate documents, even if not legally required, to promote employee engagement, checking the translation locally to avoid any misunderstandings.
Lynette Jacobs is a partner at Pinsent Masons