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- Understanding local regulations and culture is key to knowing which employee benefits can be offered in the most tax-efficient way and be of most value to staff.
- Multinational organisations often find sharesave schemes work well as a tax-efficient benefit across Europe.
- Economic uncertainty across Europe has led to tax regimes changing in many countries.
Case study: Innospec shares its success
Global chemicals business Innospec, which operates in 17 countries, including the United States (US), Germany, France, Spain, Italy and Hungary, offers a sharesave scheme to all eligible staff.
The Global All Employee Sharesave Plan, administered by Yorkshire Building Society, was rolled out in 2010 and is designed to take account of different legislation and tax structures around the world.
Not all participating employees can take advantage of tax efficiencies on savings, but that was never the scheme’s main objective. Cathy Hessner, senior vice-president of HR, says: “We wanted to allow people to save and to make it tax-efficient if it was feasible, but that depends on the number of employees.
It has been able to do this in countries such as the US and Germany where it has a larger workforce. But Hessner adds: “In France, we have only 30 members of staff, so implementing tax-efficiency was not cost-effective. However, French employees who joined the scheme will still benefit from an increase in the value of the shares and the opportunity to take something at the end of three years or continue saving.
“As a global company, it is very important we engage all our staff across the world and with this project we have been able to achieve this.”
Employers’ opportunities to offer tax-efficient benefits vary across Europe, says Alison Coleman
Expanding overseas and operating subsidiaries in Europe – where the UK does a large proportion of its trade – is, for many organisations, the key to sustainable growth. So compensation and benefits professionals, who are increasingly looking after the reward packages of staff outside the UK, will be interested in the tax and social security rules that affect the provision of tax-efficient employee benefits across Europe.
Understanding local regulations and culture is key to knowing which employee benefits can be offered in the most tax-efficient way and be of most value to staff.
Lesley Fidler, tax director at Baker Tilly, says: “A UK employer setting up operations in Europe for the first time will have to abandon the view that what works in the UK will work elsewhere. Tax-efficient benefits have to be just that; why offer staff something they can source for themselves and get the same value?”
The value of an international benefits package is determined, in part, by what is already provided by the state. With the UK’s state provision of pensions and healthcare under increasing pressure, their value as employer-provided benefits is high.
But elsewhere in Europe, the situation is quite different. Inez Andersen, a corporate tax director at Smith and Williamson, says: “In France and Spain, where state pension provision is good, [occupational] pensions would not be as highly valued. In fact, it would be unusual for an employer to make contributions to an occupational scheme.”
One initiative that has worked well for multinational employers is sharesave schemes, which can give staff a tax-efficient way to boost their savings. Schemes offered internationally can be tweaked to take advantage of local tax-efficient practices.
David Poole, national director of the Employee Share Ownership Centre, says: “These schemes are re-emerging on the EU agenda after an own-initiative report by the European Economic and Social Committee [Employee Financial Participation in Europe] on employee financial participation (EFP).”
This has led to the provision of funding for the Pro EFP project which is working towards a European share scheme, with effective tax rates for EU member states for share schemes and mutual recognition of different member states’ tax-efficient schemes.
But not all tax-efficient benefits can be provided centrally and adapted locally. Tim Reay, a consultant with Aon Hewitt international benefits team, says: “For some, it is simpler to use a local provider. But in the absence of a pan-European one-size-fits-all benefits scheme, there is scope for a flexible arrangement with some central provision and some partnering with local providers that still enables multinationals to achieve globally consistent branding of benefits.”
Damian Ross, head of international sales at Generali Employee Benefits Network, says the tax treatment of certain benefits can also be complicated. “In The Netherlands, the lump sums paid from a death benefit are taxed heavily, so it may be more tax-efficient to provide a spouse’s pension than a lump sum,” he says. “In the Czech Republic, the premiums for the lump sum cover are taxable, so an alternative is to buy an endowment-type policy with life insurance built in.”
Tax regimes vary
Economic uncertainty across Europe has shaken up the tax system in several countries. Clive Fathers, national leader of the employer solutions team at Grant Thornton, says: “Given the current economic climate in Europe, the various tax authorities are trying to collect as much revenue as they can, so tax regimes do not just vary between countries, they are changing all the time.”
For example, the UK’s top rate of tax for 2011 was 50%, compared with Norway’s 40% and Sweden’s 57.58%. Employers’ national insurance contributions or social security contributions also vary, ranging from 10.8% in Ireland to 42% in France.
Some tax systems are differentiated by sector, says Fathers. “In France, for example, employers in the construction industry pay more social security contributions than those in office-based organisations.”
As regards tax-efficient perks across Europe, the same principles of any good benefits scheme apply, says Fathers. “It is about understanding the workforce, their age demographic, the benefits they value, and which benefits offer significant tax breaks.”
Pensions: Pensions and savings plans are the two main tax-efficient benefits.
- About 95% of Dutch staff have a pension plan provided by their employer. Premiums are fully tax deductible for employer and employee contributions and there are no income limits.
- The country’s two popular tax-efficient salary and life saving plans, Sparloon and Levensloop, are being phased out and replaced by the Vitaliteitsregeling, a new regulation to be introduced gradually in 2012 and 2013. Maximum gross savings per year will be €5,000, up to a maximum of €20,000.
- Joris Kuenen, key account manager at Dutch insurance firm Meeus, says: “Spaarloon has been very popular, especially with regular employees, while Levensloop is preferred by better-paid employees who have the highest tax relief and the means to save up to 125% of gross pay. We expect the new Vitaliteitsregeling will also be more popular with better-paid employees, but final details have yet to be confirmed.”
Health and wellbeing: Private medical insurance is tax exempt.
Vouchers: Luncheon vouchers are also tax exempt.
Other: Gifts for retirement and newborns are tax exempt on a limited amount.
Cars: According to consultancy SD Worx, company cars are among the most popular benefits. Cars are taxed as a benefit in kind for private use, but this is under review. Koenraad Van Kerckhoven, office leader for Mercer, Belgium, says: “The likelihood is cars will be taxed more heavily.”
Childcare: Employer-subsidised daycare centres are tax-exempt for employees until the child reaches the age of three.
Restaurant vouchers: These are tax-exempt when used during work days up to a maximum amount of €7.81 per day.
Accident insurance: Where premiums for accident insurance with 24-hour cover are broken down into occupational and non-occupational, the 50% of the premium considered to be occupational will be tax-exempt. Disability benefits related to accident insurance are also tax-exempt.
Pensions: As a rule, staff do not contribute to an occupational pension, only the employer. But there is an opportunity for employees to sacrifice part of a bonus payment or salary increase in return for their employer making an increased pension contribution. The employer may also top up the amount the employee salary sacrifices by making a special employer pension contribution on the difference.
Company cars: Values, for tax purposes, are determined by tables set by the tax agency annually, and are based on a car’s list price, model, age and extra equipment. It is generally more beneficial to have a company car than to buy the same car privately.
Health and wellbeing: Membership of gyms and sports clubs can be provided tax-free if this is offered to all employees. Ann Strömbäck, partner, tax services, at PricewaterhouseCoopers in Stockholm, says: “There are not many tax-efficient benefits in Sweden as the principle is that any benefits in kind are to be valued to fair market value for tax purposes.”
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