AmCham arrow Publications arrow Topics Archive arrow Topics Archive 2005 arrow Vol.35- No.1 arrow Starting to Tax Stock Options
Starting to Tax Stock Options PDF Print E-mail

Questions raised by the foreign chambers concerning implementation of new tax rules include the fairness of applying the rules retroactively in certain cases.

 

With the national budget heavily in deficit, the tax authorities have understandably been looking for means to close loopholes and increase the amount of revenue collected. As part of that effort, the government began to treat stock options issued by domestic corporations as taxable income on January 1, 2004. The next step, to take effect from the start of this year, is to cover stock options issued by foreign companies as a consequence of work performed in Taiwan. The regulations would create an obligation both by the employee to pay the appropriate tax and by the employer for record-keeping and compliance.

While most multinational companies appear sympathetic to the spirit and direction of the new regulations, many are concerned about some of the details of implementation. Under the proposed rules, if the local subsidiary or branch does not share the cost of the stock option, then it is up to the employee to report the taxable income in the tax return for the year in which the stock options were exercised. In this case, the rules would be applied for stock options exercised on or after January 1 this year. But if the subsidiary or branch shares the cost, it becomes the company's responsibility to file a "non-withholding tax statement" and to provide the tax office with detailed information (such as employee name, ID, number of shares granted, date of the grant, and date on which the options were exercised) -and the rules would also apply to stock options exercised within the past five years, the current statute of limitations.

"It is unreasonable to differentiate the employer's reporting obligations based on the foreign headquarters' decision on whether to charge the Taiwan branch/subsidiary costs for the stock options," noted a memo to the Ministry of Finance from the joint AmCham/ECCT Tax Committee. "The treatment should be consistent, since this decision is irrelevant to the determination of employee taxation." Instead of applying the rule retroactively in some cases, the Committee urged that application be restricted to stock options granted on or after the effective date of the of the new rules. In addition, it suggested that the reporting obligation for companies be limited to the information available on the grant date, since it creates substantial problems for employers to try to track the relevant information through to the exercise date.

The Committee further proposed that the effective date be postponed for one year. That would provide time for the Taiwan subsidiaries/branches to educate employees about the new rules and to design and establish an adequate recordkeeping mechanism to meet the compliance requirements.

Communication with the tax authorities is continuing, and the Committee hopes that the Finance Ministry may yet modify its proposal.
 
[ Back ]