Scott Barrall, Sr. Manager, Deloitte Tax LLP (US)Suzie Bentley, Dir. Stock Admin & 401k,NVIDIA Corporation (US)

Trish Boepple, SVP, Global Client Ops, Global Shares (US)

Transactional Nightmare or Organized Chaos?

Tracking Funds and Data

The Cast

Upfront Preparation

Stock Option Same-Day-Sale Flowchart

RSU Sell-to-Cover Withholding Flowchart

ESPP Purchase with Payroll Withholding Process Flowchart

Cost Recharge Flowcharts

Process Documentation Recommendations

Transactional Nightmare or Organized Chaos?: Tracking Funds and Data

Transaction Nightmare or Organized Chaos?

The Cast BOD

CEO HR

CFO Mobility

Tax Payroll

Treasury Joe the Employee

Stock Admin

Broker Tax Authorities

Transfer AgentTransaction Nightmare or Organized Chaos?

Upfront Preparation• Understand types of awards outstanding in each country and tax timing and

taxable value for each

• Understand employer withholding and reporting obligations in each country• Qualified Plans

• Withholding: Methods - Payroll Cash, Sell-to-Cover, Share Withholding & Tax Rate Precision

• Mobile Employees: Movement History, Tax Equalization, Tax Status in Jurisdictions

• Impact of Cost Recharges where in effect

• Define the data requirements and configure systems

• Develop process documentation and educate global management as well as local HR, Payroll, Tax, Legal and Treasury personnel

• Award review and employee demographic data updates

• Employee communications

Transaction Nightmare or Organized Chaos?

Share Transaction Flowchart ParametersSingle “captive” broker and In-House Stock Admin

Globally non-qualifying stock compensation for employees

• Current payroll reporting and tax withholding

• Annual income reporting (W-2 and equivalents)

Not a mobile employee (single jurisdiction employment during sourcing period)

Financial Accounting & Legal data flows not considered

CC’s on data flows not reflected

Company Stock Compensation Portal not reflected

Transaction Nightmare or Organized Chaos?

Stock Option Exercise with Same-Day-Sale

Common Process Variations – Stock Options

• Step 2: Many brokers and systems support exact tax rates per employee or differentiated rates for groups of employees

• Step 3: Often the company will handle the request/issuance of shares• Steps 6 & 9: Some companies have the broker wire taxes withheld

directly to non-U.S. local payroll in local currency; Actual Remittance of Estimated Broker Tax Withholding Funds vs. Netting off / intercompany book entry accounting

• Step 7: Most brokers can pay proceeds in local currency or in US$• Step 8: Converting US $ transaction data into foreign currency

reportable amounts – Stock Admin vs. Local Payroll• Step 9: May use corporate exchange rate (as determined by company)

or remittance date rate; will incur currency gains or losses

Stock Option Exercise with Same-Day-Sale

Controls – Stock Options• Track and Tie-out Cash (Exercise Price and Tax Withholding) received

from Broker

• Compare Shares sent to Broker by Transfer Agent to Shares Exercised (maintain Control Log)

• Regularly Audit Income and Estimated Withholding Processed by Local Payroll matches exercises in administrative system

• Separation of Duties – Finance vs. Legal vs. Stock Administration

Process Distinction• Option Exercise is Employee Initiated Transaction – unpredictable

timing, requires ongoing accuracy of exercisable option data at broker

Stock Option Exercise with Same-Day-SaleStock Option Exercise with Same-Day-Sale

RSU Sell–to-Cover Withholding

Variations - RSUs

• Step 5: Tax Rate Specificity – Highest vs. Indiv. Marginal & Cumulative Pay over/under Social Tax Caps

• Step 5 and Step 9: Process for Fractional Shares/Fractional Share Cash left from Broker Sell-to-Cover

• Step 7: Broker may Remit Taxes Directly to Local Payrolls in Local Currency

• Step 8: Converting US $ transaction data into foreign currency reportable amounts – Stock Admin vs. Local Payroll

• Step 9: May use corporate exchange rate (as determined by company) or remittance date rate; will incur currency gains or losses

RSU Sell–to-Cover Withholding

Additional Pre-Share Release Steps• Terminations – Need for Most Current Demographic Data to be

reported by HR or Local Payroll to Stock Administration• Brokerage Account Activation• Grantee Consent to Sell-to-Cover• Check that all Grantees have W-9 or W-8BEN on file with Broker

before Vest/Release Date

Transaction Process Controls• Track and Tie-out Gross and Net Shares and Tax Withholding $ per

Broker, and # of Awards, Employees• Compare Shares sent to Broker by Transfer Agent to RSUs

Vested/Shares Released (maintain Control Log) • Regularly Audit Income and Tax Withholding Processed by Local

Payroll Matches Transaction Data in Administrative System

RSU Sell–to-Cover Withholding

ESPP Purchase with Payroll Withholding

Common Process Variations - ESPP• Step 5: Funds may be kept with General Company Funds and may not

be held in a Separate Bank Account

• Step 7: Actual Remittance of ESPP Contributions vs. Netting off/intercompany book entry

• Step 8: Fractional Share Contribution Amount may be Refunded

• Step 11: Converting US $ transaction data into foreign currency reportable amounts and computing special taxable value – Stock Admin vs. Local Payroll

• Step 12: Shares could be Sold to Cover Tax Withholding as with RSUs (Actual Remittance vs. Netting book entry)

ESPP Purchase with Payroll Withholding

Additional Pre-Purchase Process Steps• Terminations and Withdrawals need to be reported by HR or Local

Payroll to Stock Administration• Refunds of Current Offering Period Deductions by Local Payroll• Refunds of Prior Offering Period Contributions Coordinated between

Stock Administration and Local Payroll (Currency Exchange Rate issues)

Controls• Compare Shares sent to Broker by Transfer Agent to Shares Purchased

(Control Log)• Audit Income Reported by Local Payroll Matches Discount on Share

Purchase (unless taxable value exception applies)• Occasionally Audit that Local Payrolls are taking the appropriate

Contribution Amounts (Rates and Eligible Compensation)

ESPP Purchase with Payroll Withholding

Recharge of Share-based Compensation: A recharge agreement is a formal legal agreement between the US parent and foreign subsidiary. Under the arrangement, the foreign subsidiary agrees to reimburse the US parent for the “cost” of providing equity compensation to employees of the subsidiary.

• Tax free repatriation of cash back to the US ($75 in following flowchart)

• The recharge may secure a local corporate tax deduction (of $75 in following flowchart), create a Deferred Tax Asset, which lowers net GAAP award expense, and decrease the effective corporate tax rates around the world

• In most cases, the recharge is not treated as a payment of a dividend

• In some countries the recharge of costs can change the tax character of the benefit to the employee and subsidiary employer reporting and withholding obligations for stock-based compensation, but does not generally impact compensation design considerations

Recharge of Costs

U.S. Parent

Local Subsidiary

Employeepays strike price

of $25 to U.S. ParentU.S. Parentdelivers $100 of stock to employee

Local Sub reimburses U.S.

Parent for “spread” of $75 pursuant to Reimbursement

Agreement

Employee provides services to Local Sub

Rec

harg

e A

gmt

Recharge of Costs – Direct Charge

U.S. Parent

Local Subsidiary

Employeepays strike price

of $25 to U.S. Parent

U.S. Parentdelivers $100 of

stock to employee

Local Sub reimburses Holding

Company which reimburses U.S.

Parent for “spread” of $75 pursuant to Reimbursement

Agreements

Employee provides services to Local Sub

Rec

harg

e A

gmt

Holding Company

Rec

harg

e A

gmt

Recharge of Costs – Indirect Charge

U.S. Parent

Local Subsidiary

Employeepays strike price

of $25 to U.S. Parent

U.S. Parentdelivers $100 of

stock to employee

Holding Company reimburses U.S.

Parent for “spread” of $75 pursuant to Reimbursement

Agreement

Employee provides services to Local Sub

Holding Company

Rec

harg

e A

gmt

Recharge of Costs – Holding Co. Charge

Recharges - Additional Tax, Reporting, Withholding ObligationsCountry Additional

TaxesReportingTriggered

WithholdingTriggered

Belgium Social taxes Report exercise spread for options accepted after 60 days

Social Tax

Brazil MaybeSocial taxes

Maybe Maybe

Czech Republic

Social taxes Yes Yes

Mexico MaybeSocial taxes

Maybe Maybe

South Korea Social taxes Yes YesThailand No Yes Yes

Recharge of Costs Payroll Implications

Internal Process Documentation – Employee Transactions

Recommendations for Internal Process Documentation

• Create Flowcharts for your specific process

• Show timing requirement for each step (T–1, T, T+3, etc.)

• Support with “Step Process List” to provide details of requirements and actions and timing, including:

• One Step Process Document per country• Pre-transaction preparatory steps, such as updating demographic data

and activation of brokerage accounts• Responsible local country contact names (principle and secondary)• Money transfer details and G/L Account #s

• Distribute, educate, keep centrally accessible, adhere to the steps

Internal Process Documentation - Recharges

Recommendations for Recharge Process Documentation • Global Recharge Matrix should include, for each country:

• Whether Recharge to be made• Is Written Agreement in Place, Names of Entities, Expiration Date• Treasury Shares or Newly Issued Shares required• Rechargeable Amount (FMV per plan, T-share cost, lower of, other)• Impact to Employer Reporting Obligations• Impact to Employer Withholding Obligations• Impact to Social Tax Liability

• Schedule for Settlement of Recharged Amounts

• Quarterly Reconciliation of Recharged Amounts

• Distribute, Educate, keep centrally accessible, adhere to the steps

Internal Process Documentation - Recharges

Other Internal Process Documentation Needs

• Non-Employee Directors (W-9 and W-8BEN collection, Potential Tax Withholding, Income Reporting)

• Mobile Employees (Identification, Movement Data, Tax Positions, Transaction Process Intervention, Tax Equalization Cost Accruals)

• Grant Approval Process (General Design and Variations, Board/Committee Resolutions and Minutes, Grant Documents, Employee Notification, Grant Acceptance)

• Dividend & Dividend Equivalent Processes

• Employee Communication Timeline, including Internal Review Steps

This presentation contains general information only and the respective speakers and their firms are not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. The respective speakers and their firms shall not be responsible for any loss sustained by any person who relies on this presentation.

Transactional Nightmare or OrganizedChaos?: Tracking Funds and Data

Transactional Nightmare or Organized Chaos? Tracking Funds and Data

Scott Barrall Suzie Bentley Trish Boepple Deloitte Tax LLP NVIDIA Corporation Global Shares

sbarrall@deloitte.com sbentley@nvidia.com pboepple@globalshares.com

(408) 704 – 1071 (408) 566 – 6591 (408) 219 – 4150