Session_9.3_Presto_LTIP_Italy

SESSION 9.3
Presto! Managing LTIPs in Italy
Sandra Sussman – Gilead Sciences
Olivia Cattaneo – BNP Paribas Securities Services
Stefano Bondioli – BNP Paribas Securities Services
Session 9.3
Presto! Managing LTIPs in Italy
Sandra Sussman – Gilead Sciences
Olivia Cattaneo – BNP Paribas Securities Services
Stefano Bondioli – BNP Paribas Securities Services
Agenda
The Italian environment
•  Placement services
•  Tax implications for the employees
•  Tax obligations for the employers
Gilead Sciences experience
The Italian environment
• 
Managing global LTIPs plans is always a challenge, in
particular in a fast-changing environment like the Italian one
• 
Our focus is the very specific Italian regulatory framework to
answer to the following questions:
•  How to present and promote the plan in compliance with
Italian rules?
•  How to help employees and employers avoid burdensome
tax calculations and declarations?
Background
•  Italian rules prescribe measures to protect final potential investors
and define specific procedures to follow when managing Share
Purchase Plans
•  The promotion and placement of financial instruments outside the
premises of the issuer and addressed to the public is considered in
Italy “door-to-door selling”
•  The local rules state that the “door-to door
selling” must be mandatorily managed by an
accredited financial salesman (“Promotori
Finanziari”) of an authorised financial
intermediary
Who is the Financial Salesman
“Promotore Finanziario”?
• 
The Promotore Finanziario is an individual who is registered
in a specific roll held by CONSOB (independent
administrative authority responsible for regulating and
supervising the Italian securities market; its activity is aimed
at the protection of investors)
• 
In order to become a Promotore
Finanziario the individual must meet
specific requirements in terms of
professional experience and
honorability
When is the “Promotore Finanziario”
required?
• 
The Promotore Finanziario must intervene when the participation
in a share compensation scheme implies disbursement of cash by
the employee, e.g.,
• 
• 
• 
ESPPs
Stock option plans which allow for “exercise and hold” or “sell to cover”
methodologies
It is not mandatory when the plan provides for
free assignments, such as:
• 
• 
• 
• 
RSUs
Stock option plans which allow only for
“cashless/sell all” methodologies
Preferred shares
Stock awards
The impact of MIFID Directive
•  Local rules implementing MIFID require an
authorised intermediary to enter into a
placement agreement with each single
beneficiary
•  The placement agreement must include
pre-defined annexes, among which:
•  A questionnaire for the evaluation of the
appropriateness of the investment
•  A remote identification form for anti-money
laundering purposes
Focus on the appropriateness questionnaire
• 
• 
• 
The aim of this test is to evaluate
whether the investment is
appropriate for the employee, i.e.,
if the employee has the
knowledge and experience/
competence to fully understand
the consequences, fiscal
implications included, of the
investment
The answers are recorded and a
grade is assigned to the
employee
If the assigned grade is lower
than a certain level, then the
investment is not appropriate
Focus on Identification for Antimoney
Laundering
• 
Legislative decree n. 231/2007
obliges financial intermediaries to
proceed with anti-money
laundering identification
• 
Alternatives for the employee:
•  Direct identification by
meeting the PF
•  Indirect identification (the
employee asks his/her bank
to sign the remote
identification form)
•  By a wire transfer including a
code pre-agreed between the
Bank and the Issuer
The Roadshow
• 
• 
• 
• 
It is not mandatory, and some companies decide not to promote the plan
through a tour of presentations, but to inform the employees only through
the information kit
Nonetheless, if the company decides to perform the roadshow, the plan
must be presented by a Promotore Finanziario to explain the financial and
fiscal aspects and to answer to potential questions raised by the
beneficiaries
The presentations can be organised when the plan is launched or
periodically when new employees are hired
During the whole life of the plan, the financial
intermediary should establish and maintain a
dedicated telephone number or e-mail adddress,
available for the employees to ask for any
clarification
How to match Italian rules and US habits?
•  Italian rules allow companies to inform the
employees through their intranet site
•  Nonetheless, the enrollment/participation in
the plan cannot be completed without the
intervention of an Italian financial
intermediary
•  Some phases of the standard process (e.g.
online enrollment) must be adapted to be
compliant with Italian regulations
•  A strict co-operation between the local HR
department and the Italian financial
intermediary is a key factor for success
Italian tax implications: the background
Taxes to be paid by the employees
• 
Financial instruments, and more specifically shares, are subject in
Italy on taxes:
•  At sale (capital gain tax)
•  At dividend payments
• 
When foreign shares are subscribed and held abroad, the
employee must declare his foreign holdings to the Italian tax
administration and pay capital gain taxes presenting a complete
tax return declaration
•  in Italy employees normally are not required to present
complete tax return forms to Italian tax authorities: Italian
employees usually present simplified forms
•  this is perceived as a burden which spoils the value of the
plan itself
First solution: the custody of the shares in Italy
Issuer
Italian employees
After the assignment/
exercise
Central Share Administrator
The central broker manages all the
holdings except Italian employees
• 
Italian Share Administrator
The Local Administrator is responsible for:
• 
• 
• 
The custody of the shares
The sale/transfer of the shares
The Italian tax application
Highlights:
•  The beneficiary has a local contact and feels at ease
•  The company cannot have a complete view of its plans
•  Italian custody accounts are subject to an annual stamp duty of 32 € (43 USD)
Second solution: the appointment of an Italian
tax agent
Issuer
Italian employees
At the sale / payment of dividends
Italian Tax agent
Central Share Administrator
The central broker manages all the
holdings including Italian employees
• 
The Italian tax agent is responsible for:
• 
• 
The collection of financial revenues
The Italian tax application
Highlights
•  The cost of Italian custody accounts is avoided
•  Beneficiaries can benefit from services offered centrally for the world-wide plan
•  The company can maintain a complete overview of its plans
•  The co-ordination between the Central Share Administrator and the Italian Tax
agent is crucial
Italian tax implications: the background
Taxes to be paid by the employer
• 
Benefits connected to the incentive plans (e.g. the discount
in case of ESPPs or the gain deriving from stock option
exercise) are considered as salary
•  Employers often consider the benefit calculation as
complex and time consuming
•  They need to cope with the “funding issue” in case of
huge benefits (such as for stock options)
Focus on the obligations for the employer
Employee share purchase plans / RSU / Preferred shares
• 
• 
At the assignment: the difference between the value of the shares at their attribution
and the purchase price (net of a tax bonus amount, where applicable) represents
employee income
•  the income taxable amount must be calculated
•  sell-to-cover procedures could solve the funding issue
During the plan’s life: a minimum lock-up period of three years is required to benefit
from the tax free amount
•  the minimum holding period should be monitored
•  in case of sales before the end of the lock-up period, due taxes should be applied
on the tax free amount
Stock option plans
• 
Taxation of exercise gains: the difference between the value of the shares at
their attribution and the strike price represents employee income
Highlights on US plans: Gilead Sciences
•  Began using financial intermediary in 2008
•  ESPP and stock options
•  Placement/custody services; no tax services
•  Participation rate fell from nearly 70% to 44% after first full year with
intermediary
•  Banca Euromobiliare exited the financial intermediary business at
the end of 2009
•  Participation rate fell to 42% upon announcement
•  Required speedy search for new intermediary
•  Opportunity to revisit needs and value-added solutions for all
Highlights on US plans: Gilead Sciences
•  Rules clarified – custody in Italy not required!
•  Opportunities for better employee experience
•  Streamlined processes
•  Tax services introduced
•  Mitigates risk of error
•  Frees up internal resources
•  Benefits both the employer and employees
•  Coordination with US provider
•  Foreign disbursement account in US, cash account in Italy
•  Monitor ESPP share sales
•  Coordination with former Italian provider
•  Upload share positions from prior purchases
•  Transfer shares to US accounts
Highlights on US plans: Gilead Sciences
Information flows
Cash flows
Purchase
dates
Empl 1
“tax acct” 1
Empl 2
“tax acct” 2
Empl n
“tax acct” n
Tax prices
Income taxable amount
Income taxable amount
Sales
Empl 1
“tax acct” 1
Empl 2
“tax acct” 2
Empl n
“tax acct” n
Income tax
CG Tax
Net proceeds
Tax Authorities
Italian employees
Gross sale price / stock options gain
Highlights on US plans: Gilead Sciences
•  Challenges
•  Coordinating with US provider for best solution to
transfer sale proceeds
•  Obtaining employee authorization for movement of
cash
•  Moving shares from former Italian provider to US
accounts
•  Linking and communicating benefits of the new Italian
provider together with benefits of ESPP participation
Highlights on US plans: Gilead Sciences
•  Benefits – Employees
•  One stock plan account for employees
•  No additional account-maintenance costs
•  Shares immediately sellable; no delay due to transfer from
US to Italy
•  Holding periods monitored
•  Income and capital gains tax assistance
•  Benefits – Gilead
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One stock plan account for employees
No additional account-maintenance costs
Holding periods monitored
Income/social tax calculation and withholding assistance
Happy Endings
Work with an Italian partner to leverage
available solutions and—presto!!—you can
manage your LTIPs in Italy