Many companies, despite the best of intentions, are having difficulty complying with the payroll-related requirements of every country related to its equity compensation plans. Typically, countries have several tools at their disposal to audit an employer or employee's compliance with local tax law. The auditors might commence an investigation of the local employer's payroll records or corporate tax returns to determine if appropriate tax withholding and wage reporting have occurred related to equity compensation. As for employees, an audit of the individual's finances could reveal unreported income. In response, many countries have expanded and invigorated their audit tools.
Some examples follow.
The NTA is asking major multinationals doing business in South Korea to provide the names of all employees participating in a company-sponsored stock option plan. The aim is to ensure that Korean taxpayers who exercise stock options while working in South Korea are reporting all required income on their returns and that delinquent taxpayers are appropriately penalized for not reporting all relevant income. Japan In Japan, the Tokyo Regional Taxation Bureau sent letters last fall to over one thousand foreign entities within its jurisdiction, asking them to respond to questions about equity compensation. It appears that the questionnaires have so far been sent mainly to large companies operating in Japan with a US affiliation. This likely reflects the fact that the Japanese government believes that US multinational employers have the majority of equity plan participation.