What are the international tax and transfer pricing considerations for equity-based incentive compensation?

Equity-based incentive compensation (also called stock-based compensation) generally consists of the grant of stock options or ‘whole share’ awards to an employee or an independent contractor. Equity-based incentive compensation plans allow recipients to gain an ownership stake in the company. By offering share ownership in the company, employers not only reward employees but provide them with a valuable complement to traditional cash-based compensation packages.

As companies continue to expand globally, equity-based compensation is increasingly offered to employees located in countries other than the country where the stock award issuing company is located. For example, R&D employees employed by an Indian subsidiary of a US parent can receive stock options issued by the US parent and exercise them after the options have vested.

Cross-border issuance of equity-based compensation can lead to a number of cross-border tax and transfer pricing issues for multinational companies…

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