In this month’s update, important information about Turkey, Denmark, the Netherlands, Singapore, Thailand and the United Kingdom.
New data protection law
Dedicated data protection and privacy legislation has been introduced in Turkey for the first time in the form of the Data Protection Law which came into force on 7 April 2016. This legislation is based on the EU Data Protection Directive.
The Data Protection Law is being introduced in stages with the following milestone dates:
- April 7, 2016: the rules on data processing for new data start to apply (subject to certain transition periods)
- October 7, 2016: the Data Protection Board will be established and will supervise the establishment of a public Data Controllers Registry. Companies will need to comply with rules relating to the transfer of personal data to third parties and abroad. Sanctions for failure to comply with the data protection rules will come into force.
- April 7, 2017: secondary legislation will be in force by this date, setting out further information about process and procedure for compliance. Individuals have until this date to elect to withdraw consent to the use of personal data, failing which it will automatically be deemed to be complaint with the legislation.
- April 7, 2018: deadline for data collectors to ensure that data collected before 7 April 2016 is now compliant with the Data Protection Law; any remaining non-compliant data will be required to be deleted or anonymized.
Key features of the new legislation are as follows:
- “Explicit consent” must now be obtained before any form of personal data processing takes place; this is consent that is freely given, informed and specific. Explicit consent will not be required in a number of exceptional cases, such as where there is a legal obligation to process data (for example, for tax purposes) or where processing is needed in order for a contract to which an employee is party to be executed or performed.
- Transfer of personal data abroad will require explicit consent. In addition, if the receiving country has inadequate data protection legislation, the data controller in Turkey and the data controller in the receiving country will be required to enter into a written agreement to be approved by the Data Protection Board to ensure that sufficient protection is in place for the data. Should the Data Protection Board consider that the data transfer might seriously harm the interests of the individual or of Turkey, it may veto the transfer.
- The individual will have the right to apply to the data controller for information about the use and processing of his or her personal data and ultimately may demand that it is either modified if incorrect or deleted altogether. Such information must be provided by the data controller as soon as possible or within 30 days, depending on the application itself. Any individual who has suffered as a result of unlawful data processing will be eligible for compensation provided by the data controller.
- Greater governance means that data controllers will need to register on the Data Controller Registry before they start processing data. In addition, data controllers and data processors will need to implement systems and processes to ensure full data security and to prevent unlawful access to personal data. If there is a breach, data controllers will be required to notify the Data Protection Board.
- Fines of up to TRY1,000,000 and prison sentences up to a maximum of 4 years may be imposed by the Data Protection Board.
These changes will have wide-reaching implications for companies operating in Turkey and it is advised that all systems, policies and processes for dealing with personal data are critically reviewed with the new legislation in mind. We anticipate that most aspects of the operation of share plans will require explicit consent before personal data may be processed and, for global plans, consideration will need to be given to the requirements for the transfer of personal data outside Turkey.
New draft bill offering a favorable tax treatment to employee share programs
On February 2, 2016, the Danish Ministry of Taxation announced a public consultation on a draft bill introducing favorable tax rules for shares, share options and share warrants awarded pursuant to employee share plans under section 7 P of the Danish Act on Tax Assessment (and based upon the existing rules in section 7 H of the Danish Act on Tax Assessment).
Under the proposed legislation, with effect from 1 July 2016, provided certain conditions are met:
- Any income arising on share vesting or option exercise would be taxed under the more favourable capital gains tax regime (up to 42%) rather than as personal income (up to 56%)
- The tax liability would be delayed from the date of award until the sale of the shares
- The company would not be entitled to claim a corporate tax deduction in respect of any discount to the value of the shares
- The company has to report all share awards in the income register
One change from the previous rules is that an attestation from a lawyer or auditor would no longer be required. Instead, the company would be required to report all awards in the income register and to report to the Danish Tax Authority the exercise of share options and share warrants by employees.
We would like to thank our collaborating law firm Gorissen Federspiel for their detailed update on the proposed tax changes in Denmark in relation to equity plans.
Rules for independent contractors amended
On February 2, 2016, the Dutch Upper House passed the Assessment of Employment Relationships Deregulation Act (Wet deregulering beoordeling arbeidsrelatie or the DBA Act) which came into force on 1 May 2016. This legislation has an impact on the tax position of independent contractors and the companies that engage their services (their clients) and also supervisory board members of Dutch companies. Prior to this legislation independent contractors held a self-employed statement (a Verklaring arbeidsrelatie or VAR) which generally exempted client companies from withholding income tax and social security contributions.
With effect from May 1, 2016, all VARs lapsed and were replaced by the new DBA system requiring client companies to enter into pre-approved agreements approved by the Dutch tax authorities with the independent contractor and all activities to be carried out in line with the agreement. If these conditions are satisfied the withholding obligation on the client company will be waived.
Companies that fail to comply with the new requirements will be required to operate withholding of income tax and social security contributions on payments to the independent contractor. In addition, interest and penalties may be levied as appropriate and additional assessments may take place retrospectively for up to five years from 1 May 2016.
For supervisory board members the position has also changed. They have historically been deemed to be employees and, provided that they held a valid VAR, no income tax or social security contributions were required to be withheld (and nor were employer contributions required under the Healthcare Insurance Act).
With effect from January 1, 2017, supervisory board members will no longer be considered deemed employees. Companies are able to refrain from withholding income tax and social security contributions from supervisory board fees paid to supervisory board members with effect from 1 May 2016 provided that this has been agreed with the supervisory board member. With effect from 1 January 2017, non-resident supervisory board members who benefit from the 30% ruling for expatriates must make an election for this status to continue (subject to the satisfaction of certain other requirements).
Companies are advised to review their arrangements with both contractors and supervisory board members. The onus is now on client companies to ensure that relevant agreements have been put in place and approved by the Dutch tax authorities. In addition, the impact of the changes on the tax position of non-resident supervisory board members will need to be evaluated carefully.
Increase in the income tax rates
The maximum income tax for individuals has been increased from 20% to 22%.
Increase in the income tax rates
On February 12, 2016, the Thai government confirmed the extension of the temporary reduction in the progressive personal income tax (PIT) rates that had been introduced in the 2013 tax year to the 2016 tax year. As a result, the PIT rates for the 2016 tax year will not change.
Latest update from HMRC on ERS Online Returns Service
HMRC has provided an update on the filing of 2015/16 share scheme returns through the ERS Online Service (Employment-related Securities Bulletin No 22 published in April 2016).
In response to technical difficulties encountered by customers when filing their 2014/15 share scheme returns, HMRC has decided to stagger the release of the returns service, with top priority being given to the schemes and file formats that are most commonly used by its customers.
At 6 April 2016, the service will accept submissions of both EMI (Enterprise Management Incentives) returns and ‘Other’ (non-tax advantaged arrangements) in .ods format.
Templates in .ods format for Share Incentive Plans (SIP), Save As You Earn schemes (SAYE) and Company Share Option Plans (CSOP) will be accepted from the end of April and the less commonly used .csv format will be accepted from the end of May 2016.
The impact of this staggered approach is anticipated to be minimal as in fact last year most customers chose to file their returns towards the end of the filing period, with 80% of them filing during June. In addition, customers are advised to prepare their returns and use the checking service to ensure that their returns are free of errors prior to submission as usual.
In addition, any late returns for 2014/15 will now need to be submitted using the 2015/16 tax return templates, selecting the relevant return year.
Following the technical difficulties experienced last year by many companies it is to be hoped that the changes introduced by HMRC will result in the process running more smoothly for the 2015/2016 returns.
HMRC Spotlight 28: Employee Bonus Schemes – Growth Securities Ownership Plan
On February 3, 2016, HM Revenue & Customs (HMRC) issued Spotlight 28 entitled “Employee Bonus Schemes – Growth Securities Ownership Plan and other avoidance schemes based on contracts for difference.”
A Growth Securities Ownership Plan is an arrangement pursuant to which an employee pays to acquire a contract for difference. This entitles the employee to receive a cash payment at a fixed date in the future provided that a pre-determined target has been achieved (usually linked to the company’s performance or other event, such as the sale of the company) – the “upside”. The employee will suffer a financial loss if results fall below a specified threshold – the “downside.” In practice, the downside risk is significantly less in financial terms than the potential upside and the likelihood of its being triggered is also much lower.
This structure has been designed to attract capital gains tax (CGT) rather than employment income tax treatment on maturity (which in practice would mean lower tax rates, no PAYE withholding obligations and no employee or employer National Insurance contributions (NICs)).
Spotlight 28 sets out HMRC’s “firm view…that the schemes do not work and that any payments made by an employer to an employee on the maturity of the contract for difference should be taxed as employment income and subject to PAYE income tax and employer and employee National Insurance Contributions”. HMRC will challenge such “ineffective” arrangements “swiftly and rigorously”.
As part of their participation in these arrangements, employees usually agree to reimburse the employer for any income tax and/or NICs that HMRC recovers from the employer. HMRC’s stance may mean that employees will now wish to consider very carefully the risk of their employer attempting to recover money from them should they participate in such arrangements in the future.
HMRC notes that any employer who wishes to avoid litigation is able to settle the outstanding tax and employer and employee NICs, together with accrued interest.
Employers who operate Growth Securities Ownership Plans or similar arrangements should take swift action to review these arrangements and take appropriate steps to settle their position with HMRC, as well as communicate with participants about the risks of participation.