2021-09-24-KPMG_Global-Hong_Kong_-_Taxation_of_Share_Awards,_Vesting_vs._Forfeiture_4页_385kb

报告摘要

GMS Flash Alert Summary: Hong Kong - Taxation of Share Awards, Vesting vs. Forfeiture

Core Content

On 24 August 2021, the Hong Kong Court of First Instance (CFI) issued a landmark decision on equity-based compensation, reversing a prior ruling by the Board of Review. This case addresses the taxation of share awards in the context of vesting and forfeiture provisions, and has significant implications for employers using such schemes.

Main Points

Taxation Timing: The CFI ruled that the benefit from the grant of shares should be taxed at the time of grant, not when the shares are released from forfeiture.
Nature of Shares: The shares were held by a nominee for the sole and absolute benefit of the taxpayer and came with rights such as dividends and voting.
Retention Period: The shares were subject to a release period during which they could be forfeited if the employee left the company before the release date.
Vesting vs. Forfeiture: The CFI made a clear distinction between vesting (which defers the accrual of income) and forfeiture (which is the loss of an already vested interest). It clarified that forfeiture cannot occur without prior vesting.

Key Information

Taxpayer Background: The taxpayer was employed by a UK bank from 2002 to 2014, then transferred to a Hong Kong entity within the same group.
Share Awards: The taxpayer received three tranches of EVA Shares under the Group's Share Incentive Plan during his UK employment.
Release Dates: Each tranche had a release date, from 29 May 2012 to 27 May 2017. If the taxpayer left before these dates, the shares could be forfeited.
Dividends and Rights: From the date of award, the taxpayer had all the rights of a shareholder, including the right to dividends and voting.
CFI Ruling: The CFI held that the benefit of the shares accrued at the time of grant, not upon release, and that the shares were taxable as a perquisite at that time.

Why This Matters

This decision is crucial for employers who use or plan to use share-based remuneration schemes. It emphasizes the importance of distinguishing between vesting conditions and forfeiture provisions, which directly affects the timing of taxation and the valuation of shares. Employers must ensure their schemes are structured to align with their remuneration goals and anticipated tax outcomes.

KPMG Note

The ruling underscores the need for careful review of existing share-based remuneration arrangements.
Employers should consider the tax implications of share valuation, especially for early-stage companies.
The decision does not provide clarity on how to value shares subject to forfeiture for tax purposes, which remains a challenge.

Contact Information

For further assistance, contact:

Murray Sarelius
National Head of People Services
Tel: +852 3927 5671
Email: murray.sarelius@kpmg.com
David Siew
Partner, People Services Hong Kong
Tel: +852 2143 8785
Email: david.siew@kpmg.com