Australia tax: Australian Taxation Office employee share scheme arrangements

The Australian Taxation Office recently indicated its intention to focus on employee share scheme arrangements. Under such arrangements, a parent company (Australian or foreign) typically provides equity (shares or rights to shares, including options) to the employees of its overseas subsidiaries.

Transfer pricing principles generally require a charge to be made for these arrangements in recognition of the benefit being provided to the employees of the subsidiary companies.

From an Australian transfer pricing perspective, risks arise when an Australian-headquartered company provides equity to employees of its overseas subsidiary for no or a negligible charge, or when the employees of the Australian subsidiary receive equity from the foreign parent and the charges made by the foreign parent are considered excessive.