CERTYNEX IFRS ACADEMY

An equity-settled share plan includes a net settlement clause: the entity withholds part of the shares to be delivered in order to pay the employee's tax to the tax authority. A colleague classifies the whole plan as cash-settled because of this clause. What is the error?

Under the 2016 amendment, a plan with net settlement for tax withholding stays classified as equity-settled if it would have been without that feature.

The net settlement clause is a market condition, which should have been reflected in the fair value of the award and not in the classification of the plan.

The part withheld for tax should have been classified as cash-settled and the rest as equity-settled, whatever the applicable tax law, the withholding being paid in cash.

The plan should have been treated as a cancellation of the original plan, then as a new cash-settled plan from the clause.