2016 amendment: net settlement for withholding tax

Learning objectives

• Explain that a net settlement feature for withholding tax obligations does not result in cash-settled classification and that the tax payment is deducted from equity.L3
• Calculate the amount withheld and the net number of instruments delivered, and record the payment to the tax authority.L3

Normative references

The syntheses of the reference register are written in French: only the paragraph reference is shown here.

2 questions

• 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?L3
• An equity-settled plan of Brisa SA includes a net settlement clause: at vesting, the value of the shares due to an executive is {value_at_settlement} and Brisa withholds, to pay the executive's tax to the tax authority, shares representing {tax_withholding_rate} of that value (withholding rate set by tax law: case data). Compute the amount withheld and the value of the shares delivered to the executive. The 2016 amendment applies to annual periods beginning on or after 1 January 2018.L3