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New Deferred Compensation Rules Given Broad Welcome By US Business

by Leroy Baker, Tax-News.com, New York

24 December 2004


The US Treasury Department’s decision to exempt stock appreciation rights from new rules which impose restrictions on executive deferred compensation schemes has been broadly welcomed by businesses, reports suggest.

The new rules have been introduced as part of the American Jobs Creation Act, and seek to prevent future executive pay abuses by placing restrictions on when and how deferred compensation schemes can be accessed by their beneficiaries.

While the Treasury and the IRS are concerned that a general exception for stock appreciation rights “may be exploited as a method to avoid”, the authorities have nonetheless seen fit to provide SARs with “limited exceptions” from the more stringent regime provided they do not present “potential for abuse or internal circumvention”.

However, according to Elizabeth Buchbinder, partner at accounting firm Ernst & Young, the new rules provide a permanent exception from the new rules for SARs that are settled in stock at fair market value.

"It is a victory for public companies,” she noted in a Dow Jones Newswires report, although she added that businesses will have to “wait and see” how the regime works in practice.

A comprehensive report in our Intelligence Report series examining expatriate taxation, executive compensation and reward structures is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report10.asp

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