Stronger case for stock based compensation recharges under OECD Pillar II

As multinational enterprises (MNEs) continue to expand their stock-based compensation (SBC) programs, managing the cost of these equity incentive plans becomes increasingly important. To generate a local corporate tax deduction, many MNEs recharge the SBC award costs to the employing group entity. This strategy is particularly relevant in light of the imminent implementation of the Organization for Economic Co-Operation's (OECD) Pillar 2, which sets the framework for a new global minimum tax regime in several jurisdictions beginning in 2024.

Recharging SBC costs can be beneficial to the employing group entity from an effective tax rate perspective due to Pillar 2 considerations. However, there are intricacies associated with recharging costs, including common pitfalls that must be navigated. This article explores the complexities of recharging costs associated with granting SBC awards, as well as the interplay with Pillar 2 rules as they relate to SBC awards.