Recharge agreements are a way for multinational companies to reduce the after-tax cost of equity compensation for their employees in foreign subsidiaries. In a recharge agreement, the subsidiary pays back the US parent for the cost of the equity. The payment is tax-deductible for the subsidiary, and that tax benefit rolls up into the worldwide consolidated financial statement. Meanwhile, the US parent receives the cash from that payment tax-free.
According to our surveys, just under 50% of companies have implemented recharge agreements. Among companies with over 1,000 participants, 82% have recharge procedures in place.
We can help. As part of this service, we do the following:
- Quantify the benefits of a recharge agreement based on historical data
- Establish processes for efficient billing of foreign subsidiaries for the cost of equity issued to employees in those subsidiaries
- Support accruals of future billings for distribution to foreign subsidiaries
- Embed the impact of employee mobility into recharging, showing time spent in each jurisdiction and appropriate pro-rations
Rely on Equity Methods for the reporting and billing infrastructure to facilitate inter-company recharge agreements.