Tax Equalization Amounts Clause Samples
The Tax Equalization Amounts clause ensures that an employee working internationally is not disadvantaged or advantaged by differences in tax regimes between their home and host countries. In practice, the employer calculates the hypothetical tax the employee would have paid in their home country and compares it to the actual tax paid in the host country, reimbursing or deducting the difference as needed. This clause's core function is to maintain tax neutrality for the employee, preventing tax-related financial disparities due to international assignments.
Tax Equalization Amounts. If in any calendar year (the "Exercise Year"), the Executive exercises one or more Options, the Employers shall make a payment to the Executive equal to the Tax Equalization Amount, computed in the manner set forth below. Except as provided in paragraph (d) below, the Tax Equalization Amount shall be paid no later than April 15 of the year following the Exercise year.
(a) The Tax Equalization Amount shall equal the lesser of (i) the Employers' Tax Benefit Amount, or (ii) the Executive Tax Rate Differential Amount.
(b) The Employers' Tax Benefit Amount shall equal the excess, if any, of (i) the amount of consolidated Federal income tax liabilities that the Employers would have had for the taxable year of the Employers that includes the last day of the Exercise Year (the "Applicable Employer Taxable Year"), without taking into account any deduction to which the Employers are entitled directly by reason of the exercise of such Options, over (ii) the amount of consolidated Federal income tax liability of the Employers for the Applicable Employer Taxable Year, taking into account any deduction to which the Employers are entitled directly by reason of the exercise of such Options. The amount of the Employers' Tax Benefit Amount shall be determined by the Accounting Firm (as defined in Section 3.9).
(c) The Executive's Tax Rate Differential Amount shall equal the amount obtained by dividing "x" by "y", where "x" equals the excess, if any, of (i) the Executive's Federal income tax liability for the Exercise Year, over (ii) the amount of Federal income tax liability that the Executive would have had for the Exercise Year if income recognized directly by reason of the exercise of the Options exercised in the Exercise Year ("Option Income") had been treated as long-term capital gain, and "y" equals the number obtained by subtracting the Executive's marginal Federal income tax rate for ordinary compensation income under Subtitle A and Section 3101 of the Code (expressed by a decimal) (the "Income Tax Rate") from one; such that, by way of example, if the Executive's Option Income for the Exercise Year were $100,000 and the Income Tax Rate were 40% and the Federal tax rate applicable to long-term capital gains were 28%, the Tax Rate Differential Amount would equal $20,000, calculated as follows: The amount described in clause (i) above would, in such case, be $40,000 and the amount described in clause (ii) above would, in such case, be $28,000, and therefore the excess ...