Accounting Research Tool
Chapter 10 — Share-Based Payments

10.4 "Recharge Payments" Made by Foreign Subsidiaries

10.4 “Recharge Payments” Made by Foreign Subsidiaries

Generally, a U.S. parent company is not entitled to a share-based compensation tax deduction (in the United States) for awards granted by the parent to employees of a foreign subsidiary. Likewise, in most jurisdictions, the foreign subsidiary that does not bear the cost of the compensation (i.e., because the foreign parent who issued the award to the foreign subsidiary’s employees is bearing the cost) will not be able to deduct the award in the foreign jurisdiction. Accordingly, some arrangements may specify that a foreign subsidiary will make a “recharge payment” to the U.S. parent company that is equal to the intrinsic value of the stock option upon its exercise so that the foreign subsidiary is entitled to take a local tax deduction equal to the amount of the recharge payment. Under such an arrangement, the U.S. parent company is not taxed on the payment made by the foreign subsidiary with respect to the parent company’s stock.