[Paragraphs BC255A-BC255P are added as a consequence of amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions, issued in June 2016.]

BC255A This section summarises the Board’s considerations when it finalised its proposals to address the classification of a share-based payment transaction with a net settlement feature for withholding tax obligations, contained in the November 2014 ED.

BC255B Some jurisdictions have tax laws or regulations that oblige an entity to withhold an amount for an employee’s tax obligation associated with a share-based payment and to transfer that amount, normally in cash, to the tax authority on the employee’s behalf. Those tax withholding obligations vary from jurisdiction to jurisdiction. To fulfill this obligation, many plans include a net settlement feature that permits or requires the entity to deduct from the total number of equity instruments that it otherwise would deliver to the employee, the number of equity instruments needed to equal the monetary value of the tax obligation that the employee incurs as a result of the share-based payment transaction. The entity transfers the amount withheld to the tax authority in cash or other assets.

BC255C The Board received a request to address the classification of such a share-based payment transaction. Specifically, the Board was asked whether the portion of the share-based payment that the entity withholds to satisfy the employee’s tax obligation should be classified as cash-settled or equity-settled, if the transaction would otherwise have been classified as an equity-settled share-based payment transaction.

BC255D There were two views on this issue: