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EquiLink integrates equity compensation into the tax provision and tax return systems of a Fortune 500 Pharmaceutical company (PharmCo).


Like many pharmaceuticals, PharmCo expanded the number of employees eligible to participate in its equity compensation plan. With the increase in volume came higher levels of expense and related internal control issues around the tax provision and the tax return, especially with respect to grantees outside the U.S.

The problem can be illustrated as follows:

  • Twenty-five percent of the new grantees were working in a foreign country.
  • Many of these countries do not allow a tax deduction for equity compensation.
  • All countries, including the U.S., require significant documentation to substantiate a deduction.
  • Certain countries that grant a deduction require the use of a different method; e.g. the historic cost of treasury shares rather than market price.
  • The feeds received from the brokers had to be sliced into many different categories to allocate the deferred tax assets and deductions to the correct legal entity.

The old process required the collection of many spreadsheets from the brokers. There were separate spreadsheets for each type of award, for forfeitures, and for dividends. Performance shares for senior managers were not maintained at the broker and resided off-line in other spreadsheets. Topside entries were recorded in another spreadsheet.

Fortunately, PharmCo had very sophisticated tax accounting systems and EquiLink was able to leverage these systems to deliver a solution quickly.


All broker spreadsheets and topside entries are loaded into EquiLink, where the data is stored in a logical framework to support the required allocations and reporting requirements. Performance share data is then loaded into EquiLink so that all equity compensation data is stored in a single system.

The following groups were set up to allocate compensation expense, exercises and excess tax benefits/detriments by legal entity:

  • Foreign countries which do not allow a deduction and no deferred tax asset can be established,
  • Countries which allow a deduction, but need to value the deferred tax assets at the tax rate of each country, and
  • U.S., including legal entities that maintain individual state tax rates.

This information was loaded into TaxStream (a leading tax provision system), on a pre-tax basis. The data load is accomplished using standard spreadsheets that are a part of EquiLink. TaxStream then automatically manages the impact of all tax rate changes on the income statement and balance sheet as well as the journal entry to the general ledger.

The tax deduction for countries that require a different method to claim a deduction; i.e. the historic cost of treasury shares rather than market price on the date of exercise, are computed within EquiLink. The group set up for these countries is also used to document the inter-company charge-out of management fees.


PharmCo has implemented a repeatable process that delivers consistent results that can be consumed by its tax provision and tax return systems. PharmCo also owns all of its own data, computations and reports and is in a position to defend its accounts and deductions against any auditor in the future, without any dependence upon outside vendors or consultants. PharmCo has achieved total control over its equity compensation issues.

Why EquiLink?

EquiLink was created by the same team that developed TaxStream and reflects a deep concern for all corporate tax matters. The two systems, EquiLink and TaxStream, are designed to work together, with each complementing the strengths of the other. The team that led the integration had a working knowledge of both systems, which ultimately resulted in a successful implementation.

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