This excerpt taken from the YUM 10-K filed Feb 28, 2005.
Tax Equalization Program:
US Hypothetical Tax: Under the program, a US Hypothetical Tax will be retained from your base salary and bonus. Stock Option Gains and payments made under the Executive Income Deferral (EID) plan will not be subject to a US Hypothetical Tax upon payment distribution. However, you will be responsible for actual Hong Kong tax due on stock option gains and EID payments.
If at any point you are subject to PRC income tax you will be tax equalized to Hong Kong on your stock option gains and EID payments. In such case, you can expect to pay tax on your stock option gains and EID payments as if you were a full time resident of Hong Kong and the Company will pay your actual PRC tax liability for your stock option gains and EID payments and your actual Hong Kong tax liability for your stock option gains and EID payments. Please note, your salary and bonus will still be subject to US Hypothetical Tax withholding under this scenario.
The total maximum PRC tax and gross up cost that Yum will incur for stock option gains and EID payments is $5 million. You will be responsible for any taxes due which exceed the maximum. This amount will be reviewed periodically to determine if the maximum needs to be raised.
Should you leave the company prior to retirement eligibility, you agree to pay back to the Company all historical PRC tax benefits, beginning with the 2004 tax year, provided to you or on your behalf. Additionally, you agree to pay back to the Company all of the PRC tax benefits, provided to you or on your behalf, on all options granted after January 1, 2000 and exercised within 6 months prior to retirement.
Should you exercise options or receive EID payments after retirement from the Company, you will be responsible for all actual taxes due (including but not limited to PRC and HK tax).
Please note that the expense incurred by YUM! for PRC and Hong Kong taxes will be charged to Greater Chinas P&L.
Tax Assistance Services: To assist preparation of both Hong Kong and PRC taxes (if necessary), YRI has arranged complimentary tax preparation through KPMG.