Irish share incentives developments
Revenue updates on operation of APSS
The Revenue Commissioners have made some small but welcome changes to their guidance notes in relation to the operation of salary foregone and contributory (“buy one get one free”) arrangements via their Approved Profit Sharing Scheme.
Calculation of salary foregone
There is no longer a requirement to peg both the number and value of shares acquired using salary foregone to the number and value of shares acquired using bonus or other employer-funded element. Revenue now accepts that only the value of the shares needs to be pegged. Many companies allow their employees to set aside salary over a period of time during the tax year such that shares acquired using salary foregone funds may be purchased at a different time from shares acquired using bonus. Previously, Revenue would only allow the shares acquired using salary foregone to have a value up to the value of the bonus shares acquired in the tax year and the number of shares acquired could not be greater than the number of shares acquired using bonus. This was to ensure that the salary foregone element remained a subsidiary part of the overall scheme, but it also meant that where the share price may have fallen between the bonus allocation and the salary foregone allocation, employees were not allowed to invest all of their salary foregone. This is a welcome change as it will simplify the administration and ensure that employees can, subject to overall limits, invest the same amount in Euro via salary foregone as they have in bonus-funded shares.
Revenue has clarified the time frame for re-investing cash acquired on a cash-only offer in a takeover. In particular the updated guidance recognises that it may not always be possible to re-invest in shares immediately to preserve the income tax treatment, so Revenue has amended this to state that in exceptional circumstances and on prior application they will permit shares to be acquired up to three months after the relevant transaction provided the original shares have not reached the 3 year release date.
Contributions to BOGOF schemes
Revenue has removed the condition which required the employee’s contributions to be fixed at the start of each year where carry-forward applied. Previously, Revenue only permitted carry forward (where the funds accumulated were not sufficient to buy an additional whole share) from one month to the next subject to, among other rules, the monthly contributions being fixed at the start of the tax year and not varied during the tax year. This change is welcome as it will simplify the administration for companies in relation to the monitoring of employee contributions to comply with Revenue limits, and it will give participants more flexibility in relation to their contributions where their circumstances may change during the tax year e.g. if they receive a pay increase, change their working hours or take a leave of absence and wish to increase or reduce the amount they invest accordingly.
Irish Government consultation on taxation of share-based remuneration
The Irish Government has recently launched the Programme for Partnership, a formal consultation to review ways to more effectively incentivise entrepreneurship, in particular to consider the tax treatment of share based remuneration. This consultation is a welcome development in the area of incentives and comes on the back of a Government commitment to encourage employee financial participation. The consultation will consider all possible changes to the current system of taxing the gains on shares given by employers to their staff. As part of this process, the Government is currently looking for submissions from interested parties; namely businesses, business professionals, advisors and representative bodies.
If you are interested in making, or contributing to, a submission before the consultation period ends on 1 July 2016, or have any queries generally around share based remuneration, we would be happy to assist. Please contact Keavy Ryan or Rosaleen Boyle for further details.
Date published: 24 May 2016