The Irish Finance Bill was published on 4 February and contains a number of provisions relating to employee share incentives.
New Automatic Employer Reporting Obligation
Employers, or the grantors of awards, will be obliged to report all grants of shares and securities - including interests in shares - made to employees, in respect of awards made since 1 January 2009. Employers must file this information with Irish Revenue by 31 March after the end of the relevant tax year, so for awards during 2009 the deadline will be 31 March 2010.
Previously, share-based awards that were not i) share options or ii) made under an Irish Revenue approved scheme only had to be reported when Irish Revenue issued Form P11D to an employer for a particular tax year. This change brings employer reporting obligations for all share-based awards into line with those already in place for share options and Revenue approved schemes.
Relief for Restricted Shares (Clog Schemes) – Location of Trust
Tax relief is available for shares awarded to employees for free or at a discount, where the employee is restricted from dealing in the shares for a period of between 1 and 5+ years. One of the legislative requirements for this relief is that the shares must be held in a trust during the restricted period. A new provision requires that the trust must be established in Ireland or another EEA State and the trustees of the trust must be resident in Ireland or another EEA State.
Minor changes have been made to the existing legislation to clarify that the relief available is in the form of an abatement to the taxable amount, not the tax payable.
Approved Profit Sharing Schemes
Two changes have been introduced that are designed to prevent any abuse of the APSS legislation, which gives an income tax break to employees in respect of free shares issued by their employer or its parent company.
The first amendment states that Revenue will not approve a scheme unless they are satisfied that no loan or credit arrangements exist to enable some or all employees to participate in the scheme.
The second change prevents shares in a service company, or a company that has control of a service company, being used for APSS purposes.
Both of these changes are designed to take effect from 4 February 2010.
Good News: No Social Security Charges – Yet
One positive aspect of the Finance Bill is that the government has not sought to introduce employer or employee social security charges on share-based awards, including share options. This means that the cost to companies of making such awards still compares very favourably to cash bonuses and other non-cash benefits.
It has been suggested that the position may change in 2011 when the PRSI and income levy system is expected to be consolidated. However any changes are unlikely to be retrospective, so employers who wish to take advantage of the relative savings should consider making share awards sooner rather than later.