128E Tax treatment of directors of companies and employees who acquire forfeitable shares.
(1) In this section’
“director” and “employee” have the meanings, respectively, given to them by section 770(1);
“market value” shall be construed in accordance with section 548;
“forfeitable shares” shall be construed in accordance with subsection (3);
“shares” includes stock.
(2) This section applies where’
(a) a director or employee acquires shares (including shares acquired on the exercise of a right to which section 128 applies) in a company as a director or employee of that company or of another company, and
(b) at the time of acquisition, the shares are forfeitable shares.
(3) Subject to subsection (4), for the purposes of this section, shares are forfeitable shares if’
(a) there is a written contract or agreement in place under the terms of which’
(i) there will be a forfeiture of the shares, if certain circumstances arise or do not arise,
(ii) as a result of the forfeiture, the director or employee will cease to have any beneficial interest in the shares, and
(iii) the director or employee will not be entitled to receive, directly or indirectly, consideration in money or money’s worth in respect of the shares on their forfeiture in excess of the consideration given by the director or the employee for the acquisition of the shares,
(b) the contract or agreement is in place for bona fide commercial purposes and does not form part of a scheme or arrangement of which the main purpose or one of the main purposes is the avoidance of tax.
(4) Shares shall not be forfeitable shares by reason only that the shares are unpaid or partly paid shares which may be forfeited for non-payment of calls.
(5) Where this section applies, any charge to income tax under Schedule E (and computed in accordance with section 112 or 128, as the case may be), or under Schedule D, on the acquisition of the shares, shall be computed by reference to the market value of the shares at the date of acquisition but without regard to provision in a contract or agreement referred to in subsection (3) for the forfeiture of the shares.
(6) If under the terms of a contract or agreement referred to in subsection (3) the shares are forfeited, then’
(a) the director or employee shall,
>for income tax purposes<, be treated, for the year of assessment in which the shares were acquired, as if he or she did not acquire the shares, and
(b) such adjustment shall be made by repayment or otherwise as the case may require, on receipt of a claim from the director or employee, which shall be made within 4 years from the end of the year of assessment in which the shares are forfeited.
(7) Subsection (6) applies notwithstanding any limitation in section 865(4) on the time within which a claim for a repayment of tax is required to be made. Section 865(6) does not prevent the Revenue Commissioners from repaying an amount of tax as a consequence of any adjustment made in accordance with subsection (6).
(8) Notwithstanding section 546(2), where subsection (6) of this section applies, the amount of a loss accruing on the forfeiture of the shares shall not exceed the amount of consideration given by the director or employee for the acquisition of the shares less any amount received by the director or employee on the forfeiture of the shares.
(9) Where in any year’
(a) a person awards forfeitable shares to a director or employee, or
(b) shares awarded to a director or employee are forfeited,
then the person shall deliver to the Revenue Commissioners on or before 31 March in the year following the year of assessment in which the award was made or the shares were forfeited, as the case may be, particulars of the award or the forfeiture, as the case may be.