Revenue Note for Guidance
This Schedule contains provisions relating to profit sharing schemes (Chapter 1 of Part 17). Part 1 is concerned with the interpretation of the Schedule. The remaining Parts cover the approval and withdrawal of approval of such schemes (Part 2), the conditions which the shares issued under the scheme must meet (Part 3), the criteria which apply to individuals to render them ineligible to participate in such a scheme (Part 4), and the provisions relating to the trust instrument (Part 5).
par 1 The term “control” has the same meaning as in section 432.
par 2 A company is a member of a consortium owning another company if it is one of not more than 5 companies which between them beneficially own not less than 75 per cent of the other company’s ordinary share capital and each of them beneficially owns not less than 5 per cent of that capital.
par 3(1) A company which has established a profit sharing scheme which complies with the conditions in subparagraphs (3) and (4) may apply to the Revenue Commissioners for approval of the scheme. The Revenue Commissioners are to approve the scheme —
A scheme is not to be approved unless the Revenue Commissioners are satisfied that the terms of the scheme complies with the matters set out in section 511.
par 3(2) A company which controls one or more other companies may set up a scheme which extends to some or all of those companies. A scheme of this kind is called a “group scheme”. A “participating company” in a group scheme is the company which has established the scheme or a company over which that company has control and to which the scheme is expressed to extend.
par 3(3) The scheme must provide for the establishment of a trust constituted under the laws of the State and administered by trustees resident in the State. Out of moneys paid to them by the company which has established the scheme (or, in the case of a group scheme, paid to them by a participating company) the trustees must purchase or subscribe for shares which satisfy the conditions of Part 3 of this Schedule. They must perform their functions in accordance with a trust instrument whose terms must comply with Part 5 of this Schedule. The shares which are purchased or subscribed for must be formally allocated to individuals who are not ineligible to participate in the scheme by virtue of Part 4 of the Schedule.
par 3(4) The scheme must provide that the total initial market value of the shares allocated to any one participant in a year of assessment must not exceed €12,700 or, where section 515(1)(b) applies, €38,100.
par 3(5) An application for approval must be made in writing and must contain such particulars and be supported by such evidence as the Revenue Commissioners may require.
par 4(1) Participation in the scheme must be open at any time to every person who —
All directors or employees who satisfy the above conditions must be eligible, subject to Part 4 of the Schedule, to participate in the scheme on “similar terms”.
par 4(1A) In approving a scheme the Revenue Commissioners must be satisfied that —
A “group of companies” is defined as a company and any other companies of which it has control or with which it is associated.
A company will be treated as associated with another company where it could be reasonably be considered that —
par 4(1B) Subparagraph (1B) qualifies the existing subparagraph (1) which requires that, in general, every person who is an employee or director of the company is eligible to be a participant in the APSS and has been so employed for a period of up to 3 years at that time. In order to be a participant in a scheme established by a relevant company (which is defined in paragraph 1 of Schedule 12) the person must also have been an employee of a company in the companies’ group on the day the trust was established. In addition, service in companies to which paragraph 11A(3)(b) of Schedule 12 refers will also count as service for the purposes of the qualifying period.
par 4(1C) The Revenue Commissioners must be satisfied that there are no arrangements (very widely defined) that make provision for a loan(s), or any form of credit, to be made to some or all of the individuals who are eligible to participate in a scheme. This condition applies to schemes that are approved on or after 4 February 2010 and is related to the anti-avoidance provision in paragraph 8B prohibiting shares in certain service companies.
par 4(2) The question whether a scheme is open to all participants on “similar terms” can only be finally determined by reference to the rules of the scheme. However, if the number of shares to be allocated to the participants in a scheme varies by reference to the levels of their remuneration, their length of service or similar factors, that does not necessarily mean that the participants are not to be regarded as eligible to participate on similar terms.
par 5(1) The Revenue Commissioners may withdraw approval of a scheme, where —
The withdrawal of approval may take effect from the time any of such events first occurs or from such later time as the Revenue Commissioners specify.
par 5(2) If an alteration is made to the terms of an approved scheme or to its trust deed, approval automatically ceases from the date of the alteration unless the alteration is itself approved by the Revenue Commissioners.
par 5(3) While scheme shares are to be accorded the same treatment in the matter of dividend rights as other shares of the same class, this is not to be taken as meaning that there are grounds for withdrawal of approval if newly issued shares do not rank for the next dividend on the same basis as shares of the same class already in issue.
par 6 A company has a right to appeal to the Appeal Commissioners where the Revenue Commissioners fail to approve a scheme or an alteration to a scheme or withdraw approval of a scheme. The appeal is made by notice in writing to the Appeal Commissioners. The appeal must be made within 30 days after the date the notice of the decision in relation to the scheme. The appeal is heard and determined in the manner provided for in Part 40A of the Tax Acts.
par 8 Subject to paragraphs 8A and 8B, the shares must form part of the ordinary share capital of —
par 8A Any reference to “shares” in paragraph 8(d) includes a reference to shares acquired by the trustees of the Employee Share Ownership Trust as a result of a company reorganisation to which section 584 applies which replaced—
the Employee Share Ownership Trust previously acquired as a result of an exchange of shares to which section 586 applies.
par 8B(1) The shares must not be shares in a service company (as defined in subparagraph (2)) or in a company that has control of a service company, where the company is under the control of a person or persons referred to in subparagraph (2)(a)(i). This restriction is intended to counter a tax avoidance scheme that involves salary sacrificing, the making of loans to employees and the use of shares in certain types of service companies. It applies to an appropriation of shares made by the trustees of an approved profit sharing scheme on or after 4 February 2010.
par 8B(2) Essentially a service company is one whose business consists wholly or mainly of the provision of the services of persons employed by it to associated companies or partnerships. Detailed rules are set out for determining if a company or partnership is associated with a service company.
par 9 The shares must be —
par 10(1) The shares must be —
par 10(2)(a) As respects a scheme approved on or after 10 May, 1997, a requirement in the company’s articles of association requiring an employee or director to dispose of his/her shares on leaving the company is an exception to the general rule that all scheme shares must not be subject to restrictions, other than those which attach to all shares of the same class.
par 10(2)(b) Also as respects a scheme approved on or after 10 May, 1997, any requirement requiring a former employee or director who acquires scheme shares, to dispose of them on acquisition, is also an exception to the general rule that all scheme shares must not be subject to restrictions, other than those which attach to all shares of the same class.
par 10(3) These exceptions to the general rule that all scheme shares must not be subject to restrictions, other than those applying to all shares of the same class, do not apply unless —
par 10(4) Furthermore, these exceptions must not require any person, before the release date, to dispose of his/her beneficial interest in shares the ownership of which has not been transferred to him/her.
par 11 If a company whose shares are being used in a scheme has more than one class of issued ordinary share capital at the time that the shares are acquired by the trustees, the majority of the issued shares of the class used in the scheme must be held by persons other than —
par 11A Some of the rules governing the conditions as to the shares which may be held and passed through an approved scheme must be changed if securities other than ordinary shares are to be used.
par 12 A scheme must not allow shares to be allocated to an individual at a particular time unless at that time or within the preceding 18 months he/she was a director or employee of the company which has established the scheme (or a participating company in the case of a group scheme).
par 12A One exception to the rule in paragraph 12 above is that shares may be allocated to an individual at any time if those shares were transferred to the trustees of an employee share ownership trust (ESOT) (within the meaning of section 519) and the individual is at that time or was within the previous 30 days a beneficiary (within the meaning of paragraph 11 or paragraph 11A, as the case may be, of Schedule 12) of the ESOT.
par 13 Shares may not be allocated to an individual any time in a year of assessment if, in that particular year of assessment, shares have already been allocated to him/her under another approved scheme established by —
par 13A Provision is made for an appropriation of shares under the terms of more than one approved scheme in the year of assessment in which a company takeover takes place.
par 13A(1) In these circumstances, an individual, who has had shares appropriated to him or her under the terms of an approved scheme established by a company, may also have shares appropriated to him or her under the terms of an approved scheme from a second company in the same year of assessment. This is only possible if the second company has acquired control of or was part of a consortium which acquired ownership of the first company under a scheme of reconstruction or amalgamation (within the meaning of section 587) and only in the year the takeover takes place.
par 13A(2) The rules in relation to excess or unauthorised shares as set out in section 515 and the limits of €12,700 and €38,100, (paragraph 3(4) of Schedule 11), apply as if the two companies were one company. This means that the same aggregate limits continue to apply in this takeover situation as apply to a single company.
par 13A(3) These provisions are applied to appropriations of shares by trustees of an approved scheme as on and from the date of the passing of the Finance Act, 2000.
par 13B The provisions of paragraph 13, which prevent appropriations from 2 APSS’s established by the same company in the same year, are qualified in the case of appropriations from a relevant company (defined in paragraph 1 of Schedule 12). Paragraph 13B effectively allows appropriations from a relevant company to be ignored in determining whether paragraph 13 applies. However, provision is also made to ensure that the value of all shares appropriated by such a company in a particular year for the purposes of section 515 will be taken into account to ensure that the €12,700 (or €38,100) limit of appropriations per year is not breached.
par 14(1) Shares may not be allocated at any time to an individual if, at that time he/she has, or at any time within the preceding 12 months he/she had, a material interest in a close company which is either the company whose shares are to be allocated or is a member of a consortium which owns that company.
The term “close company” includes any company which would be a close company but for the fact that it is not such a company because —
par 14(3)(a) A “close company” is broadly, a company which is under the control of 5 or less participators or any number of participators who are directors (section 430).
par 14(3)(b) A person has a material interest in a company if he/she owns more than 15 per cent of the ordinary share capital of the company. Similarly, in applying the definition of “associate” in section 433 to the determination of whether a person has a material interest in a company —
par 15 The trust instrument must provide that the trustees are to give notice in writing to participants of an allocation of shares to them as soon as practicable after the shares have been allocated. This notice should specify the number and description of the shares and their initial market value.
par 16(2) The trustees must be prohibited by the trust instrument from disposing during the period of retention, of any shares which have been allocated to participants except in the circumstances mentioned in section 511(6)(a), (b) or (c).
The trustees must be prohibited by the trust instrument from disposing of any shares after the period of retention and before the release date except —
par 17 The trustees must be required by the trust instrument, subject to any such direction as is referred to in section 513(3), to pay over to the participant any money or money’s worth including any dividends or other income received by them in respect of or by reference to any of the participant’s shares. Sums of money referred to in section 511(4)(c) are excluded. Money’s worth consisting of new shares arising from a reconstruction or amalgamation referred to in section 514 is also excluded. The trust instrument must also place an obligation on the trustees to deal only pursuant to a direction given by or on behalf of a participant (or by a person in whom the beneficial interest in the participant’s shares is for the time being vested) with any right conferred in respect of any of his/her shares to be allotted other shares, securities or rights of any description.
par 18 The trust instrument must impose an obligation on the trustees to maintain such records as may be necessary to enable them to fulfil their obligations under Chapter 1 of Part 17. The instrument must also require the trustees to provide participants with information relevant to any income tax liability they may incur in connection with disposals of scheme shares.
Relevant Date: Finance Act 2021