Revenue Note for Guidance
This Schedule sets out the conditions which must be complied with if a share option scheme is to be approved by the Revenue Commissioners. The Schedule is to be read in conjunction with section 519D and the conditions govern the type of company, eligibility, type of shares, exercise of rights, acquisition of shares and the share price.
To be approved by the Revenue Commissioners, schemes must be open to all employees and must provide that employees be eligible to participate in the scheme under similar terms. Under the similar terms rule the options may be granted by reference to remuneration, length of service or other similar factors.
In order to assist companies in the retention of those employees who are vital to the companies’ success but who, because of their skills and experience are highly mobile, the scheme may, however, contain a “key employee” element where options can be granted which do not meet the similar terms conditions, provided at least 70 per cent of the total number of shares over which rights are granted under the scheme in any year are made available to all employees on similar terms. Employees cannot participate in both elements of the scheme in the same year. There will be no limit on the number or value of shares that can be covered by tax efficient options.
Shares used in the scheme must form part of the ordinary share capital of the company and, in general, must not be subject to restrictions that do not apply to other shares of the same class.
par 1(1) The following definitions are used in Schedule 12C.
“approved” in relation to a scheme means where approval has been granted by Revenue in accordance with the rules as laid down in paragraph 2 of this Schedule;
“associated company” has the same meaning as in section 432;
“auditor” has, for a company, the same meaning as the person or persons appointed under section 160 of the Companies Act, 1963, or under the law of the state in which it is incorporated and which corresponds to that section;
“control” has the same meaning assigned to it by section 432;
“full-time director” means a company director who devotes most or all of his or her time to the service of the company
“grantor” is defined in paragraph 2(1) of this Schedule and means the company which applies for approval of a share option scheme under the Schedule;
“group scheme” is defined in paragraph 2 of this Schedule and means a scheme which is expressed to extend to all or any of the companies under the control of the grantor;
“key employee or director” means an employee or director who has special skills, qualifications or experience which the company certifies are vital to the company for its success;
“market value” has the same meaning as in section 548;
“participating companies” is defined in paragraph 2 and means the companies within a group scheme;
“scheme shares” are defined in paragraphs 12 to 16;
“shares” includes stock.
par 1(2) Section 10 which is concerned with the definition of “connected person”, is applied for the purposes of this Schedule.
par 1(3) The provisions of paragraph (3)(c)(ii) of section 433 are applied in the case where the scheme is a group scheme, but substituting a reference to all the participating companies for the first reference to company in that paragraph.
par 1(4) The following definition of “a member of a consortium” is used for the purposes of the Schedule.
par 2(1) On receipt of an application from a company (“the grantor”) which has established a share option scheme, the Revenue Commissioners will approve the scheme if they are satisfied that it fulfils the requirements of the Schedule.
par 2(2) An application for approval of a share option scheme is to be made in writing and is to contain such particulars and be supported by such evidence as the Revenue Commissioners may require.
par 2(3) A company which has control of another company or companies may set up a scheme which extends to all or any of those companies which it controls. A scheme of this kind is called a “group scheme”.
par 3(1) In a “group scheme”, the “grantor” or any other company in the scheme will be known as a “participating company”.
The Revenue Commissioners will not approve a share option scheme under the Schedule if they are of the opinion that there are features in the scheme which do not seem essential or reasonably incidental to providing for full-time directors or employees to acquire shares under the scheme.
par 3(2)(a) The Revenue Commissioners must be satisfied that there are no features of the approved scheme other than those which are required to satisfy the requirements of the Schedule, and which do not discourage any employees from participating in the scheme.
par 3(2)(b) The Revenue Commissioners must be satisfied that the scheme does not limit the beneficiaries of the scheme to the directors or employees with higher or highest levels of remuneration within the company or group of companies.
par 3(3) A “group of companies” is defined as the company itself and any other companies over which it has control or with which it is associated.
par 3(4) A company will be treated as associated with another company where it could be reasonably be considered that —
par 4(1) The Revenue Commissioners may withdraw approval of a share option scheme where any of the requirements of the Schedule cease to be complied with or where the grantor fails to provide information as requested by the Revenue Commissioners under paragraph 20. The withdrawal of approval may be from that date or any such later date as the Revenue Commissioners specify.
par 4(2) Any approval given by the Revenue Commissioners will be invalid with effect from the date of any change to the Scheme where the Revenue Commissioners have not been approved the alteration.
par 5 Recourse to appeal provisions is available where the Revenue Commissioners —
The appeal is made by notice in writing to the Appeal Commissioners. The appeal must be made within 30 days after the date of the notice 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 6 The Revenue Commissioners may nominate any of its officers to carry out any of the functions authorised by this Schedule.
par 7(1) A person may not obtain rights under a scheme —
par 7(2) The scheme may allow an individual, who has ceased to be an employee or director of the grantor company or a group company, to exercise rights obtained under the scheme, despite having ceased to be an employee or director.
par 8(1) The scheme must allow any director or employee, at any time, to obtain and exercise rights, with some limitations —
par 8(2) Subject to the provisions for key employees set out in paragraph 9, every person eligible to participate in the scheme shall do so on similar terms.
par 8(3) For the purposes of the similar terms provision in subparagraph (2), the fact that —
shall not be regarded as meaning that those persons are not eligible to participate in the scheme on similar terms.
par 9(1) The scheme may allow for key employees and directors to obtain rights under the scheme which do not satisfy the general rule of similar terms.
par 9(2) The conditions applicable in relation to the key employees or directors in any year of assessment, are —
par 10 For the purposes of paragraph 7 —
par 11 The shares (“the scheme shares”) which can be acquired under an approved share option scheme must satisfy the requirements of paragraphs 12 to 16.
par 12 The scheme shares must form part of ordinary share capital of either —
par 13 The scheme shares shall be —
par 14(1) Further conditions are set out as to the nature of the scheme shares. The shares must be —
par 14(2) The scheme shares may be subject to certain restrictions imposed by the company’s articles of association, namely —
par 14(3) The restriction in subparagraph (2) will not be authorised unless —
par 15(1) In determining whether scheme shares which are or are to be acquired by a person are subject to any restrictions, any contract, agreement, arrangement or condition restricting such a person’s freedom to dispose of the shares or an interest in them, or to dispose of the proceeds of the sale, or to exercise any right conferred by the shares, or resulting in any disadvantage to him or a connected person, following sale or exercise is regarded as such a restriction.
par 15(2) A contract, agreement, arrangement or condition with provisions similar to those provisions similar in purpose and effect to those provisions of the Model Code set out in the Listings Rules of the Irish Stock Exchange is not regarded as such a restriction.
par 16 If a company whose shares are being used in a scheme has more than one class of issued ordinary share capital, the majority of the issued shares of the class used in the scheme must be held by persons other than —
par 17(1) Subsequent to a take-over of the ordinary share capital of a company which has established a scheme —
an individual may, at any time in the appropriate period set out in subparagraph (2), release the rights obtained under the scheme in consideration of the grant of replacement rights which are equivalent to the old rights but relate to shares in a different company (either the acquiring company or an associated company).
par 17(2) The “appropriate period” for the purposes of subparagraph (1) is to be either —
par 17(3) New rights are not regarded as equivalent to old rights unless —
par 17(4) Where any new rights are issued, subsequent to the take-over, they shall be treated as having been granted at a time when the corresponding old rights were granted.
par 18(1) The rights obtained under a scheme must not be transferable, except that a person’s rights may pass to his estate and be exercised within one year of his death.
par 18(2) Where a personal representative exercises the right granted to a deceased person under the terms of an approved scheme, at a time when the scheme is approved, tax shall not be chargeable under the provisions of the Tax Acts in respect of any gain realised on the exercise of the right granted to the deceased individual.
par 19 The price at which shares may be acquired on the exercise of rights will be stated at the time those rights are obtained and must be not less than the market value of the shares of the same class at that time, or an earlier time if the Revenue Commissioners and the company establishing the scheme (the grantor) agree in writing, but the scheme may provide for such variation of the subscription price as may be necessary to take account of the variations in the share capital of which the scheme shares form part.
par 20(1) The Revenue Commissioners, by way of notice in writing, require any person to furnish to them, in such defined time period (but no sooner than 30 days), such information as the Revenue Commissioners think necessary to perform their duties under this Schedule, and which it can be reasonably assumed is information available to the person so notified, including particular information —
par 20(2) The Revenue Commissioners, notwithstanding any provision included in subparagraph (1), may request the auditors of the company establishing the scheme to provide a certificate confirming that they are of the opinion that —
par 20A With effect from 2009 onwards, the trustees of an approved scheme are obliged to automatically furnish the same information as is referred to in paragraph 20(1) to the Revenue Commissioners in respect of each calendar year. This return of information is required by 31 March in the year following the year in question. Failure to do so will result in penalties as set out in sections 1052 and 1054, as appropriate.
par 21(1) In determining whether a person, or their associates, has a material interest in a company a right to acquire shares, shall be taken as a right to control those shares.
par 21(2) The shares which are attributable to an individual by the application of subparagraph (3) are to be taken into account for the material interest test in determining whether an individual’s right to acquire shares exceeds a particular percentage of the company’s ordinary share capital.
par 21(3) If shares attributed to an individual consist of or include shares over which that individual has a right to acquire and the circumstances are such that if the right was exercised the shares acquired would be new shares which the company has to issue in the event of exercise of the right, then, for the purposes of determining, prior to the exercise of that right, whether the shares attributed to the individual exceed a particular percentage of the ordinary share capital, such ordinary share capital is to be increased by the number of new shares referred to above.
Relevant Date: Finance Act 2021