Revenue Note for Guidance
Chapter 1 of Part 17 provides for an exemption from income tax in respect of shares given by companies to their employees under Revenue approved profit sharing arrangements.
This section defines certain terms and references used throughout Part 17. In addition, it provides for the capital gains tax treatment of shares qualifying for relief under approved profit sharing schemes (APSS) as well as enabling the Revenue Commissioners to delegate their powers under these provisions.
(1) “the appropriate percentage” is the percentage (that is, 100 per cent, 75 per cent or 50 per cent, as appropriate) of the locked-in value of the shares where the participant disposes of his/her shares before the release date.
“approved scheme” is a Revenue approved scheme.
“the company concerned” is the company which establishes a profit sharing scheme.
“group scheme” is the company which establishes the profit sharing scheme and all other companies under that company’s control.
“participating company” is any company which is part of a group scheme, including the company controlling that group.
“initial market value” is the market value of any shares on the date of their allocation or on such earlier dates as are agreed between the Revenue and the trustees of the scheme.
“locked-in value” is the market value of any shares at the date of their allocation or, where shares are disposed of before the release date, the excess of the disposal proceeds over the initial market value.
“market value” is the price which any shares might reasonably be expected to fetch on a sale in the open market.
“participant” is an individual to whom the trustees of the scheme have allocated shares.
“the period of retention” is the period beginning on the date shares are allocated to a participant and ending 2 years later or, if earlier, the date the participant ceases employment with the company or reaches 66 years of age or the date of the participant’s death.
“shares” includes stock and specified securities.
“specified securities” are securities (within the meaning of Schedule 12), other than ordinary shares, which were transferred to the APSS trustees by the trustees of an Employee Share Ownership Trust (ESOT), which itself acquired those securities by way of an amalgamation to which section 586 applies. It also includes securities which replaced these securities as a result of a company reorganisation under section 584 as well as any further securities acquired using dividends on the securities previously acquired. This aligns the rule governing these securities with that which applies in the case of ordinary shares. The purpose of using the definition in Schedule 12 of securities is to align insofar as is possible the definitions for both APSS and ESOT purposes and so ensure that securities acquired by the ESOT in these particular circumstances can be transferred to the APSS. There is no need to do this for ordinary shares because these can already be transferred.
The one overriding condition which must be satisfied relates only to the case of a company limited by shares. Before any securities acquired by the ESOT can qualify, the ESOT must also acquire the same percentage of the ordinary share capital of the takeover company as it had of the ordinary share capital of the company being taken over immediately before the takeover. Since the need to use securities other than ordinary shares only arises in circumstances where the aggregate share capital value of the takeover company is less than that of the company being taken over companies of equal size or greater cannot satisfy this condition. Whatever form these securities take they must at the very least have been issued by the takeover company under the provisions of section 586.
In the case of a company not limited by shares (i.e. a cooperative) no such de minimis rule applies because there are no ordinary shares available regardless of the size of the takeover company.
“the trust instrument” is the instrument referred to in paragraph 3(3)(c) of Schedule 11, and which complies with the provisions of such trusts as set out in Part 5 of Schedule 11.
“the trustees” are the body of persons an approved scheme is obliged to establish by virtue of paragraph 3(3) of Schedule 11.
(2) Any provision of this Chapter relating to the order in which a participant’s shares are treated as disposed of for the purposes of this Chapter is to apply irrespective of any direction in relation to those shares given by the participator to the trustees. This ensures that the first-in-first-out identification rule overrides any specific directions given to the trustees by the participant. It also has relevance in relation to subsections (2) and (4) of section 515 which deal with the treatment of shares under a scheme which are in excess of the €12,700 limit or which are not authorised under the terms of the legislation.
(3) For capital gains tax purposes —
(4) The Revenue Commissioners may delegate their functions under Chapter 1 of Part 17 and Schedule 11 to an officer of the Revenue Commissioners.
Relevant Date: Finance Act 2021