Share based remuneration
Deloitte response to public consultation
The public consultation on the taxation of share based remuneration closed on 1 July 2016.
Share based remuneration plays a key role in attracting and retaining key talent to Irish companies, from start-ups to MNCs and Deloitte were pleased to provide our insights to the Government on this important topic.
We made the following key suggestions:
Ireland’s personal and capital gains tax rates are high compared to our competitor jurisdictions. We have recommended that the Government consider implementing lower rates of personal tax and capital gains tax on share based remuneration and on the subsequent disposal of such shares.
We welcome the introduction of CGT Entrepreneur Relief in Finance Act 2015 and would encourage that this relief is expanded in future budgets. We recommend that this relief is extended beyond the current first €1 million of gains limit and that the rate is reduced from 20% to 10% in line with the rate of the UK’s Entrepreneur Relief. This could be implemented in tandem with a CGT tapering relief, which would act as an incentive for individuals to invest in companies on a long-term basis.
Removal of PRSI and USC charged on schemes
The application of PRSI and USC to the APSS and SAYE schemes put Ireland at a disadvantage compared to the UK. We have therefore recommended that the Government remove the charges to PRSI and USC on these schemes to allow Ireland to be competitive on these schemes.
We have made two key suggestions with regard to share awards. Firstly, with regard to long options, which have a vesting period in excess of seven years, we have suggested that this seven year restriction is extended. The law, as it currently stands, imposes tax on the grant of these long options. Given that long options are becoming more and more commonplace, in particular in industries such as the pharma and tech industries, the upfront taxing on the granting of such options acts as a disincentive to employees obtaining such options, so we have suggested that this period should be extended.
Secondly, tax is currently imposed on all shares awards once the option is exercised or the share vests. We have recommended that this tax is deferred until the shares are disposed of or for a fixed period of time.
Convertible securities and the buying back of shares can prove challenging for SMEs who wish to purchase shares in the company from an employee who holds shares and leaves the company. We have recommended that the legislation be updated to remove such challenges for private SMEs.
Suggested new scheme
We have considered the share schemes operated in other jurisdictions, such as the US and the US. We recommend that similar schemes should be considered in Ireland and in this regards, we have suggested a new employee share purchase scheme could be introduced, similar to the US ESPP. The key provisions of this type of plan would be:
- Allows employees to acquire shares at a discount which we suggest should be up to 25%
- The shares would be acquired either on a quarterly or bi-annual basis
- The employer could hold the funds deducted by employees thereby removing the need for an approved savings institute
- The discount would be taxed at capital gains tax rates but this tax would not be payable until the shares are sold.
This type of plan would encourage employees to hold on to their shares for longer periods leading to a greater connection with their employer and commitment to the success of the business.
Existing Employer PRSI exemption
The existing Employer PRSI exemption is critical to the success of share plans and we have strongly recommended that this exemption is retained.
Currently, the administration of share options and other share awards can be confusing for employers and employees. We have suggested that an elective option is put in place that would allow employers to operate withholding. In addition, we have recommended that a more simplified data collection system should be implemented. Currently, multiple forms need to be submitted depending on the scheme(s) operated by a company. We recommend that this is all simplified to one form and perhaps submitted as part of the P35 or on one separate form rather than the multiple forms in operation at present.
A copy of our full submission is available for download and we are happy to discuss any element of this with you. Please contact feel free to contact us on the details below or your usual Deloitte advisor if you wish to discuss.