Call to cap tax on SME share op­tion schemes to re­tain tal­ent

Irish Independent - Business Week - - BUSINESSWEEK - Colm Kelpie

THE tax bill work­ers are hit with for re­ceiv­ing shares as part of their pay should be capped to al­low ex­pand­ing firms at­tract and re­tain key tal­ent, the Gov­ern­ment has been told.

The Gov­ern­ment is look­ing at the pos­si­bil­ity of in­tro­duc­ing a tax-ad­van­taged share op­tions scheme for small and medium-sized busi­nesses.

Dublin Cham­ber of Com­merce said stud­ies have shown that in­creased em­ployee own­er­ship in a busi­ness – by tak­ing shares – has a strong and pos­i­tive cor­re­la­tion with com­pany sur­vival rates.

But it warned that up­front in­come tax li­a­bil­i­ties on the grant­ing of shares or un­capped de­ferred in­come tax li­a­bil­i­ties on the ex­er­cise of share op­tions can mit­i­gate any ben­e­fits.

“Cap­ping the in­come tax that would arise on the ex­er­cise of share op­tions would al­low em­ploy­ers to at­tract and re­tain key em­ploy­ees that are cru­cial to the sur­vival and growth of their busi­ness when these em­ploy­ees are in high de­mand by other em­ploy­ers,” Dublin Cham­ber said, in its bud­get sub­mis­sion.

It is propos­ing that an em­ployee who is granted share op­tions to be sub­ject to in­come tax only on the dis­count be­tween the op­tion ex­er­cise price, and the mar­ket value of the shares on the date of grant of the op­tion, with the in­come tax li­a­bil­ity aris­ing on the date of the ex­er­cise of the op­tion.

It used the ex­am­ple of the UK’s En­ter­prise Man­age­ment In­cen­tive (EMI).

“We pro­pose that each em­ployee can hold un­ex­er­cised EMI op­tions over shares worth up to €250,000,” the Dublin Cham­ber sub­mis­sion said.

“The max­i­mum value of un­ex­er­cised EMI op­tions that can be held at any time by all the com­pany’s em­ploy­ees should be €3 mil­lion. Both lim­its are mea­sured at the date of grant.

“If the op­tion ex­er­cise price is equal to the mar­ket value of the shares at the date of grant of the op­tion, then no in­come tax would be li­able.

“How­ever, if these op­tions are granted at a dis­count, then in­come tax is li­able on the dis­count. The in­come tax li­a­bil­ity will arise upon the ex­er­cise of the op­tion by the em­ployee.”

In last Oc­to­ber’s Bud­get then Min­is­ter Michael Noo­nan an­nounced the Gov­ern­ment wanted to in­tro­duce a new, SME-fo­cused, share-based in­cen­tive scheme, to be in­tro­duced next year. He said it would have to be ap­proved by the Euro­pean Com­mis­sion.

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