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Dáil Éireann debate -
Tuesday, 19 Feb 2002

Vol. 548 No. 5

Written Answers. - Employee Share Ownership Plan.

Jim O'Keeffe

Question:

76 Mr. J. O'Keeffe asked the Minister for Finance if he accepts that there is only a 10% approval rate of employee share option schemes submitted for approval on the basis that gains will be chargeable to capital gains tax only; and if, in this regard, he accepts that the conditions are too restrictive and should be relaxed. [5585/02]

I have referred to the situation on approved share options schemes on a number of occasions recently in this House.

Last year I introduced an amended tax treatment of share options that provided for favourable tax treatment whereby, on disposal, the gain from shares acquired as a result of employee share options would be chargeable to capital gains tax only, providing certain conditions were satisfied. The main conditions were that the scheme should apply to all employees on similar terms.

This was done following extensive consultation with representative bodies and the relevant State agencies. It was considered that the scheme, as introduced, would meet its objective namely, to help companies recruit and reward highly skilled and internationally mobile staff as well as facilitating participation by all employees in the fortunes of the company they work for.

I listened to the calls for share options to be used as an incentive and introduced a key employee provision where options can be granted without similar terms conditions. In such a case no more than 30% of the total number of shares over which rights are granted in any year can be used for the key employee element.

The capital gains tax treatment of what was heretofore considered chargeable to income tax is a generous relief and is without limits. Therefore, it is reasonable that it should only apply in defined circumstances.

To date the total number of applications received and reviewed by the Revenue Commissioners is 71. Nine schemes have been approved and approximately 6,800 employees can benefit from these. There are two main elements that are creating difficulties for some schemes that are seeking approval from Revenue, namely the all employee and similar terms rules.

Representations have been made to me to soften the similar terms rules to provide greater discretion to companies in allocation of options and also to allow companies where not all employees are eligible to come within the scheme. There has been considerable discussion with my Department's officials on these proposals.
The changes proposed are complex and give rise to significant issues of policy and numerous practical difficulties in terms of application of any proposed amended rules. Having reflected on the matter I have decided against making any fundamental change to the scheme at this time.
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