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Dáil Éireann debate -
Thursday, 25 Jul 1996

Vol. 468 No. 4

Written Answers. - Employee Share Schemes.

Eric J. Byrne

Question:

109 Mr. E. Byrne asked the Minister for Finance the tax laws relating to employee share schemes; the proposals, if any, he has to produce an up-to-date booklet explaining tax treatment of share schemes for employees and the public at large; and if he will make a statement on the matter. [15849/96]

Notes on approved profit sharing schemes are currently available from the Revenue Commissioners and a copy of these notes is being sent to the Deputy. These notes were aimed principally at companies. New Revenue information leaflets, for taxpayers generally, covering both approved profit sharing schemes and relief for new shares, are being prepared by the Revenue Commissioners and will be available shortly. In the meantime, I hope the following information will be of assistance to the Deputy.

Relief for New Shares — Section 12 Finance Act 1986

Relief from income tax is available to "eligible employees" in respect of amounts subscribed for "eligible shares" in "qualifying companies".

An "eligible employee" must be an employee or a director of a qualifying company or, in certain cases, a company which is a 75 per cent subsidiary of a qualifying company.

A "qualifying company" must be a trading or a holding company, incorporated and resident in the State.

"Eligible shares" must:

—be new ordinary shares which are fully paid up

—be issued at not less than market value and not be subject to any restrictions,

—not, during a period of five years beginning with the date on which they are issued, be subject to any preferential treatment, in respect of dividends or in respect of the company's assets on its winding up, nor carry any present or future preferential right to be redeemed.
The maximum lifetime amount on which relief is allowable is £5,000, which was increased from £3,000 by the Finance Act 1996.
Approved Profit Sharing Schemes Chapter IX of Part 1 of the Finance Act 1982 and the Third Schedule to that Act
This legislation provides a mechanism whereby a company which operates an approved profit sharing scheme may allocate shares to its employees. The employee is, subject to certain conditions, exempt from income tax on the value of the shares.
All full-time employees who are chargeable to tax under schedule E and have satisfied a service requirement period, not exceeding five years, must be eligible to participate in the scheme on similar terms.
A Trust must be established by the company and approved by the Revenue Commissioners. The trustees are provided with moneys by the company with which they purchase/subscribe for shares in the company on behalf of the participating employees. The shares are appropriated to the qualifying employees on similar terms. In order to avail of the maximum income tax benefit the shares must be retained by the trustees on behalf of the participating employees for a period of five years. Any dividends received by the employees are assessable to income tax in the normal way. Capital gains tax is chargeable on any subsequent disposal of shares in the normal way.
The maximum value of shares appropriated to an employee in any one year cannot exceed £10,000.
Share Option Schemes — Section 10 Finance Act 1986
Under section 10 Finance Act 1986, relief from income tax is provided where an option is granted to an employee under an approved share option scheme. Because of,inter alia, abuse of the scheme, the section was repealed by section 12 Finance Act 1992 in respect of options granted on or after 29 January 1992.
In relation to options granted during the period 6 April 1986 to 29 January 1992, no income tax is chargeable in respect of any increase in the value of the shares on the exercise of the option. Capital gains tax is chargeable on any subsequent disposal of the shares in the normal way.

Eric J. Byrne

Question:

110 Mr. E. Byrne asked the Minister for Finance the total number of employee share schemes approved by the Revenue Commissioners; the total number of employees benefiting from these schemes; the total cost to the Exchequer; and if he will make a statement on the matter. [15850/96]

Eric J. Byrne

Question:

122 Mr. E. Byrne asked the Minister for Finance the number of employees who have taken advantage in 1995 of the increase in the annual limit and relief for improved employee profit sharing scheme from £2,000 to £10,000 in order to promote worker participation and involvement in their companies, particularly at the higher level in view of his budget statement commitment to it in the future; and if he will make a statement on the matter. [15970/96]

I propose to take Questions Nos. 110 and 122 together.

The employee share schemes currently in existence are the profit sharing and share purchase schemes.

I am informed by the Revenue Commissioners that they have approved 178 profit-sharing schemes since the introduction of profit-sharing relief in 1982 to date.

On the basis of returns by companies for the tax years up to 5 April 1994 — by which date 134 schemes had been approved — the Commissioners estimate that a total of about 68,000 employees have received share allocations under profit-sharing schemes, some in a number of tax years, at a total estimated cost to the Exchequer of close on £39 million.
Section 16 of the Finance Act, 1995, provided for an increase in the annual limit on relief for approved profit-sharing schemes from £2,000 to £10,000. Statistics are not yet available which would enable an assessment of the impact of this measure on employee participation in the scheme to be made.
I am informed by the Revenue Commissioners that statistics are not available which would enable the precise information requested by the Deputy to be provided in respect of share purchase schemes qualifying for tax relief under the provisions of section 12 of the Finance Act, 1986. It is tentatively estimated that over the period from 1987 to date share purchases by employees valued at about £4.1 million were accorded tax relief at an approximate cost to the Exchequer of £1.9 million. The number of applications approved was of the order of 6,300 but this number includes repeated counts of some employees who subscribed for shares in different years within their statutory lifetime limits.

Eric J. Byrne

Question:

111 Mr. E. Byrne asked the Minister for Finance his views on employee share schemes, with particular reference to employee share issues in restructured State companies and more flexible rewards for employees in any future Programme for Competitiveness and Work; and if he will make a statement on the matter. [15851/96]

I am fully committed to the continuation of profit sharing schemes. Such schemes can bring significant benefits for both employees and employers in terms of improving industrial relations and enhancing employee motivation. The schemes develop the concept of wider share ownership, encourage the development of mutual interest between employers and employees and they assist in the development of successful companies.

The Deputy will be aware that, with a view to further promoting such benefits, the Government substantially enhanced the relief available under profit sharing schemes in the 1995 Finance Act by increasing from £2,000 to £10,000 the ceiling on the value of shares qualifying for tax relief. Furthermore, the maximum lifetime amount on which tax relief is available to an employee who purchases new ordinary shares in his or her employing company, under section 12 Finance Act 1986, was increased from £3,000 to £5,000 in this year's Finance Act.

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