I am aware of the various criticisms expressed by certain elements of the trade union movement of the changes I made to the tax treatment of share option schemes, and do not accept them. The tax treatment of approved share option schemes, which is based on legislation approved by the Houses of the Oireachtas this year, could not be regarded as amounting to a tax evasion or avoidance scheme. Tax evasion involves an individual deliberately, and in breach of the relevant legislation, not paying the appropriate taxation due. Tax avoidance means using a scheme in a manner for which it was never intended by the Legislature.
I have already addressed the House, for example in a reply to Parliamentary Question No. 61 on 17 May 2001, on the tax treatment of approved share option schemes as provided for in the Finance Act, 2001, and set out in some detail the way in which the new arrangements will operate. Under the approved scheme, employees will no longer be chargeable to income tax on the exercise of share options but will now be chargeable to capital gains tax on the full gain, that is, the difference between the amount paid for the shares and the amount received when they are sold.
The scheme must, in particular, be available to all employees on similar terms. While there may be a key employee element in which share options can be granted without the similar terms conditions, at least 70% of the shares must be available for the all-employee part of the scheme. Furthermore, the scheme must not contain features that would discourage qualifying employees from participating, or have the effect of conferring benefits wholly or mainly on directors or higher paid employees of the company. I do not accept that this will allow for schemes where the beneficiaries will effectively be a small group of highly paid executives, self-selected as key workers, as suggested in the concerns referred to by the Deputy.
The all-employee and key employee element of the scheme provides a good balance between the twin objectives of facilitating the participation by all the employees in the fortunes of the company they work for, and helping companies to retain staff vital to their success in a difficult national and international labour market.
Under these new arrangements, to obtain approval from the Revenue Commissioners, share option schemes must comply with the terms of the legislation. Apart for the recent change to the share option legislation, favourable and generous tax benefits already exist for various employee share schemes, including approved profit-sharing schemes and employee share ownership trusts. One of the main reasons for giving favourable tax treatment to such schemes is to encourage employees to gain a stake in their employing company and such treatment for these schemes is supported by many parts of the trade union movement.