I move amendment No. 44:
In page 48, before section 24, to insert the following new section:
"24.-The Principal Act is amended-
(a) in section 128-
(i) by the insertion after subsection (2) of the following:
'(2A) Notwithstanding any other provision of the Tax Acts, where a person is, by virtue of this section, chargeable to tax under Schedule E for a year of assessment in respect of an amount equal to the gain realised from the exercise, assignment or release of a right, he or she shall be a chargeable person for that year for the purposes of Part 41, unless-
(a) that amount is deducted in determining the amount of his or her tax-free allowances for that year by virtue of regulation 10(1)(b) of the Income Tax (Employments) Regulations, 1960 (S.I. No. 28 of 1960), or
(b) the person has been exempted by an inspector from the requirements of section 951 by reason of a notice given under subsection (6) of that section.’,
(ii) by the substitution in subsection (11) of '30 June in the year of assessment following' for '30 days after the end of', and
(iii) by the insertion after subsection (11) of the following:
'(11A) Where in relation to any right-
(a) the person referred to in subsection (11) is resident in a territory other than the State, and
(b) the person who obtains that right is a director or an employee of a company which is resident in the State,
the provisions of subsection (11) shall also apply to that company.',
(b) by the insertion after section 128 of the following:
'128A.-(1) Subject to subsection (2), in any case where-
(a) for any year of assessment a person is chargeable to tax under Schedule E, by virtue of section 128, on an amount equal to a gain realised by the exercise of a right to acquire shares in a company (“the relevant shares”), which right was exercised on or after 6 April 2000, and
(b) following an assessment for the year in which that right was exercised (“the relevant year”) an amount of tax, chargeable by virtue of section 128 in respect of the amount referred to in paragraph (a), is payable to the Collector-General, and
(c) the person concerned makes an election in accordance with subsection (3),
he or she shall be entitled to defer payment of the tax in accordance with subsection (4).
(2) Subsection (1) shall not apply where the relevant shares are disposed of by the person concerned in the relevant year.
(3) An election under this section shall be made by notice in writing to the inspector on or before 31 January in the year of assessment following the relevant year.
(4) Where an election has been made under this section the tax referred to in subsection (1)(b) shall, notwithstanding any other provision of the Income Tax Acts, but subject to the provisions of this section, be paid on or before the earlier of-
(a) 1 November in the year of assessment following the year of assessment in which the relevant shares are disposed of, or
(b) 1 November in the year of assessment following the year of assessment beginning 7 years after the relevant year.
(5) The reference in subsection (4)(a) to the relevant shares being disposed of includes a part disposal of such shares, and in the case of a part disposal, the tax to be paid shall be determined in a manner that is just and reasonable.
(6) Subject to any other provision of the Income Tax Acts requiring income of any description to be treated as the highest part of a person's income, in determining for the purposes of paragraph (b) of subsection (1) what tax is chargeable on a person by virtue of section 128 in respect of an amount referred to in paragraph (a) of that subsection, that amount shall be treated as the highest part of his or her income for the relevant year.
(7) Notwithstanding any other provision of the Income Tax Acts, the due date in relation to tax, the payment of which has been deferred by virtue of an election under this section, shall, for the purposes of section 1080, be the date when the amount becomes due and payable under subsection (4).',
and
(c) in Schedule 29-
(i) by the deletion in column 2 of 'section 128(11)', and
(ii) by the insertion in column 3 after "section 127(5)' of 'section 128(11) and (11A)'.".
Amendment No. 44 is concerned with the taxation treatment of share options granted to employees by their employer companies other than options obtained under the save as you earn scheme, which I provided for last year.
In general terms, the law as it currently stands imposes an income tax charge when these options are exercised, that is, the shares are acquired. This charge is based on the difference between the option price and the market value of the shares on that day. In the event that the shares are subsequently sold any further appreciation in the share value is chargeable to capital gains tax.
Share options are increasingly used, particularly in the technology sector, as a means of retaining key staff and curbing wage inflation at the company level. This creates an environment where employees, because of this ownership involvement, can share more fairly in the future success of the company, whereas it has been put to me by the industry that the imposition of the tax charged on the occasion of exercising the option defeats this purpose because not only must the employee fund the purchase of the shares but also the tax bill which must be paid. The employees often find themselves forced to sell some of the shares they have acquired to pay this bill.
I indicated in the past that the Government is prepared to look at schemes for employee financial participation provided that such schemes are properly focused and justified, offer benefits to as wide a range of employees as possible, do not open the door for abuse and do not provide relief for the few at the expense of the many. More recently I received representations from a number of groups, including the Irish Software Association, to apply capital gains tax treatment rather than the present mixture of income tax and capital gains tax treatment to the full profit from share options.
The new Programme for Prosperity and Fairness recognised the importance of various forms of employee financial participation, including share options and gain sharing, in developing and deepening partnership and in increasing performance and competitiveness. The PPF proposes that a consultative committee, involving ICTU, IBEC and appropriate Departments and agencies, be established to prepare proposals for consideration in the context of budget 2001. The committee has already been established and held its first meeting on 16 February. I await with interest and will give careful consideration to the outcome of its deliberations.
In the meantime and in order to ameliorate the financial burden caused by the tax due on exercising options, I propose that those affected may elect, if they so wish, for the income tax charge to be deferred until the shares are actually sold or for seven years, whichever is the earlier. At that point the tax would have to be paid and, in most instances, would be met out of proceeds of the disposal.
In addition, I propose a number of minor technical changes to the current legislation to confirm that persons in receipt of share options are, in general, chargeable to tax under self-assessment in respect of the gain arising to them from share options, to extend the deadline for the company's returns of information regarding share options to 30 June after the end of the tax year - it is currently 30 days after the end of the tax year, that is, 5 May - and to ensure these returns of information are also required from the Irish employer where the shares were granted by a non-resident person. I commend these amendments to the committee.