I propose to take Questions Nos. 95 to 100, inclusive, together.
The Key Employee Engagement Programme (KEEP) came into effect on 1 January 2018. The aim of the incentive is to support SMEs in Ireland in competing with larger enterprises to recruit and retain key employees, by way of a targeted share option programme.
KEEP provides for an exemption from income tax, USC and PRSI on any gain realised on the exercise of a qualifying share option. With limited exceptions, a key employee must hold the option for twelve months prior to exercise. However, it is likely that employees may hold the KEEP share options for a number of years before exercise, as the options must be granted at not less than market value on the date of grant, so a benefit will only arise to the employee if the shares increase in value from that date. Where share options are exercised, and the shares are subsequently sold, such individuals will be subject to Capital Gains Tax on the disposal of the shares.
As KEEP is a demand-led scheme, uptake will depend on the decisions made by qualifying SME companies with regard to the offering of share options to employees, and also on the growth in value of the employer company shares in the period between grant and exercise of the options. The uptake of KEEP thus far has been limited. Given the longer-term nature of the incentive, Revenue has, as yet, relatively little information on which to estimate the cost and other consequences of possible changes.
I am advised by Revenue that, as there is no information available on the potential increased uptake of KEEP if employees were allowed to work in multiple companies within a group structure, or if the shares were not restricted to new shares, there is no underlying data on which to estimate a cost of removing such restrictions. Under KEEP, only full-time employees or directors who are required to work at least 30 hours per week with a company are eligible to participate.
I am also advised by Revenue that there is no information on the potential increased uptake of the programme if the requirement in respect of being a full-time employee was removed. As such, there is no underlying data on which to estimate the cost of such a change.
I am further advised by Revenue that some 10 companies granted qualifying share options to 87 key employees during 2018 (the first year of the scheme). As no exercises occurred in 2018, there is no cost to the exchequer for 2018 in terms of income tax, USC and PRSI. Returns for 2019, which will contain details of all options granted and exercised during 2019, will not be filed with Revenue until 31 March 2020.
With a view to enhancing the attractiveness of the scheme, Finance Act 2018 amended the restriction applying to the total market value of shares which can be granted by the qualifying company to a qualifying employee, by increasing the limit from 50% of salary to 100% of salary (i.e. that participants may now receive of equal values of shares and salary). This required state aid approval from the European Commission, which has recently been granted, and I expect to commence this change shortly. Revenue advise me that there is no underlying data on which to estimate the cost of this change.
Currently, the total market value of the issued but unexercised qualifying share option a company may grant cannot exceed €3 million. Revenue advise me that it is not possible to estimate the number of companies who might exceed the €6 million, €12 million or €24 million thresholds outlined by the Deputy and thus benefit from raising this restriction or removing it.
Finally, and as the Deputy may be aware, my Department recently carried out a public consultation process in relation to KEEP and other tax incentives targeted at the SME sector with a view to identifying possible enhancements that might be made to the scheme to make it more efficient and effective. The intention is that issues raised by stakeholders during the consultation will be analysed and proposals will be submitted to me for consideration in the context of this year's Finance Bill.