Employee Share Plans in Europe and the USA - Sorainen

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Employee Share Plans in Europe and the USARepublic of IrelandIrish-incorporated or not. Three exceptions are relevant to employee shareplans. First, there is an exception for the provision by a company, in accordancewith any plan for the time being in force, of money for the purchase of, orsubscription for, shares 4 in the parent, where the shares are to be held by or forthe benefit of employees or former employees of the company, including anysalaried director. Secondly, there is also an exemption for loans to employees(other than directors 5 ) with a view to enabling them to purchase or subscribe forfully paid shares in the parent to be held by themselves as beneficial owners. 6Thirdly, there is an exemption for the provision of financial assistance by aholding company in connection with the subsidiary purchasing or subscribing forshares in the holding company on behalf of:• the present or former employees of the holding company or any subsidiary ofit;• an employees’ share scheme within the meaning of the Companies(Amendment) Act 1983; 7 or• an employee share ownership trust referred to in section 519 of the TaxesConsolidation Act 1997.3.2 Irish subsidiary of non-Irish company: The restrictions (and exemptions) setout above apply equally to an Irish subsidiary of a non-Irish company.4567The shares must be fully paid.Specific restrictions apply to the provision of loans to directors. Irish companies legislation prohibits acompany from, amongst other things, making loans to (or giving a guarantee or security in connectionwith a loan made by a third party) a director. There is no exemption for loans to directors in connectionwith employee offerings. There is, however, an exception where the amount of the loan and allprevious transactions within the regulated categories does not exceed 10% of the company's netassets.The Companies Act 1990 allows limited companies to purchase their own shares, subject to certainconditions. Shares which have been repurchased may then be reissued, for example, to the trusteesof an employee share incentive scheme. It is also possible for a company to provide in the terms of aproposed scheme that, on retirement, the company will repurchase the shares from the retiringemployee. The shares need not be reissued and the company may cancel them.An employees’ share scheme means any scheme for the time being in force, in accordance with whicha company encourages or facilitates the holding of shares or debentures in the company or its holdingcompany by or for the benefit of employees or former employees of the company or of any subsidiaryof the company including any person who is or was a director holding a salaried employment or officein the company or any subsidiary of the company.UK/1729295/03 103 September 2010
Employee Share Plans in Europe and the USARepublic of Ireland4. Taxation of share acquisitions4.1 Employee tax and social security contributions4.1.1 Tax: An employee who acquires shares in his employing company or itsparent company free of charge or at a discount to market value willnormally be liable to pay income tax and an income levy. The incometax and income levy charges are on the difference between the marketvalue of the shares at the time of acquisition and the amount, if any, paidfor the shares. For the 2010 tax year the income tax rates are either20% or 41% depending on the level of the employee's income. Theamount of the income levy depends on the level of the employee'sincome. For the 2010 tax year, the levy rates are 2% on annual incomeup to and including €75,036, 4% for annual income in excess of €75,036but less than €174,980 and a charge of 6% on income from €174,980.4.1.2 Social security contributions: Social security contributions are notpayable.4.2 Employer tax and social security contributions4.2.1 Corporation tax deduction: A corporation tax deduction may beavailable to the employer in respect of amounts expended in providingbenefits consisting of shares to employees where it can be shown thatthe relevant expenses are of a revenue nature and are incurred whollyand exclusively for the local employer’s trade.If the employer's contribution exceeds the amount on which employeesare subject to tax, then the amount of the deduction will be restricted tothat lower amount.4.2.2 Social security contributions: Employer social security contributionsare not payable.4.3 Tax withholdingThe employee must account for the income tax due. There is no withholdingobligation on the employer.4.4 Favourable tax regimeWhere shares are provided under a tax approved profit sharing plan, 8 theemployee will be entitled to an exemption from income tax on the value of the8Chapter IX of the Finance Act 1982 (as re-enacted in Part 17, Chapter 1 of the Taxes Consolidated Act1997) contains provisions aimed at promoting employee ownership of shares in the employingUK/1729295/03 104 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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