Employee Share Plans in Europe and the USA - Sorainen

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Employee Share Plans in Europe and the USARepublic of IrelandParticipation in a SAYE Plan must be offered to all employees on similar termsand the employee must agree to make monthly savings for at least 3 years. Theoption exercise price under a SAYE Plan may be set at a discount to marketvalue of up to 25% at grant (the option price cannot be less than market valueunder an Approved Plan). Where an option is granted under a SAYE Plan, notax is due on the exercise of the option provided that the exercise takes placemore than 3 years after the date the option was granted. Where an option isgranted under an Approved Plan, no tax is due on its exercise provided that theshares acquired on exercise of the option are not disposed of within 3 years afterthe date on which the option was granted.5.4 Tax withholdingThe employee must account for the income tax and levy due. There is nowithholding obligation on the employer.6. Taxation of share disposals6.1 A charge to capital gains tax may arise on the disposal of shares on thedifference between the proceeds of sale and (i) the value of the shares at thetime of acquisition (where they were acquired free or at a discount to marketvalue) or (ii) the exercise price paid for the shares plus any amount assessed toincome tax in respect of exercise, where the shares were acquired on exerciseof an option.6.2 Where the employee disposes of shares acquired on the exercise of an optionunder a SAYE Plan or an Approved Plan, the capital gains tax charge will be on• the remaining 30% of options may be granted to "key employees" without regard to the "similarterms" test. A "key employee" is one whose specialist skills, qualifications or experience areconsidered to be vital to the future success of the company. The "key employee" must be certifiedas such by the Revenue;• options must be granted with an option exercise price which is not less than market value at thedate of grant;• the shares subject to the option must form part of the ordinary share capital of the grantor (whichmust be the employing company or the parent company of the employing company provided, in thelatter case, that the shares are quoted on a recognised stock exchange). The shares must be fullypaid up, not redeemable and not subject to restrictions that do not apply to other shares of thesame class;• options must be non-transferable (except that the Approved Plan rules may provide that, in theevent of death of the optionholder, the options may be exercised by the optionholder's personalrepresentatives within 12 months); and• options may be exercised free from income tax provided that the shares acquired on the exercise ofthe option are not disposed of within three years after the date on which the option was granted.UK/1729295/03 109 September 2010
Employee Share Plans in Europe and the USARepublic of Irelandthe difference between the sale proceeds and the price paid on exercise, plusthe cost of the option (if any).6.3 Irish capital gains tax is charged at the rate of 25% on disposals made on orafter 8 April 2009. There is an annual exemption from capital gains tax on thefirst €1,270 of gains made by an individual in the 2010 tax year.7. Employee benefit trusts7.1 An Irish employee who is a beneficiary of a discretionary employee benefit trustwill not be taxable for that reason alone but he may be taxed on the receipt ofbenefits from the trust.7.2 Certain employee trusts which require shares to be transferred on similar termsto employees carry tax advantages which allow the employer guaranteedcorporation tax deductions for contributions made to the trust. 1515The Taxes Consolidation Act 1997 provides for a number of tax incentives in respect of employeeshare ownership plan trusts (ESOTs) which have obtained the approval of the Revenue. An ESOT is atrust, which is set up by a company (known as the founding company), for the benefit of its employeesand directors. There is no requirement for the founding company to be an Irish resident; for example,the founding company can be the foreign parent company. The trust acquires shares in the foundingcompany (financed through cash or loans) which it then distributes to the beneficiaries of the trusteither directly or through a Revenue approved profit share scheme. In addition, an ESOT may makecash payments and grant share options to beneficiaries.There are no limits in the tax legislation on the value of the shares which may be acquired by the trustor distributed to a Revenue approved profit sharing scheme other than a requirement that nobeneficiary may have a material interest in the company, that is, own or control more than 5% of theordinary share capital of the company.• In order for an ESOT to be granted "approved" status by the Revenue, certain conditions must besatisfied. The main conditions are as follows:• a founding company (establishing the trust) must not be controlled by another company at thetime the trust is set up;• all the employees and directors of the founding company, or of any group company which is aparty to the trust, who have been such for a qualifying period of not more than 3 years, must bebeneficiaries. Directors must work as directors of the company for at least 20 hours a week.Former employees and directors (within 18 months of ceasing employment or in certaincircumstances up to 15 years) may be beneficiaries;• the shares acquired by the trust must form part of the ordinary share capital of the company andmust be transferred to beneficiaries within 20 years of their acquisition by the trustees;• the shares must be transferred to beneficiaries on qualifying terms, that is all shares that areoffered at the same time must be offered to all beneficiaries and on similar terms. It ispermissible for terms to vary according to levels of remuneration or length of service, or similarfactors; andUK/1729295/03 110 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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