Finance Act 2012

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Relief for key employees engaged in research and development activities.

8.— The Principal Act is amended in Chapter 1 of Part 15 by inserting the following after section 472C:

“472D.— (1) In this section—

‘associated company’, in relation to a relevant employer, means a company which is that employer’s associated company within the meaning of section 432;

‘control’ has the same meaning as in section 432;

‘emoluments’ has the same meaning as in Chapter 4 of Part 42;

‘key employee’ means an individual—

(a) who—

(i) is not, and has not been, a director of his or her employer or an associated company and is not connected to such a director,

(ii) does not, and did not, have a material interest in his or her employer or an associated company and is not connected to a person who has such a material interest, and

(iii) in the accounting period for which his or her employer was entitled to claim relief under section 766(2), performed 75 per cent or more of the duties of his or her employment in the conception or creation of new knowledge, products, processes, methods or systems,

and

(b) 75 per cent or more of the cost of the emoluments that arise from his or her employment with that relevant employer qualify as expenditure on research and development under section 766(1)(a) in the accounting period referred to in paragraph (a)(iii);

‘material interest’, in relation to a company, means the beneficial ownership of or ability to control, directly or through the medium of a connected company or connected companies or by any other indirect means, more than 5 percent of the ordinary share capital of the company;

‘ordinary share capital’, in relation to a company, means all the issued share capital (by whatever name called) of the company;

‘relevant emoluments’ means emoluments paid by a relevant employer to a key employee;

‘relevant employer’ means a company that is entitled to relief under section 766(2) and that employs a key employee;

‘tax year’ means a year of assessment for income tax purposes.

(2) (a) Where under section 766(2A) a relevant employer surrenders an amount for the benefit of a key employee, then subject to subsection (3), on the making of a claim, that employee shall be entitled for a tax year to have the income tax charged on his or her relevant emoluments for that tax year reduced by the amount surrendered.

(b) The tax year referred to in paragraph (a) is the tax year following the tax year during which the accounting period of the relevant employer ends in respect of which the amount surrendered under section 766(2A) relates.

(c) Notwithstanding that, for the tax year for which a claim is made under this section, an employee is no longer a key employee of the company that surrendered an amount referred to in paragraph (a) but is an employee of that company, then he or she shall be entitled to have the income tax charged on emoluments from that company for that tax year reduced by the amount so referred to, or the balance of that amount, as appropriate.

(3) (a) Notwithstanding subsection (2), the amount surrendered under section 766(2A) shall not for any tax year reduce the amount of income tax payable on the total income of a key employee including, where section 1017 or 1019 apply, on the total income of his or her spouse or his or her civil partner to not less than the income tax that would be charged if such total income were charged to income tax at a rate of 23 per cent.

(b) Paragraph (a) also applies where subsection (2) and paragraph (a) or (b) of subsection (4) applies for the same tax year.

(4) (a) Where, by virtue of subsection (3), part of the amount surrendered under section 766(2A) by a relevant employer to a key employee cannot be used by that employee to reduce the income tax charged on his or her relevant emoluments for the tax year referred to in subsection (2)(b), that employee shall be entitled to have the income tax charged on his or her relevant emoluments for the next tax year reduced by that part.

(b) If and so far as any part of the amount surrendered by a relevant employer under section 766(2A) to a key employee carried forward under paragraph (a) to the next tax year cannot be used in that next tax year, then it may be used in the next following tax year and so on for each succeeding tax year until the full amount of that part has been used or until the key employee referred to in paragraph (a) ceases to be an employee of the relevant employer that surrendered the amount under section 766(2A).

(5) The amount that a relevant employer is entitled to surrender, and so surrenders, under section 766(2A) to a key employee is exempt from income tax and shall not be reckoned in computing income for the purposes of the Income Tax Acts.

(6) No reduction shall be given under this section unless all tax deducted from emoluments paid by the relevant employer to the key employee for the tax year to which the claim relates has been remitted by the relevant employer to the Collector-General in accordance with regulations made under Chapter 4 of Part 42.

(7) Notwithstanding anything contained in this section, where for any tax year that the income tax charged on the emoluments of an individual is reduced by any part of an amount surrendered by his or her employer under section 766(2A) and it is found subsequently that that individual is not for any reason (including that the initial amount, within the meaning of section 766(2C), is not authorised by section 766) entitled to that reduction, or part of that reduction, then that individual shall pay to the Revenue Commissioners an amount of tax equal to that reduction, or equal to part of that reduction, as appropriate, of income tax granted under this section for that tax year.

(8) Notwithstanding the obligation on a company under section 766(2C) to notify a key employee of a relevant authorised amount (within the meaning of that section), where such notification is not received by the key employee, subsection (6) shall apply as if such notification had been received.

(9) Where for a tax year, an individual makes a claim for relief under this section, the individual shall, notwithstanding anything to the contrary in section 950 or 1084, be deemed for that tax year to be a chargeable person for the purposes of Part 41.”.