Finance Act 2017

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Chapter 4

Income Tax, Corporation Tax and Capital Gains Tax

Key Employee Engagement Programme

10. (1) The Principal Act is amended by inserting the following section after section 128E:

“128F. (1) In this section—

‘connected persons’ shall be construed in accordance with section 10;

‘control’ shall be construed in accordance with section 432;

‘EEA Agreement’ means the Agreement on the European Economic Area signed at Oporto on 2 May 1992, as adjusted by all subsequent amendments to that Agreement;

‘EEA state’ means a state which is a contracting party to the EEA Agreement;

‘emoluments’ has the same meaning as in section 983;

‘excluded activities’ means—

(a) adventures or concerns in the nature of trade,

(b) dealing in commodities or futures in shares, securities or other financial assets,

(c) financial activities,

(d) professional services companies,

(e) dealing in or developing land,

(f) building and construction,

(g) forestry, and

(h) operations carried out in the coal industry or in the steel and shipbuilding sectors;

‘financial activities’ has the same meaning as in section 488;

‘market value’ shall be construed in accordance with section 548;

‘option price’ means a predetermined price at which an employee or director can purchase a share at some time in the future;

‘ordinary shares’ means shares forming part of a company’s ordinary share capital;

‘professional services’ means—

(a) services of a medical, dental, optical, aural or veterinary nature,

(b) services of an architectural, quantity surveying or surveying nature, and related services,

(c) services of accountancy, auditing, taxation or finance,

(d) services of a solicitor or barrister and other legal services, and

(e) geological services;

‘qualifying company’ means, subject to subsection (10), a company that—

(a) is incorporated in the State, or in an EEA state other than the State, and is resident in the State, or is resident in an EEA state other than the State and carries on business in the State through a branch or agency,

(b) exists wholly or mainly for the purpose of carrying on a qualifying trade on a commercial basis with a view to the realisation of profit, the profits or gains of which are charged to tax under Case I of Schedule D,

(c) throughout the entirety of any relevant period—

(i) is an unquoted company none of whose shares, stock or debentures are listed in the official list of a stock exchange, or quoted on an unlisted securities market of a stock exchange other than—

(I) on the market known as the Enterprise Securities Market of the Irish Stock Exchange, or

(II) on any similar or corresponding market of the stock exchange—

(A) in a territory other than the State with the government of which arrangements having the force of law by virtue of section 826(1) have been made, or

(B) in an EEA state other than the State,

and

(ii) is not regarded as a company in difficulty for the purposes of the Commission Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty ¹ ,

and

(d) at the date of grant of the qualifying share option—

(i) is a micro, small or medium sized enterprise within the meaning of the Annex to Commission Recommendation 2003/361/EC of 6 May 2003 ² concerning the definition of micro, small and medium sized enterprises, and

(ii) the total market value of the issued but unexercised qualifying share options of the company does not exceed €3,000,000;

‘qualifying individual’, in respect of a qualifying share option, means an individual who throughout the entirety of the relevant period—

(a) is a full time employee or full time director of the qualifying company, and

(b) is required to devote substantially the whole of his or her time to the service of the company, with a minimum requirement for the individual to work at least 30 hours per week for the qualifying company;

‘qualifying share option’ means a right granted to an employee or director of a qualifying company to purchase a predetermined number of shares at a predetermined price, by reason of the individual’s employment or office in the qualifying company, where—

(a) the shares which may be acquired by the exercise of the share option are new ordinary fully paid up shares in a qualifying company, which carry no present or future preferential right to dividends or to a company’s assets on its winding up and no present or future preferential right to be redeemed,

(b) the option price at date of grant is not less than the market value of the same class of shares at that time,

(c) there is a written contract or agreement in place specifying—

(i) the number and description of the shares which may be acquired by the exercise of the share option,

(ii) the option price, and

(iii) the period during which the share options may be exercised,

(d) the total market value of all shares, in respect of which qualifying share options have been granted by the qualifying company to an employee or director, does not exceed—

(i)€100,000 in any one year of assessment,

(ii)€250,000 in any 3 consecutive years of assessment, or

(iii) 50 per cent of the annual emoluments of the qualifying individual in the year of assessment in which the qualifying share option is granted,

(e) the share option is exercised by the qualifying individual in the relevant period,

(f) the shares are in a qualifying company, and

(g) the share option can not be exercised more than 10 years from the date of grant;

‘qualifying trade’ means trading activities other than excluded activities;

‘relevant period’ means a period of not less than 12 months beginning on the date a qualifying share option is granted to an employee or director of the qualifying company and ending on the date the share option is exercised by the qualifying individual.

(2) For the purposes of this section—

(a) an individual shall not be a qualifying individual if his or her employment or office is not capable of lasting at least 12 months from the date on which the qualifying share option is granted,

(b) an individual shall cease to be a qualifying individual if he or she, together with any connected persons, acquire beneficial ownership of, or the ability to control, directly or indirectly, or through the medium of a connected company or connected companies or by any other indirect means, more than 15 per cent of the ordinary share capital of the qualifying company, and

(c) where a qualifying company allows an individual to exercise a qualifying share option, despite having ceased to be an employee or a director of the company, the individual shall be deemed to satisfy the requirements set out in paragraphs (a) and (b) of the definition of ‘qualifying individual’ in subsection (1), in respect of the period the individual is not employed by the company, if the exercise occurs within 90 days of the individual ceasing to hold the employment or office concerned with the qualifying company.

(3) Any gain realised on the exercise of a qualifying share option granted on or after 1 January 2018 and before 1 January 2024 shall be exempt from income tax and shall not be reckoned in computing income for the purposes of the Income Tax Acts.

(4) A company whose business consists wholly of the holding of shares in a qualifying company shall be a qualifying company for the purposes of this section, where the shares are directly held and comprise of the entire issued share capital.

(5) A period of less than 12 months shall be deemed to be a relevant period where, following the grant of a share option, during that period—

(a) a transaction is entered into pursuant to a compromise, arrangement or scheme applicable to or affecting all the ordinary share capital of the qualifying company,

(b) a transaction takes place that forms part of a general offer made to holders of shares of the same class as the shares acquired by the director or employee or of shares in the same company and made in the first instance on a condition such that if it is satisfied the person making the offer will have control of that company, or

(c) the qualifying company allows an issued but unexercised qualifying share option to transfer to an individual’s estate on their death, where—

(i) the qualifying share option is exercised within 12 months of the individual’s death,

(ii) the deceased would have satisfied the requirements set out in paragraphs (a) and (b) of the definition of ‘qualifying individual’ in subsection (1) up to the date of his or her death, and

(iii) the company is a qualifying company throughout the relevant period.

(6) Notwithstanding section 547(1)(a), the qualifying individual shall be deemed for the purposes of the Capital Gains Tax Acts to have acquired the shares, acquired by the exercise of the qualifying share option, for a consideration equal to the amount paid for their acquisition.

(7) Where in any year of assessment a qualifying company grants a qualifying share option under this section, or allots any shares or transfers any asset in pursuance of such a right, or gives any consideration for the assignment or release in whole or in part of such a right, or receives notice of the assignment of such a right, the qualifying company shall deliver particulars thereof to the Revenue Commissioners, in a format approved by them, not later than 31 March in the year of assessment following that year.

(8) A qualifying company shall, when required to do so by notice in writing by the Revenue Commissioners, furnish the Revenue Commissioners, within such time as may be specified in the notice (not being less than 30 days), with such information, in relation to the relief provided by this section, as the Revenue Commissioners may reasonably require from the qualifying company for the purposes of publishing the following information in relation to all qualifying companies:

(a) the name of the company;

(b) the address of the company;

(c) the Companies Registration Office number of the company;

(d) the date of exercise of the qualifying share options;

(e) the amount of the tax advantage granted under this section;

(f) in respect of the principal activity carried on by the company, the NACE classification code, as determined in accordance with Regulation (EC) No. 1893/2006 of the European Parliament and of the Council of 20 December 2006 ³ No. L393, 30. 12. 2006, p. 1 establishing the statistical classification of economic activities NACE Revision 2 and amending Council Regulation (EEC) No. 3037/90 as well as certain EC Regulations on specific statistical domains;

(g) the territorial unit, within the meaning of the NUTS Level 2 classification specified in Annex 1 to Regulation (EC) No. 1059/2003 of the European Parliament and of the Council of 26 May 2003 ⁴ amended by Regulation (EC) No. 1888/2005 of the European Parliament and of the Council of 26 October 2005 ⁵ , Commission Regulation (EC) No. 105/2007 of 1 February 2007 ⁶ , Regulation (EC) No. 176/2008 of the European Parliament and of the Council of 20 February 2008 ⁷ , Regulation (EC) No. 1137/2008 of the European Parliament and of the Council of 22 October 2008 ⁸ , Commission Regulation (EU) No. 31/2011 of 17 January 2011 ⁹ , Council Regulation (EU) No. 517/2013 of 13 May 2013 ¹⁰ , Commission Regulation (EU) No. 1319/2013 of 9 December 2013 ¹¹ , Commission Regulation (EU) No. 868/2014 of 8 August 2014 ¹² and Commission Regulation (EU) No. 2066/2016 of 21 November 2016 ¹³ , in which the company is located.

(9) No obligation as to secrecy imposed by section 851A shall preclude the Revenue Commissioners from publishing information obtained by them under this section.

(10) A company shall not be regarded as a qualifying company for the purposes of this section where the company fails to comply with the requirements of subsection (7) or (8).

(11) This section shall not apply unless the qualifying share option is granted for bona fide commercial reasons, the main purpose of which is to recruit or retain employees in the qualifying company and is not part of a scheme or arrangement the main purpose, or one of the main purposes, of which is the avoidance of tax.

(12) Where this section applies relief under Part 16 shall not apply.”.

(2) Subsection (1) shall come into operation on such day as the Minister for Finance may appoint by order.

¹OJ No. C249, 31.7.2014, p. 1

²OJ No. L124, 20.5.2003, p. 36

³OJ No. L393, 30.12.2006, p. 1

⁴OJ No. L154, 21.6.2003, p. 1

⁵OJ No. L309, 25.11.2005, p. 1

⁶OJ No. L39, 10.2.2007, p. 1

⁷OJ No. L61, 5.3.2008, p. 1

⁸OJ No. L311, 21.11.2008, p. 1

⁹OJ No. L13, 18.1.2011, p. 3

¹⁰OJ No. L158, 10.6.2013, p. 1

¹¹OJ No. L342, 18.12.2013, p. 1

¹²OJ No. L241, 13.8.2014, p. 1

¹³OJ No. L322, 29.11.2016, p. 1