Finance Act, 2001

• Permanent Page URL

Approved share option schemes.

15.—The Principal Act is amended, with effect from the passing of this Act—

(a) in Part 17, by the insertion after Chapter 3 (inserted by the Finance Act, 1999 ) of the following:

“CHAPTER 4

Approved Share Option Schemes

519D.—(1) The provisions of this section shall apply where an individual obtains a right to acquire shares in a body corporate—

(a) by reason of the individual's office or employment as a director or employee of that or any other body corporate, and

(b) that individual obtains the right in accordance with the provisions of a share option scheme approved under Schedule 12C and in respect of which approval has not been withdrawn.

(2) Tax shall not be chargeable under any provision of the Tax Acts in respect of the receipt of the right referred to in subsection (1).

(3) Subject to subsection (4) (except where paragraph 18(2) of Schedule 12C applies), if the individual exercises the right in accordance with the provisions of the scheme at a time when it is approved—

(a) tax shall not be chargeable under any provision of the Tax Acts in respect of any gain realised by the exercise of the right, and

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

(4) Subsection (3) shall not apply in relation to the exercise by any individual of a right in accordance with the provisions of a scheme if the period beginning with his or her obtaining the right and ending with his or her disposal of any of—

(a) the shares acquired by the exercise of the right, or

(b) in a case where section 584, 586 or 587 applies, the shares received in exchange for the shares so acquired,

is less than 3 years.

(5) (a)  Where, in exercising a right in accordance with the provisions of the scheme at a time when it is approved, the individual acquires scheme shares from a relevant body, neither a chargeable gain nor an allowable loss shall accrue to the relevant body on the disposal of the scheme shares, and the individual shall, notwithstanding section 547(1)(a), be deemed for the purposes of the Capital Gains Tax Acts to have acquired the scheme shares for a consideration equal to the amount paid for their acquisition.

(b) In this subsection and in subsection (6)—

‘relevant body’ means a trust or a company which exists for the purpose of acquiring and holding scheme shares;

‘scheme shares’ has the meaning assigned to it by paragraph 11 of Schedule 12C.

(6) (a)  Subject to paragraph (c), this subsection applies to a sum expended by a company in establishing a share option scheme which the Revenue Commissioners approve of in accordance with the provisions of Schedule 12C and under which, subject to subsection (7), no employee or director obtains rights before such approval is given.

(b) A sum to which this subsection applies shall be included—

(i) in the sums to be deducted in computing for the purposes of Schedule D the profits or gains of a trade carried on by the company, or

(ii) if a company is an investment company within the meaning of section 83 or a company in the case of which that section applies by virtue of section 707, in the sums to be deducted under section 83(2) as expenses of management in computing the profits of the company for the purposes of corporation tax.

(c) Notwithstanding paragraph (b) or any other provision of the Tax Acts, any sum expended by a company, either directly or indirectly, to enable a relevant body to acquire scheme shares shall not be included—

(i) in the sums to be deducted in computing for the purposes of Schedule D the profits or gains of a trade carried on by the company, or

(ii) if the company is an investment company within the meaning of section 83 or a company in the case of which that section applies by virtue of section 707, in the sums to be deducted under section 83(2) as expenses of management in computing the profits of the company for the purposes of corporation tax.

(d) In a case where—

(i) paragraph (b) applies, and

(ii) the approval is given after the end of the period of 9 months beginning on the day following the end of the accounting period in which the sum is expended,

then, for the purposes of paragraph (b), the sum shall be treated as expended in the accounting period in which approval is given and not the accounting period mentioned in subparagraph (ii).

(7) (a) Where a share option scheme is approved by the Revenue Commissioners under Schedule 12C and, prior to such approval, an individual had obtained under the scheme a right which meets the conditions of paragraph (b), that right shall be treated for all the purposes of this section and Schedule 12C as if it had been obtained under an approved scheme.

(b) The conditions of this paragraph are—

(i) the right was exercised on or after 15 February 2001,

(ii) the scheme is approved by the Revenue Commissioners under Schedule 12C on or before 31 December 2001, and

(iii) at the time—

(I) the right was obtained, and

(II) the right was exercised, if such exercise occurred before the scheme was approved under Schedule 12C,

the scheme would, at each of those times, have been capable of approval under Schedule 12C if that Schedule had been in force from the time the right was obtained.”,

(b) by the insertion after Schedule 12B (inserted by the Finance Act, 1999 ) of the following:

“SCHEDULE 12C

Approved Share Option Schemes

Interpretation

1. (1) For the purposes of this Schedule—

‘approved’ in relation to a scheme, means approved under paragraph 2;

‘associated company’ has the same meaning as in section 432;

‘auditor’, in relation to a company, means the person or persons appointed as auditor of the company for the purposes of the Companies Acts, 1963 to 1999, or under the law of the territory in which the company is incorporated and which corresponds to those Acts;

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

‘full-time director’, in relation to a company, means a director who is required to devote substantially the whole of his or her time to the service of the company;

‘grantor’ has the meaning given by paragraph 2(1);

‘group scheme’ has the meaning given by paragraph 2(3);

‘key employee or director’, in relation to a company, means an employee or a full-time director of the company whose specialist skills, qualifications and relevant experience are vital to the future success of the company and is so certified to the Revenue Commissioners by the company;

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

‘participating company’, in relation to a group scheme, has the meaning given by paragraph 2(4);

‘scheme shares’ has the meaning given by paragraph 11;

‘shares’ includes stock.

(2) Section 10 shall apply for the purposes of this Schedule.

(3) Subsection (3) of section 433 shall have effect in a case where the scheme is a group scheme, with the substitution of a reference to all the participating companies for the first reference to the company in subparagraph (ii) of paragraph (c) of that subsection.

(4) For the purposes of this Schedule—

(a) a company is a member of a consortium that owns another company if it is one of not more than 5 companies which between them beneficially own not less than 75 per cent of the other company's ordinary share capital and each of which beneficially owns not less than 5 per cent of that capital, and

(b) the question of whether one company is controlled by another shall be determined in accordance with section 432.

Approval of schemes

2. (1) On the application of a body corporate (in this Schedule referred to as the ‘grantor’) which has established a share option scheme, the Revenue Commissioners shall approve the scheme if they are satisfied that it fulfils the requirements of this Schedule.

(2) An application under subparagraph (1) shall be made in writing and contain such particulars and be supported by such evidence as the Revenue Commissioners may require.

(3) Where the grantor has control of another company or companies, the scheme may be expressed to extend to all or any of the companies of which it has control and in this Schedule a scheme which is expressed so to extend is referred to as a ‘group scheme’.

(4) In relation to a group scheme, ‘participating company’ means the grantor or any other company to which for the time being the scheme is expressed to extend.

3. (1) The Revenue Commissioners shall not approve a scheme under this Schedule if it appears to them that it contains features which are neither essential nor reasonably incidental to the purpose of providing for employees' and full-time directors' benefits in the nature of rights to acquire shares.

(2) The Revenue Commissioners shall be satisfied—

(a) that there are no features of the scheme other than any which are included to satisfy requirements of this Schedule which have or would have the effect of discouraging any description of employees who fulfil the conditions in paragraph 8(1) from actually participating in the scheme, and

(b) where the grantor is a member of a group of companies, that the scheme does not and would not have the effect of conferring benefits wholly or mainly on directors of companies in the group or on those employees of companies in the group who are in receipt of the higher or highest levels of remuneration.

(3) For the purposes of subparagraph (2), ‘a group of companies’ means a company and any other companies of which it has control or with which it is associated.

(4) For the purposes of subparagraph (3), a company shall be associated with another company where it could reasonably be considered that—

(a) both companies act in pursuit of a common purpose,

(b) any person or any group of persons or groups of persons having a reasonable commonality of identity have or had the means or power, either directly or indirectly, to determine the trading operations carried on or to be carried on by both companies, or

(c) both companies are under the control of any person or group of persons or groups of persons having a reasonable commonality of identity.

4. (1) If, at any time after the Revenue Commissioners have approved a scheme, any of the requirements of this Schedule cease to be satisfied or the grantor fails to provide information requested by the Revenue Commissioners under paragraph 20, the Revenue Commissioners may withdraw the approval with effect from that time or such later time as the Revenue Commissioners may specify.

(2) If an alteration is made in the scheme at any time after the Revenue Commissioners have approved the scheme, the approval shall not have effect after the date of the alteration unless the Revenue Commissioners have approved the alteration.

5. If the grantor is aggrieved by—

(a) the failure of the Revenue Commissioners to approve the scheme or to approve an alteration in the scheme,

(b) the withdrawal of approval, or

(c) the failure of the Revenue Commissioners to decide that a condition subject to which the approval has been given is satisfied,

it may, by notice in writing given to the Revenue Commissioners within 30 days from the date on which it is notified of the Revenue Commissioners' decision, require the matter to be determined by the Appeal Commissioners, and the Appeal Commissioners shall hear and determine the matter in like manner as an appeal made to them against an assessment and all the provisions of the Income Tax Acts relating to such an appeal (including the provisions relating to the rehearing of an appeal and to the statement of a case for the opinion of the High Court on a point of law) shall apply accordingly with any necessary modifications.

6. The Revenue Commissioners may nominate any of their officers, including an inspector, to perform any acts and discharge any functions authorised by this Schedule to be performed or discharged by them.

Eligibility

7. (1) The scheme shall not provide for any person to be eligible to participate in it, that is to say, to obtain and exercise rights under it—

(a) unless he or she is an employee or director of the grantor or, in the case of a group scheme, of a participating company, or

(b) at any time when he or she has, or has within the preceding 12 months had, a material interest in a close company within the meaning of Chapter 1 of Part 13, which is—

(i) a company the shares of which may be acquired pursuant to the exercise of rights obtained under the scheme, or

(ii) a company which has control of such a company or is a member of a consortium which owns such a company.

(2) Notwithstanding subparagraph 1(a), the scheme may provide that a person may exercise rights obtained under it despite having ceased to be an employee or a director.

8. (1) The scheme shall provide that, at any time, every person who—

(a) is an employee or a full-time director of the grantor or, in the case of a group scheme, a participating company,

(b) has been such an employee or director at all times during a qualifying period not exceeding three years, and

(c) is chargeable to tax in respect of that person's office or employment under Schedule E,

shall be eligible to participate in the scheme, that is to say, to obtain and exercise rights under it.

(2) Subject to paragraph 9 every person eligible to participate in the scheme shall do so on similar terms.

(3) For the purposes of subparagraph (2), the fact that—

(a) the rights to be obtained by persons participating in a scheme vary or are different—

(i) in the year of assessment in which they commence to hold the office or employment by virtue of which they are entitled to participate in the scheme, or

(ii) according to the levels of their remuneration, the length of their service or similar factors,

or

(b) a person is not entitled to receive rights within a stated period of his or her normal retirement date,

shall not be regarded as meaning that they are not eligible to participate in the scheme on similar terms.

9. (1) Subject to the conditions of this paragraph, the scheme may provide for an employee or a director, who is a key employee or director of the grantor or, in the case of a group scheme, a participating company, to obtain and exercise rights under it which do not satisfy the requirement of paragraph 8 regarding participation in the scheme on similar terms.

(2) The conditions of this paragraph are that, in any year of assessment—

(a) the total number of shares in respect of which rights have been granted to key employees and directors in accordance with a rule of the scheme which conforms with this paragraph does not exceed 30 per cent of the total number of shares in respect of which rights have been granted to all employees and directors participating in the scheme whether in accordance with this paragraph or paragraph 8, and

(b) an individual who obtains rights for a year of assessment by virtue of this paragraph shall not also be entitled to obtain rights for that year in accordance with paragraph 8.

10. In determining for the purposes of paragraph 7—

(a) whether a company is a close company, section 430(1)(a) and subsections (3) to (7) of section 431 shall be disregarded, and

(b) whether a person has or has had a material interest in a company, sections 437(2) and 433(3)(c)(ii) shall have effect with the substitution for the references in those provisions to 5 per cent of references to 15 per cent.

Scheme shares

11. The scheme shall provide for directors and employees to obtain rights to acquire shares (in this Schedule referred to as ‘scheme shares’) which satisfy the requirements of paragraphs 12 to 16.

12. Scheme shares shall form part of the ordinary share capital of—

(a) the grantor,

(b) a company which has control of the grantor, or

(c) a company which either is, or has control of, a company which—

(i) is a member of a consortium which owns either the grantor or a company having control of the grantor, and

(ii) beneficially owns not less than 15 per cent of the ordinary share capital of the company so owned.

13. Scheme shares shall be—

(a) shares of a class quoted on a recognised stock exchange.

(b) shares in a company which is not under the control of another company, or

(c) shares in a company which is under the control of a company (other than a company which is, or if resident in the State would be, a close company within the meaning of section 430) whose shares are quoted on a recognised stock exchange.

14. (1) Scheme shares—

(a) shall be fully paid up,

(b) shall not be redeemable, and

(c) shall not be subject to any restrictions other than restrictions which attach to all shares of the same class or a restriction authorised by subparagraph (2).

(2) Subject to subparagraph (3), the shares may be subject to a restriction imposed by the company's articles of association—

(a) requiring all shares held by directors or employees of the company or of any other company of which it has control to be disposed of on ceasing to be so held, and

(b) requiring all shares acquired, in pursuance of rights or interests obtained by such directors or employees, by persons who are not, or have ceased to be, such directors or employees to be disposed of when they are acquired.

(3) A restriction is not authorised by subparagraph (2) unless—

(a) any disposal required by the restriction will be by way of sale for a consideration in money on terms specified in the articles of association, and

(b) the articles also contain general provisions by virtue of which any person disposing of shares of the same class (whether or not held or acquired as mentioned in subparagraph (2)) may be required to sell them on terms which are the same as those mentioned in clause (a).

15. (1) In determining for the purposes of paragraph 14(1)(c) whether scheme shares which are or are to be acquired by any person are subject to any restrictions, there shall be regarded as a restriction attaching to the shares any contract, agreement, arrangement or condition by which such person's freedom to dispose of the shares or of any interest in them or of the proceeds of their sale or to exercise any right conferred by them is restricted or by which such a disposal or exercise may result in any disadvantage to that person or to a person connected with that person.

(2) Subparagraph (1) does not apply to so much of any contract, agreement, arrangement or condition as contains provisions similar in purpose and effect to any of the provisions of the Model Rules set out in the Listing Rules of the Irish Stock Exchange.

16. Except where scheme shares are in a company whose ordinary share capital consists of shares of one class only, the majority of the issued shares of the same class shall be held by persons other than—

(a) persons who acquired their shares in pursuance of a right conferred on them or an opportunity afforded to them as a director or employee of the grantor or any other company and not in pursuance of an offer to the public,

(b) trustees holding shares on behalf of persons who acquired their beneficial interests in the shares as mentioned in subparagraph (a), and

(c) in a case where the shares fall within subparagraph (c) of paragraph 13 but do not fall within subparagraph (a) of that paragraph, companies which have control of the company whose shares are in question or of which that company is an associated company.

Exchange provisions

17. (1) The scheme may provide that if any company (in this paragraph referred to as ‘the acquiring company’)—

(a) obtains control of a company whose shares are scheme shares as a result of making a general offer—

(i) to acquire the whole of the issued ordinary share capital of the company which is made on a condition such that if it is satisfied the person making the offer will have control of the company, or

(ii) to acquire all the shares in the company which are of the same class as the scheme shares,

(b) obtains control of a company whose shares are scheme shares in pursuance of a compromise or arrangement sanctioned by the court under section 201 of the Companies Act, 1963 , or

(c) becomes bound or entitled to acquire shares, under section 204 of the Companies Act, 1963 , in a company whose shares are scheme shares.

any participant in the scheme may at any time within the appropriate period, by agreement with the acquiring company, release his or her rights under the scheme (in this paragraph referred to as ‘the old rights’) in consideration of the grant to him or her of rights (in this paragraph referred to as ‘the new rights’) which are equivalent to the old rights but relate to shares in a different company (whether the acquiring company itself or some other company falling within subparagraph (b) or (c) of paragraph 12).

(2) In subparagraph (1) ‘the appropriate period’ means—

(a) in a case falling within clause (a) of that subparagraph, the period of 6 months beginning with the time when the person making the offer has obtained control of the company and any condition subject to which the offer is made is satisfied,

(b) in a case falling within clause (b) of that subparagraph, the period of 6 months beginning with the time when the court sanctions the compromise or arrangement, and

(c) in a case falling within clause (c) of that subparagraph, the period during which the acquiring company remains bound or entitled as mentioned in that clause.

(3) The new rights shall not be regarded for the purposes of this paragraph as equivalent to the old rights unless—

(a) the shares to which they relate satisfy the conditions specified, in relation to scheme shares, in paragraphs 12 to 16,

(b) the new rights will be exercisable in the same manner as the old rights and subject to the provisions of the scheme as it had effect immediately before the release of the old rights,

(c) the total market value, immediately before the release, of the shares which were subject to the participant's old rights is equal to the total market value, immediately after the grant, of the shares in respect of which the new rights are granted to the participant, and

(d) the total amount payable by the participant for the acquisition of shares in pursuance of the new rights is equal to the total amount that would have been payable for the acquisition of shares in pursuance of the old rights.

(4) Where any new rights are granted pursuant to a provision included in a scheme by virtue of this paragraph they shall be regarded—

(a) for the purposes of section 519D and this Schedule, and

(b) for the purposes of the subsequent application (by virtue of a condition complying with subparagraph (3)(b)) of the provisions of the scheme,

as having been granted at the time when the corresponding old rights were granted.

Transfer of rights

18. (1) The scheme shall not permit any person obtaining rights under it to transfer any of them but may provide that if such a person dies before exercising them, they may be exercised after, but not later than one year after, the date of that person's death.

(2) Where the scheme contains the provisions permitted by subparagraph (1) and any rights are exercised after the death of the person who obtained them, subsection (3) of section 519D shall apply with the omission of the reference to subsection (4) of that section.

Share price

19. The price at which scheme shares may be acquired by the exercise of a right obtained under the scheme shall be stated at the time the right is obtained and shall not be less than the market value of shares of the same class at that time or, if the Revenue Commissioners and the grantor agree in writing, at such earlier time or times as may be provided in the agreement, but the scheme may provide for such variation of the price so stated as may be necessary to take account of any variation in the share capital of which the scheme shares form part.

Information

20. (1) The Revenue Commissioners may by notice in writing require any person to furnish them, within such time as the Revenue Commissioners may direct (not being less than 30 days), with such information as the Revenue Commissioners think necessary for the performance of their functions under this Schedule, and which the person to whom the notice is addressed has or can reasonably obtain, including in particular information—

(a) to enable the Revenue Commissioners to determine—

(i) whether to approve a scheme or withdraw an approval already given, or

(ii) the liability to tax, including capital gains tax, of any person who has participated in a scheme,

and

(b) in relation to the administration of a scheme and any alteration of the terms of a scheme.

(2) Notwithstanding the generality of subparagraph (1), the Revenue Commissioners may request a certificate from the auditor of a grantor company certifying that, in his or her opinion—

(a) the terms of any rule or rules included in the scheme by virtue of either or both paragraphs 8 and 9 are complied with in relation to a year of assessment, or

(b) as respects rights obtained under the scheme before it was approved under this Schedule, the conditions in subsection (7)(b) of section 519D are satisfied.

21. (1) For the purposes of section 437(2), as applied by paragraph 10(b) of this Schedule, a right to acquire shares (however arising) shall be taken to be a right to control them.

(2) Any reference in subparagraph (3) to the shares attributed to an individual is a reference to the shares which, in accordance with section 437(2) as applied by paragraph 10(b) of this Schedule, fall to be brought into account in that individual's case to determine whether their number exceeds a particular percentage of the company's ordinary share capital.

(3) In any case where—

(a) the shares attributed to an individual consist of or include shares which that individual or any other person has a right to acquire, and

(b) the circumstances are such that, if that right were to be exercised, the shares acquired would be shares which were previously unissued and which the company is contractually bound to issue in the event of the exercise of the right,

then, in determining at any time prior to the exercise of that right whether the number of shares attributed to the individual exceeds a particular percentage of the ordinary share capital of the company, that ordinary share capital shall be taken to be increased by the number of unissued shares referred to in clause (b).”,

and

(c) in Schedule 29, by the insertion after “Schedule 9, paragraph 8” in Column 2 of:

“Schedule 12, paragraph 3(4)

Schedule 12A, paragraph 6

Schedule 12B, paragraph 5

Schedule 12C, paragraph 20”.