Employment tax

In last year’s speech, Minister McGrath recognised the importance of share-based remuneration for employers to incentivise and retain key employees. The Department of Finance has since commissioned an independent review into the taxation of share-based remuneration. The report arising from that review, published on Budget Day, contains a number of recommendations for the minister to consider.

This report is welcomed as share-based remuneration is important in many industry sectors where share participation typically forms part of the remuneration package of executives and employees alike. Share-based remuneration is important to both multinational enterprises and our indigenous SME sector as it provides a means to attract and retain talent in a highly competitive employment market. It is therefore crucial that our current tax system for share-based remuneration is fair, simple to administer and not out of sync with other jurisdictions.

The report makes several recommendations which are designed to improve Ireland’s competitive position, which include:

• Short-term measures to enhance the attractiveness of the Key Employee Engagement Programme (KEEP) by providing greater clarity and guidance to SMEs on share valuations for KEEP. Further, the report recommends that consideration should be given to wider amendments and a re-design of KEEP post-2025.
• The tax treatment of restricted stock units for internationally mobile employees should be moved to a sourcing or apportionment method aligned with the approach used internationally and aligned with the treatment ofstock options for internationally mobile employees in Ireland.
• Simplification of reporting for share-based remuneration to reduce administrative costs and increase the attractiveness of share schemes for SMEs. As part of this, the report recommends that consideration be given to adopting a pre-notification system for approval of Approved Profit Share Schemes by Revenue.
• A reduced BIK rate on loans to employees to fund the costs associated with the purchase of shares in share-based remuneration schemes. The current rate for such loans is 13.5%, with a taxable BIK arising on the difference between the interest paid, if any, and the interest which would have been payable at the 13.5% rate. The report suggests the rate could be linked to market interest rates.
• Reform of employee ownership trusts to align Ireland with the tax treatment of such trusts in the UK.

The report also recommends that consideration should be given to introducing a cap on the employer PRSI exemption for share-based remuneration, with a view to containing the growth in the cost to the Exchequer of share-based remuneration schemes. Such a change would serve to increase the cost for companies of running employee share schemes, and potentially reduce the attractiveness of these schemes for SMEs in particular, which would appear to be in direct conflict with the aim of the recommendations above.