Finance Act, 1998

Employee share schemes.

36.—(1) The Principal Act is hereby amended—

(a) in Chapter 1 of Part 17, by the insertion of the following section after section 511 :

“Shares acquired from an employee share ownership trust.

511A.—(1) Where, on or after the date of the passing of the Finance Act, 1998, the trustees of an approved scheme make an appropriation of shares to which section 510(3) applies to a participant and the conditions mentioned in subsection (2) are satisfied, then, for the purposes of this Chapter as it applies to those shares—

(a) the period of retention shall end on, and

(b) the release date shall be,

the day following the day on which the shares were appropriated to the participant.

(2) The conditions referred to in subsection (1) are that—

(a) the shares concerned were transferred to the trustees of the approved scheme concerned by the trustees of an employee share ownership trust to which section 519 applies,

(b) immediately prior to the transfer referred to in paragraph (a), the shares had been held in that employee share ownership trust for a period of not less than 3 years, and

(c) the participant concerned was a beneficiary (within the meaning of paragraph 11 of Schedule 12) under that employee share ownership trust at all times during the period of 3 years ending on the date on which the shares were appropriated to him or her.”,

(b) in Chapter 2 of Part 17, by the substitution in section 519 of the following subsection for subsection (7):

“(7) The trustees of a trust to which this section applies shall not be chargeable to income tax in respect of income consisting of dividends in respect of securities held by the trust if, and to the extent that, the income is expended within the expenditure period (within the meaning of paragraph 13 of Schedule 12) by the trustees for one or more of the qualifying purposes referred to in that paragraph, but the trustees shall not be entitled to the setoff or payment of a tax credit under section 136 in respect of those dividends.”,

(c) in Schedule 11, by the insertion in paragraph 4 of the following subparagraph after subparagraph (1):

“(1A) (a) As respects a profit sharing scheme approved on or after the date of the passing of the Finance Act, 1998, the Revenue Commissioners must be satisfied—

(i) that there are no features of the scheme (other than any which are included to satisfy the requirements of Chapter 1 of Part 17 and this Schedule) which have or would have the effect of discouraging any description of employees or former employees who fulfil the conditions in subparagraph (1) from participating in the scheme, and

(ii) where the company concerned 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 higher or the highest levels of remuneration.

(b) In this subparagraph ‘a group of companies’ means a company and any other companies of which it has control.”,

and

(d) in Schedule 12—

(i) in paragraph 1—

(I) by the substitution of the following subparagraph for subparagraph (3):

“(3) For the purposes of this Schedule, a company falls within the founding company's group at a particular time if—

(a) it is the founding company, or

(b) at that time, it is controlled by the founding company and the trust concerned referred to in paragraph 2(1) is expressed to extend to it.”,

and

(II) in subparagraph (4)(a), by the substitution of the following definition for the definition of “associate”:

“‘associate’ has the meaning assigned to it by subsection (3) of section 433, subject to the reference to the employees in both places where it occurs in subparagraph (ii) of paragraph (c) of that subsection being construed as including a reference to former employees;”,

(ii) by the substitution of the following paragraph for paragraph 2:

“2. (1) On the application of a body corporate (in this Schedule referred to as ‘the founding company’) which has established an employee share ownership trust, the Revenue Commissioners shall approve of the trust as a qualifying employee share ownership trust if they are satisfied that the conditions in paragraphs 6 to 18 are complied with in relation to the trust.

(2) (a) Where the founding company is a member of a group of companies, the Revenue Commissioners shall not approve of a trust under subparagraph (1) unless they are satisfied that the trust 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 higher or the highest levels of remuneration.

(b) In this subparagraph ‘a group of companies’ means a company and any other companies of which it has control.”,

(iii) in paragraph 11—

(I) by the substitution of the following subparagraphs for subparagraph (2):

“(2) The trust deed shall provide that a person is a beneficiary at a particular time (in this subparagraph referred to as ‘the relevant time’) if—

(a) the person is at the relevant time an employee or director of a company within the founding company's group,

(b) at each given time in a qualifying period the person was such an employee or director of a company falling within the founding company's group at that given time,

(c) in the case of a director, at that given time the person worked as a director of the company concerned at the rate of at least 20 hours a week (disregarding such matters as holidays and sickness), and

(d) the person is chargeable to income tax in respect of his or her office or employment under Schedule E.

(2A) The trust deed may provide that a person is a beneficiary at a particular time if, but for subparagraph (2)(d), he or she would be a beneficiary within the rule which is included in the deed and conforms with subparagraph (2).”,

(II) in subparagraph (4)(a), by the substitution for “subparagraph (3)” of “subparagraphs (2A) and (3)”,

(III) in subparagraph (5), by the substitution for “subparagraph (2)” of “subparagraphs (2) and (2A)”,

(IV) in subparagraph (7), by the substitution for “subparagraph (3) or (4)” of “subparagraph (2A), (3) or (4)”, and

(V) in subparagraph (8), by the substitution for “subparagraph (2), (3) or (4)” of “subparagraph (2), (2A), (3) or (4)”.

(2) (a) Paragraph (b) of subsection (1) shall apply as on and from the date of the passing of this Act.

(b) Paragraph (d) of subsection (1) shall apply as respects employee share ownership trusts approved of under paragraph 2 of Schedule 12 of the Principal Act on or after the date of the passing of this Act.