Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 10:

10. In page 22, between lines 20 and 21, to insert the following:

“Repeal of section 11 of Finance Act 2019

13. Section 11 of the Finance Act 2019 is repealed.

Key Employee Engagement Programme

14. Section 128F of the Principal Act is amended—

(a) in subsection (1) —

(i) by the insertion of the following definitions:

“ ‘qualifying group’ means, subject to subsection (2A), a group of

companies that consists of the following (and no other companies):

(a) a qualifying holding company;

(b) its qualifying subsidiary or subsidiaries;

(c) as the case may be, its relevant subsidiary or subsidiaries;

‘qualifying holding company’ means a company—

(a) which is not controlled either directly or indirectly by another

company,

(b) which does not carry on a trade or trades, and

(c) whose business consists wholly or mainly of the holding of shares

only in the following (and no other companies), namely, its

qualifying subsidiary or subsidiaries and where it has a relevant

subsidiary or subsidiaries, in that subsidiary or in each of them;

‘qualifying subsidiary’, in relation to a qualifying holding company,

means a company in respect of which more than 50 per cent of its

ordinary share capital is owned directly by the qualifying holding

company;

‘relevant subsidiary’, in relation to the qualifying holding company,

means a company in respect of which more than 50 per cent of its

ordinary share capital is owned indirectly by the qualifying holding

company, but for the purposes of this section a relevant subsidiary in

relation to a qualifying holding company shall not be regarded as a

qualifying company.”,

(ii) by the substitution of the following definition for the definition of

“qualifying individual”:

“ ‘qualifying individual’, in relation to a qualifying share option,

means an individual who throughout the entirety of the relevant period

is—

(a) in the case of a qualifying group, an employee or director of a

qualifying company within the group, and who is required to work

at least 20 hours per week for such a qualifying company or to

devote not less than 75 per cent of his or her working time to such a

qualifying company, and

(b) in the case of a qualifying company not being a member of a

qualifying group, an employee or director of the qualifying

company, and who is required to work at least 20 hours per week

for the qualifying company or to devote not less than 75 per cent of

his or her working time to the qualifying company;”,

and

(iii) by the substitution of the following definition for the definition of

“qualifying share option”:

“ ‘qualifying share option’, means a right granted to an employee or

director of a qualifying company to purchase a predetermined number

of shares in the qualifying company or, in the case of a qualifying

group, in the qualifying holding company of the qualifying group, 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 the qualifying

company or, in the case of a qualifying group, in the qualifying

holding company,

(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 in the qualifying company or, in

the qualifying holding company, to an employee or director does

not exceed—

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

(ii) €300,000 in all years of assessment, or

(iii) the amount of 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 or, in the case of a

qualifying group, in the qualifying holding company, and

(g) the share option cannot be exercised more than 10 years from the

date of grant of that option;”,

(b) in subsection (2) —

(i) in paragraph (b), by the insertion of “or, in the case of a qualifying group, of

the qualifying holding company,” after “qualifying company”, and

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

“(c) where a qualifying individual is permitted to exercise a qualifying

share option despite having ceased to be an employee or director of

a qualifying company, the individual shall be deemed to satisfy the

requirements as set out in the definition of ‘qualifying individual’

in subsection (1) in respect of the period the individual is not

employed by a qualifying company, where the individual exercises

the option within 90 days of the individual ceasing to hold the

employment or office concerned with the qualifying company.”,

(c) by the insertion of the following subsection after subsection (2):

“(2A) For the purposes of this section, a group of companies shall be treated

as a qualifying group only where—

(a) throughout the entirety of the relevant period—

(i) there is at least one qualifying company in the group which is a

qualifying subsidiary,

(ii) the activities of the qualifying group, excluding the qualifying

holding company, consist wholly or mainly of the carrying on of a qualifying trade,

(iii) each company in the qualifying group is an unquoted company

none of whose shares, stock or debentures are listed on the

official list of a stock exchange, or quoted on an unlisted

securities market of a stock exchange, other than on —

(I) the market known as the Euronext Growth market operated

by the Irish Stock Exchange plc trading as Euronext Dublin,

or

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

in —

(A) 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) an EEA state other than the State,

and

(iv) each company in the qualifying group is not regarded as a

company in difficulty for the purposes of the Commission Guidelines on State aid for rescuing and restructuring nonfinancial

undertakings in difficulty,

and

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

(i) the qualifying group is a micro, small or medium sized

enterprise within the meaning of the Annex to Commission

Recommendation 2003/361/EC of 6 May 2003 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 qualifying holding company does not exceed €3,000,000.”,

(d) by the deletion of subsection (4),

(e) in subsection (5) —

(i) in paragraph (a), by the insertion of “or, in the case of a qualifying group, of the qualifying holding company,” after “qualifying company”,

(ii) in paragraph (b), by the insertion of “or, in the case of a qualifying group, in the qualifying holding company” after “company” in both places where it

occurs, and

(iii) in paragraph (c)—

(I) in subparagraph (ii), by the deletion of “paragraphs (a) and (b) of”, and

(II) by the substitution of the following subparagraph for subparagraph (iii):

“(iii) throughout the relevant period, the company is a qualifying

company or, in the case of a qualifying group, the holding

company is a qualifying holding company.”,

(f) by the substitution of the following subsection for subsection (7):

“(7) Where in any year of assessment a qualifying company grants a

qualifying share option under this section, 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.”,

(g) by the insertion of the following subsection after subsection (7):

“(7A) Where in any year of assessment a company within a qualifying group

grants a qualifying share option under this section, 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, a

qualifying company designated by the qualifying group shall deliver

particulars thereof on behalf of the qualifying group to the Revenue

Commissioners, in a format approved by them, not later than 31 March

in the year of assessment following that year.”,

(h) in subsection (8) —

(i) by the insertion of “, or, as the case may be, qualifying groups” after

“qualifying companies”, and

(ii) in paragraph (a), by the insertion of “or, in the case of a qualifying group, of

each member of it (and a subsequent reference in this subsection to a

‘company’ shall, as appropriate, in the case of a qualifying group be

construed as including a reference to each such member)” after “company”,

(i) by the substitution of the following subsection for subsection (10):

“(10) A company or group shall not be regarded as a qualifying company or,

as the case may be, a qualifying group for the purposes of this section

where the company, or in the case of a qualifying group, the company

designated for the purposes of subsection (7A), fails to comply with

subsection (7) or (7A), as the case may be.”,

and

(j) in subsection (11), by the substitution of “a qualifying company” for “the

qualifying company”.

Share based remuneration

15. (1) Section 128F of the Principal Act is amended —

(a) in subsection (1)—

(i) in paragraph (d)(ii) of the definition of “qualifying company”, by the substitution of “€6,000,000” for “€3,000,000”, and

(ii) in paragraph (a) of the definition of “qualifying share option”, by the

substitution of “ordinary fully paid up shares” for “new ordinary fully paid up shares”,

(b) in paragraph (b)(ii) of subsection (2A) (inserted by section 14* of the Finance Act 2022), by the substitution of “€6,000,000” for “€3,000,000”,

(c) in subsection (3), by the substitution of “1 January 2026” for “1 January 2024”,

and

(d) by the insertion of the following subsection after subsection (6):

“(6A) Where—

(a) shares in a company are acquired on foot of a qualifying share

option granted on or after 1 January 2018 and before 1 January

2026,

(b) those shares are subsequently redeemed, repaid or purchased by the company, and

(c) subsection (1) of section 176 would apply in respect of the payment made by the company on the redemption, repayment or purchase of those shares, but for paragraph (a)(i)(I) of that subsection not being satisfied, subsection (1) of section 176 shall be deemed to apply in respect of the payment, notwithstanding that paragraph (a)(i)(I) of that subsection is not satisfied.”.

(2) Section 128B of the Principal Act is amended, in paragraph (b) of subsection (9), by the substitution of “0.0219” for “0.0322”.

(3) Schedule 29 of the Principal Act is amended, in Column 3, by the insertion of “section 128B(4)” before “section 128C(15)”.

(4) Subsection (1) shall come into operation on such day or days as the Minister for Finance shall appoint either generally or with reference to any particular purpose or provision and different days may be so appointed for different purposes or different provisions.”.

Amendment No. 10 relates to section 128 of the Taxes Consolidation Act 1997, which provides for an exemption from income tax, USC, and PRSI on any gain realised on the exercise for a qualifying share option under the key employee engagement programme. It also amends section 128B and Schedule 29 of the Taxes Consolidation Act.

It was proposed to give effect to two measures included in the Finance Act 2019, which had not been commenced while we awaited State-aid clearance from the European Commission. They are to allow companies to operate through a group structure to qualify for the key employee engagement programme, KEEP, by amending the definitions within the legislation relating to qualifying companies, and inserting definitions relating to qualifying holding companies and groups, and also to provide for part-time, flexible working for qualifying employees and their movement within group structures. That approval has now been received. However, for drafting reasons the Attorney General has advised me that it is necessary to repeal and replace development provisions in the Finance Act 2019 with a revised text. The amendment further amends section 128F of the Taxes Consolidation Act to extend the sunset clause for the KEEP from the end of 2023 to the end of 2025, effectively a further three years from now. The continuation of the scheme beyond its current sunset date will provide certainty to industry as to its longer term future.

It also specifies that shares acquired under the KEEP can be expected to meet the conditions for the benefit of the trade and thus allow KEEP share buy-backs by the employing company. The case has been made that it can be difficult for employees to see the value of share options if they cannot envision selling them in the future. While a company buy-back of shares is generally treated as income rather than capital, capital gains tax treatment as provided for in the KEEP can apply to a buy-back where several conditions are met, including that it is for the benefit of the trade.

The amendment also doubles, from €3 million to €6 million, the permissible market value of issued but unexercised qualifying share options that companies that qualify for the KEEP can issue. Increasing the cap would allow firms to offer larger amounts of share options to more employees, increasing its effectiveness at allowing SMEs to compete with larger companies for workers.

The amendment makes two technical changes to the Taxes Consolidation Act in relation to share-based remuneration more generally, pertaining to interest-rate alignment and penalties for late returns to the Revenue Commissioners.