Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

I forgot that. It is the individual.

The relief operates by allowing the employee a more advantageous tax treatment on gains arising on the exercise of qualifying share options. Gains realised on the exercise of KEEP share options will not be subject to income tax, PRSI or USC at the date of exercise. The gain will, however, be subject to capital gains tax on the future disposal of the shares. In the context of the first element of Senator Higgins's proposal, therefore, no tax advantage accrues directly to the company issuing KEEP options. The company benefits from the improved viability of share options as part of a remuneration package, which will help smaller, cash-poor companies to attract key staff.

On the second element of the Senator's proposed report, we have had reference to the cost of a similar matured incentive in the UK. It has been estimated that the full-year cost is €10 million. However, it is expected to be a number of years before we reach that level. KEEP is a demand-led scheme and uptake will depend on decisions made by qualifying SME companies to offer share options to employees. The benefit to the employees exercising KEEP options, and therefore the ultimate tax cost to the Exchequer, will be determined by the growth in value of the employer company shares in the period between grant and exercise of the options. Further, the tax cost arises only on exercise of the share options and there is a requirement, with very limited exceptions, for KEEP options to be held for a minimum of one year before exercise. It is likely, therefore, that the Exchequer cost of the KEEP scheme in 2018 will be nil. It is anticipated that it will take a number of years for the full-year cost of this scheme to be realised.

Taking these factors into account, I cannot accept the Senator's recommendation. However, I note that section 10 includes reporting requirements to ensure that information is provided to Revenue on the grant and exercise of KEEP options. As with all tax expenditures, the annual cost of the KEEP scheme will be published in the tax expenditures report of the Revenue Commissioners and will be kept under review.