Written answers

Tuesday, 21 March 2023

Department of Finance

Departmental Schemes

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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328. To ask the Minister for Finance the conditions of approval in establishing the approved profit-sharing scheme for a company (details supplied) under categories; and if he will make a statement on the matter. [13199/23]

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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An Approved Profit-Sharing Scheme (APSS) provides a mechanism whereby a company may appropriate shares to its employees and the employee is, subject to certain conditions, exempt from an income tax charge on the share appropriation. The appropriation is however subject to Universal Social Charge (USC) and Pay Related Social Insurance (PRSI).

Under this scheme an employee may be allocated shares up to a maximum annual limit of €12,700. The APSS rules state that the shares must be held in trust for a minimum period of two years.

The legislation on APSS can be found in sections 509 to 518 of the Taxes Consolidation Act (TCA) 1997 and Schedule 11 TCA 1997.

Prior Revenue approval is required in order to set up an APSS scheme and in order for a scheme to be approved there are certain conditions that must be satisfied. Comprehensive guidance material on an APSS can be found on Revenue’s website, specifically in Chapter 10 - Approved Profit Sharing Schemes (APSS) of the Share Schemes Tax and Duty Manual available at - www.revenue.ie/en/tax-professionals/tdm/share-schemes/chapter-10.pdf. This guidance sets out, in detail, the various requirements that must be satisfied under the headings general conditions, conditions relating to the trust, conditions relating to the shares and conditions relating to the participants. The requirements to be met by an APSS are very detailed and set out below is an overview of some of the key conditions that must be satisfied.

Overview of some of the key conditions:

- The scheme must provide for the establishment of a trust that is resident in the State, and the trustees, out of monies paid to them by the company concerned or in the case of a group scheme paid to them by a participating company, must purchase or subscribe for shares which satisfy the conditions relating to the shares. The trustees must perform their functions in accordance with a trust instrument. The Trust Instrument must be constituted under the law of the State. The shares purchased or subscribed for by the trustees must be formally allocated to individuals who are eligible to participate in the scheme.

- The functions of the trustees must be clearly set out in the Trust Instrument. This should include general functions relating to the purchase of shares for appropriation to participants, the transfer of the shares into the participant’s name after the period of retention and to look after the interests of the participants, as shareholders.

- The scheme must not contain any features which are neither essential nor reasonably incidental to the purpose of providing employees and directors with benefits in the nature of interests in shares.

- The scheme must not contain any features which have the effect of discouraging employees from participating in the scheme.

- The scheme must not be associated in any way with loan arrangements under which directors or employees borrow from their employer in order to take part in the scheme.

- Where the company setting up a scheme has control of another company or companies, the scheme may be extended to all or any of the companies over which it has control. A scheme of this kind is called a group scheme. Where the company setting up the scheme is a member of a group of companies, the scheme must 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.

- The basis of calculation of entitlement under the scheme must be clearly set out in the rules of the scheme or in an appendix to the rules.

- The scheme must provide that the total initial market value of the shares appropriated to any one participant in a year of assessment will not exceed the annual limit.

- To ensure that the shares acquired by the participants in an APSS are ordinary shares with normal rights attaching to them, the legislation provides that only certain types of shares may be used for the purposes of a scheme.

- Certain conditions pertaining to the participants also apply.

It may be necessary for a company to make amendments to an APSS, which can be made by Deed or Board Resolution, depending on the rules of the schemes. For example, a company may wish to change the basis of entitlement under the scheme. Approval of such alterations by Revenue is required in order to retain the approval status.

I am advised that Revenue engaged with the company referenced in the details supplied and its advisers on the matter of its APSS during 2021 and follow up engagement was expected to take place. However, Revenue has received no further contact from the parties concerned since then. If further contact with Revenue is required, the company may contact Revenue using the following email address - shareschemesection@revenue.ie.

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