Sharing the Spoils – How Should Share Remuneration be Taxed?
The Department of Finance has recently announced a public consultation process on how share based remuneration should be taxed.
This follows a commitment in the recently published Programme for a Partnership Government to encourage “employee financial participation” so that SMEs will have the tools available to them to reward and retain key employees.
Launching the consultation the Minister for Finance, Michael Noonan, said: "International research has shown that when employees share in the profits of the company, this can be effective in fostering partnership, increasing competitiveness and in helping companies to attract and retain staff in a competitive international labour market."
A pre-Budget 2016 submission from the Department of Jobs highlighted the lack of incentive for employees to take share options over cash. Tax is payable by an employee within 30 days of the exercise of a share option however no cash earnings arise directly from the exercise of share options.
Employees working in SMEs, whose shares are not listed on a stock exchange and where there is no readily available market, do not have the option to sell a sufficient portion of their shares to generate the cash to pay the tax like their peers in listed companies. The employee must find the cash for the tax payment from his or her own resources which puts the SME at a competitive disadvantage when seeking to attract the talent to grow the business, to increase jobs and increase exports.
The Department of Jobs called for the introduction in Budget 2016 of an SME tax advantaged share options scheme designed to enable smaller and fast growth companies to recruit and retain key employees. If the consultation helps such a measure being introduced in Budget 2017 then it will have been worthwhile.
Submissions are invited to be made to the Tax Policy Division of the Department of Finance by 1 July 2016. The consultation paper can be found here.