Thursday 26 April 2018

Jobs lobbies Finance for new share option scheme for Irish SMEs

Michael Noonan (p) has been lobbied by The Department of Jobs
Michael Noonan (p) has been lobbied by The Department of Jobs
Gavin McLoughlin

Gavin McLoughlin

The Department of Jobs has lobbied Michael Noonan to introduce a tax-advantaged share option scheme for SMEs, the Sunday Independent has learned.

The department believes the scheme would help smaller, higher-risk companies to attract the right talent to enable growth.

Features it advocates include no income tax on the grant or exercise of share options and the application of a favourable capital gains tax (CGT) rate on disposal of the shares in question.

The current system sees an income tax liability come due within 30 days of the date when share options are exercised (turned into shares), even though they may not have been turned into cash and there may not be a liquid market for them.

Capital gains tax at a rate of 33pc then applies on disposal.

The submission was made as part of a public consultation launched by the Department of Finance to "explore the mechanisms through which SMEs can reward key employees with share options in a tax efficient manner".

Finance said a previous review had thrown up the taxation of share-based remuneration as a "special aspect of interest".

The Department of Jobs made a similar submission before the last Budget, but the scheme was not introduced. The current rules have been criticised by venture capital firms and Enterprise Ireland chairman Terence O'Rourke.

In its submission to the public consultation, the Irish Venture Capital Association (IVCA, the representative body for venture capital firms in Ireland) advocated the introduction of a scheme similar to the UK's Enterprise Management Initiative (EMI), which allows for a deferral of tax liabilities and for capital gains tax on disposal to be locked in at the 10pc entrepreneur's relief rate.

It said the scheme should be open only to SMEs involved in "innovation activities".

"Employees should not be liable to tax on the exercise of share options. It is unreasonable to expect an employee to use capital/savings to pay a "notional" tax, particularly after capital has already been used to buy shares," the IVCA submission said.

"A notional gain should not occur - a tax liability should never crystallise or be payable unless an actual cash gain has been made.

"Employees should only be liable to CGT and only when they realise value from the shares, for example, on a disposal.

"This incentive recognises the very real risks that employees take in accepting jobs in early- stage companies and most likely the reduced remuneration they normally receive for their participation in these businesses."

Sunday Indo Business

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