The Gazette 1986

g a z e t t e

j u l y / a u g u s t 1986

approved by the Revenue (section 51(1) and (3)). Part 1 of the Third Schedule to the 1982 Act sets out the rules for approval of such schemes. Paragraph 1 provides that a body corporate which has established a profit sharing scheme in accordance with certain rules may apply to the Revenue Commissioners for approval. Accordingly the scheme has to be set up before such approval can be obtained. Such schemes may extend over a group of companies. Advantages of Scheme Income tax relief is extended to individuals (employees) participating in such scheme which is set-up under trust. Such relief provides there is no charge to income tax:— - on receipt of a right to receive the beneficial interest in shares appropriated to him (s.51(l) (3)) - on the value of the shares when they are sold provided such sale is not within a 5 year period (s.51(l)(3)) - on the value of the shares when they are sold provided such sale is not within a 5 year period (s.51(l) (3)) - on the value of the shares when they are sold provided such sales is not within a 5 year period (s.53(l) and 11 of 1986 Act). - any sum paid to the trustees by the company in the accounting period shall be deducted in computing for Schedule D the profits or gains for that accounting period in a trade carried on by the company; or - if the company is an investment company (within the meaning of the Corporation Tax Act, 1976), such sums may be deducted as expenses of management in computing the profits of the company for the accounting period for the purposes of corporation tax (s.58(l)). However, the following conditions must be fulfilled, the sum:— - must be applied by the trustees in the acquisition of shares for employees who are eligible to participate in the scheme before the expiry of the relevant period — 9 months beginning on the day after the period of account in which the sum is charged as an expense of the company or a longer period may be allowed by the Revenue; - is necessary to meet the reasonable expenses of trustees in administering the scheme (s.58(2)). The 1984 Act provides no limitation on the sum which may be deducted from trading income (net after capital allowances) or income of an investment company (s.31(b), 1984 Act). However, the sum deducted must be reasonable in the light of numbers participating in the scheme (s.24, 1983 Act). Further it is provided that:—

than restrictions which attach to all shares of that class. - The scheme will not allow any person obtaining rights under it to transfer any of them but may provide that if such person dies before exercise of rights, such rights may be exercised within 1 year of death. There is a further capital gains tax relief where shares are issued under an approved share option scheme in a company which derives 75% of its sales from manufac- turing activities or from exempted trading operations carried out in Shannon Airport. The employee is considered as having acquired the shares at the date the option is granted for the purposes of determining the tax rate only. In calculating the value of shares the inflation factor may not be used based upon the length of ownership of the option. Purchase of Shares The 1986 Act provides for an income tax deduction of up to £750 which may be granted to full time employees or full time directors of trading companies, or certain types of holding companies who subscribe for new ordinary shares issued after 6th April 1986 in those companies (s. 12). The sum of £750 is the maximum deduction for all years of assessment. The shares:— - cannot be issued for less than market value - cannot carry any preferential rights - cannot be subject to any restrictions - must be issued in a company which is registered and incorporated in Ireland - must be held by the employee or director for 5 years; otherwise the relief will be withdrawn. If the shares are sold within 4 years the full tax relief is withdrawn; if disposal takes place in the fifth year, 75% of tax relief is withdrawn. The base value for capital gains tax is reduced by the amount of the deduction allowed for income tax. There is no requirement that the employee subscribe for shares under a formal scheme established by the company. Approved Profit Sharing Schemes Chapter IX of the Finance Act, 1982 provides for special tax treatment for Revenue approved profit sharing schemes. These tax concessions took effect from 6th April 1982. The Finance Acts, 1984 and 1986 further improved these concessions. The legislation is very complicated and thus the following constitutes general guidelines only. It is estimated that at the end of 1985 about 20-30 schemes have been formally approved by

the Revenue. 2 Establishment

Income tax relief is extended to individuals partici- pating in profit sharing schemes which have been

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