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IPSA consultation response highlights the importance of employer PRSI exemption

By February 8, 2024No Comments

IPSA has submitted a response to the Department of Finance’s public consultation on the taxation of share-based remuneration.

The submission stresses the need to protect important features of the share-based landscape in Ireland, notably the employer PRSI exemption, while also highlighting the benefits which could be achieved through the introduction of new measures, such as Employee Ownership Trusts, additional KEEP enhancements, the removal of BIK on preferential loans for shares, and the deferral of tax liabilities and share scheme remuneration.

The IPSA submission advocates for the retention of the employer PRSI exemption because of its position as a big selling point for the share scheme sector in Ireland. It states that companies analysing the advantages of employee share plans compared to a simple cash rewards are more likely to roll out share plans because of the PRSI exemption. Losing the exemption would almost certainly lead to a decrease in the number of share schemes, particularly APSS, and a shift towards bonuses.

The submission also highlights the importance of tax favoured arrangements for encouraging wider employee participation in share plans and states that “without support from the tax system, the average employee cannot afford to invest financially in their company”.

The IPSA submission states: “It is notable that countries that have a more developed tax system to support share incentive plans do have much higher levels of participation in, and awareness of, share plans. For example, the USA is world-leading in its approach to employee share ownership and has a number of tax-beneficial arrangements to encourage this, such as its tax-favoured “Incentive Stock Options” and employee stock purchase plan regimes. In Europe, employee share ownership in France, in the UK and in Nordic countries is more developed and more democratized compared to Central/Eastern and Southern countries. The UK and France both have tax-favoured vehicles to support this (such as the EMI and SIP schemes in the UK and the FCPEs in France). By contrast, countries which offer few or no tax benefits rank much further behind.”

IPSA’s submission calls for the introduction of Employee Ownership Trusts as an additional incentive to meet the requirements of a changing financial and economic environment. EOTs have proven very popular in the UK since their introduction in 2014, and IPSA believes that they could similarly successful in promoting employee ownership as a business model in Ireland, particularly as succession solution which allow smaller and medium-sized businesses to avoid trade sales and remain in their communities.

EOTS in the UK have a CGT exemption on gains made by individual shareholders when a controlling interest in a company is sold to an EOT, and an income tax exemption of £3,600 per individual per tax year on certain bonuses issued to all employees (National Insurance Contributions would still apply).

The IPSA submission cites KEEP as continuing to be too complex and restrictive by design and in need of further amendments to broaden its appeal. Among the reform IPSA calls for are changes to group provisions, market value requirements, and how qualifying share options are valued.

Read the full IPSA response submission to the public consultation on the taxation of share-based remuneration.