A new Department of Finance Budget 2027 paper has examined how Employee Ownership Trusts (EOTs) could work in Ireland, the benefits they might bring, and the tax issues that would need to be addressed.
The detail is contained in the Department of Finance’s Income Tax – Tax Strategy Group 26/01 paper.
The paper, published last week as part of the preparations for Budget 2027, includes a dedicated section on the potential for EOTs in Ireland. Its publication adds to the momentum behind the introduction of EOTs, including IPSA’s advocacy work and this month’s detailed submission to the Department of Finance proposing an Irish EOT framework.
The Department of Finance refers to the recommendation in the 2024 Indecon Review of the Taxation of Shared-Based Remuneration that Ireland should consider changing its tax structure to allow a model similar to the UK’s EOT regime. It also explains how EOTs differ from the Employee Share Ownership Trusts already available here.
Under an EOT, a trust acquires a controlling interest in a company on behalf of its employees. The trust becomes the legal owner of the shares, while employees benefit collectively without having to buy or hold shares themselves. The former owners are generally paid over time from the company’s profits.
The Department recognises the possible benefits of this approach. Its paper states that employee ownership can give employees a greater stake in the business, improve working conditions, and help drive productivity and economic growth.
It also sounds a note of caution. The paper points to the unexpectedly high cost of the UK’s original 100% Capital Gains Tax relief for qualifying EOT sales. The UK subsequently reduced that relief, underlining the need for any Irish scheme to be carefully designed and costed.
The paper identifies four areas of Irish tax law that would need further consideration:
- Discretionary Trust Tax
- Capital Gains Tax
- Taxation of distributions or bonuses to employees
- Close-company rules.
These are many of the same barriers examined in IPSA’s submission, which proposes targeted changes and safeguards to make EOTs workable while limiting the risk of misuse.
The Department’s report says more analysis is needed. This would include establishing whether there is strong demand among Irish businesses, assessing the wider benefits and impacts, and estimating the cost of any changes to the Exchequer.
The paper does not recommend the immediate introduction of EOTs or promise a measure in Budget 2027. It does, however, bring EOTs clearly into the Department’s policy discussion, recognising their clear potential benefits, and identifying questions it requires answered. The IPSA submission, delivered to the department on 3 July already addresses these issues.
Marie Flynn, IPSA Former Chair and head of the IPSA EOT Working Group, said: “We welcome the Department of Finance’s recognition of the potential benefits of EOTs and the issues that must be addressed to make them work in Ireland. This is not yet a commitment to introduce EOTs, but it is a significant milestone for IPSA’s lobbying for EOTs as it firmly signals that it is being formally considered by the Government.
“IPSA’s submission offers practical solutions to many of the questions raised, and we look forward to working with Government on an Irish EOT framework.”
