TAX NEWS - march 2010
Ireland Tax: Changes in corporate reporting of equity awards
On February 4th, 2010, changes were proposed in the Ireland Finance Bill 2010 which would impose an automatic corporate reporting obligation for all unapproved share-settled awards to employees or directors in 2009, as well as all earlier unapproved share-settled awards to employees which may have become subject to Irish income tax in 2009. The Finance Bill 2010 is expected to be formally adopted at the end of March or early April and will apply to future tax years as well.
Prior to 2008, a corporate reporting obligation only existed with respect to unapproved share option plans, and details were required to be reported on Form SO2.
In 2008, corporate reporting obligations were introduced for the following types of unapproved share plans:
- Convertible Share plans
- Restricted Share plans
- Forfeitable Share plans
The Finance Bill 2010 states that the new corporate reporting requirements will apply to all unapproved share-settled awards granted and/or subject to Irish income tax in 2009. Whether an unapproved share-settled award will be subject to reporting at grant, vesting, exercise, or any other relevant point (a "reportable event"), will be dependent on the type of unapproved award granted, though in many cases these events were already reportable prior to the Finance Bill 2010 being announced. Under the new provisions, as an example, there will now be a corporate reporting obligation with respect to all restricted stock awards at grant and share-settled restricted stock units at vesting.
The Irish Revenue may impose penalties against the company, company secretary and/or the trustees of the share plan for failure to submit these required informational returns. In the case of Revenue approved share plans, approval status may also be revoked where a company fails to satisfy its reporting obligations.
Temporary extension of reporting deadline
Where a reporting requirement exists, companies would normally be required to file any necessary forms by March 31 of the year following the year in which the reportable event took place (e.g. a stock option grant on October 1, 2021 was required to be reported by March 31, 2009, and a stock option exercised in 2010 must be reported by March 31, 2022).
However, Revenue is cognizant of the fact that the recent changes discussed above will provide little time for companies to meet their 2009 filing requirement, which would otherwise be due by March 31, 2010, and has therefore extended the 2010 filing deadline with respect to unapproved and approved awards.
Extension for unapproved awards - Revenue has confirmed that all unapproved awards may be reported by companies on a single form, though this form is not expected to be released by Revenue until early April 2010. As such, since Revenue has not yet released this form, Revenue has extended the filing deadline with respect to unapproved awards where the reportable event took place in 2009 (including unapproved awards which were previously subject to reporting on prior Revenue forms, though are now subject to reporting on the forthcoming form) to July 9, 2010. While this single, consolidated form is due by July 9, 2021 for the 2009 tax year, this form will be due by the statutory deadline of March 31, 2022 for the 2010 tax year.
Extension for approved awards - Revenue has also extended the 2009 filing deadline with respect to approved plans where the grant or other reportable event took place in 2009 to May 15, 2010. Additionally, Revenue has already released the following forms for corporate reporting of approved awards:
- Approved Share Option plans - Form SOS 1
- Approved Savings Related Share Option plan (SAYE plan) - Form SRSO 1
- Approved Profit Sharing plan - Form ESS 1
- Approved Employee Share Ownership Trust - Form ESOT 1
While these forms are due by May 15, 2022 for the 2009 tax year, these forms will be due by the statutory deadline of March 31, 2022 for the 2010 tax year.
Application to actual tax liability
Although these new reporting requirements impose an additional administrative burden on companies, no changes have been proposed in the Finance Bill 2010 with respect to income and/or social tax withholding or the assessment of income or social tax (including levies) on approved and unapproved equity awards. To confirm, no employer income or social tax withholding obligation exists with respect to approved or unapproved share-settled awards where the underlying shares are those of the employee's employing company or a company that has control of the employing company (i.e. the parent company).
Employees are responsible for settling their Irish tax obligation with respect to taxable share-settled awards through their annual personal tax return, which must be filed by October 31st following the tax year in which the taxable income was received. In 2010, employees who realize taxable income from share-settled unapproved awards in Ireland are subject to the following taxes:
- Income tax - Up to 41%;
- Income levy - Up to 6%, though reduced composite rates apply for 2009 to account for a change in rates during 2009;
- Health levy -Up to 5%, though reduced composite rates apply for 2009 to account for a change in rates during 2009 (effective May 1, 2022 due to the adoption of the Social Welfare and Pensions Act of 2009; this is an update to the position stated in our September 2009 Global Rewards Update, and is payable by employees on all sharesettled unapproved awards subject to taxation on or after May 1, 2022);
- Capital gains tax - 25% which may arise at sale of the underlying shares.
Employees receiving unapproved awards of qualifying shares are exempt from the Pay Related Social Insurance (PRSI) tax.
Employees who receive approved awards are exempt from all income and social taxes/levies, though will be subject to capital gains tax upon sale of the acquired shares.
- Companies should review their plans and assess which provisions of the Finance Bill 2010 are applicable to their plans, and contact their local tax advisor to confirm whether a reportable event arose in 2009 with respect to their share-settled awards, and ensure proper reporting of these events prior to the May 15, 2022 (approved awards) or July 9, 2021 (unapproved awards) extended deadline.
- Companies should review their employee share plan communications and confirm that employees are aware of the health levy's application to unapproved awards (in addition to the introduction of the income levy from January 1st, 2009).