128DTax treatment of directors of companies and employees who acquire restricted shares.

(1) In this section—

“director” and “employee” have the meanings, respectively, given to them by section 770(1);

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“EEA Agreement” means the Agreement on the European Economic Area signed at Oporto on 2 May 1992, as adjusted by all subsequent amendments to that Agreement;

“EEA state” means a state, other than the State, which is a Contracting Party to the EEA Agreement;

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“employer” means the company in which the director or employee holds his or her office or employment;

“market value” shall be construed in accordance with section 548;

“restricted shares” shall be construed in accordance with subsection (3);

“shares” includes stock;

“specified period” has the same meaning as in ^[3]>subsection (3)(a).^<[3][3]>subsection (3)(a);^<[3]

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“trust” means a trust established in the State or in an EEA state and the trustees of which are resident in the State or in an EEA state.

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(2) Subject to subsection (7), this section applies where—

(a) a director or employee acquires shares (including shares acquired on the exercise of a right to which section 128 applies) in a company as a director or employee of that company or of another company,

(b) the shares are shares in the company in which the director or employee holds his or her office or employment or in a company which has control (within the meaning of section 432) of that company, and

(c) at the time of acquisition, the shares are restricted shares.

(3) For the purposes of this section, shares are restricted shares if—

(a) there is a written contract or agreement in place under the terms of which there is a restriction on the freedom of the director or employee by whom the shares are held to assign, charge, pledge as security for a loan or other debt, transfer, or otherwise dispose of the shares for a period of not less than one year (in this section referred to as the “specified period”),

(b) the contract or agreement is in place for bona fide commercial purposes and does not form part of a scheme or arrangement of which the main purpose or one of the main purposes is the avoidance of tax,

(c) the shares cannot be assigned, charged, pledged as security for a loan or other debt, transferred, or otherwise disposed of in any circumstances during the specified period, other than—

(i) on the death of the director or employee, or

(ii) as a consequence of the director or employee agreeing to—

(I) accept an offer for the shares (in this clause referred to as the “original shares”) if the acceptance or agreement would result in a new holding (within the meaning of section 584) being equated with the original shares for the purposes of capital gains tax,

(II) a transaction affecting the shares or such of the shares as are of a particular class if the transaction would be entered into pursuant to a compromise, arrangement or scheme applicable to or affecting all the ordinary share capital of the company in question or, as the case may be, all the shares of the same class as the shares acquired by the director or employee, or

(III) accept an offer of cash, with or without other assets, for the shares if the offer forms part of a general offer made to holders of shares of the same class as the shares acquired by the director or employee or of shares in the same company and made in the first instance on a condition such that if it is satisfied the person making the offer will have control (within the meaning of section 432) of that company,

and

(d) during the specified period, the shares are held in a trust established by the employer for the benefit of employees and directors, or held under such other arrangements as the Revenue Commissioners may allow.

(4) Where this section applies—

(a) any ^[5]>charge to income tax^<[5][5]>amount chargeable to income tax^<[5] under Schedule E (and computed in accordance with section 112 or 128, as the case may be), or under Schedule D, on the acquisition of the shares, shall be reduced by an amount determined by the formula—

A	×	B
		100

where—

A is the amount of ^[6]>the income tax charge^<[6][6]>the income chargeable to tax^<[6] under Schedule E or Schedule D, as the case may be, and

B is—

(i) where the specified period is one year, 10,

(ii) where the specified period is 2 years, 20,

(iii) where the specified period is 3 years, 30,

(iv) where the specified period is 4 years, 40,

(v) where the specified period is 5 years, 50,

(vi) where the specified period is more than 5 years, 60,

(b) the ^[5]>charge to income tax^<[5][5]>amount chargeable to income tax^<[5] referred to in paragraph (a) shall be computed by reference to the market value of the shares at the date of acquisition but without regard to the restriction on the freedom of the director or employee by whom the shares are held to assign, charge, pledge as security for a loan or other debt, transfer, or otherwise dispose of the shares.

(5) Where ^[7]>a charge to income tax^<[7][7]>an amount chargeable to income tax^<[7] under Schedule E or Schedule D on the acquisition of shares by a director or employee is reduced in accordance with subsection (4), and—

(a) the restriction on the freedom of the director or employee to assign, charge, pledge as security for a loan or other debt, transfer, or otherwise dispose of the shares acquired by him or her is subsequently removed or varied, or

(b) the shares are disposed of in any of the circumstances mentioned in subparagraphs (i) and (ii) of subsection (3)(c) before the specified period expires,

then, notwithstanding any limitation in the ^[9]>Income Taxes Acts^<[9][9]>Income Tax Acts^<[9] on the time within which assessments may be made, ^[8]>the income tax charge^<[8][8]>the amount chargeable to income tax^<[8] on the acquisition of the shares shall be adjusted to take account of the actual period during which there was a restriction on the freedom of the director or employee to assign, charge, pledge as security for a loan or other debt, transfer or otherwise dispose of the shares. The adjustment of liability to tax as may be necessary for the purposes of this paragraph shall be made at any time, whether by means of an assessment, ^[12]>an additional assessment or otherwise^<[12][12]>an amended assessment or otherwise^<[12].

(6) Where this section applies and ^[10]>a charge to income tax^<[10][10]>an amount chargeable to income tax^<[10] on the acquisition of shares by a director or employee is, for the purposes of section 552, to be treated as forming part of the consideration given by the director or employee for the acquisition of the shares, then ^[11]>the amount of the income tax charge^<[11][11]>the amount chargeable to income tax^<[11] to be so treated shall be the amount as reduced in accordance with subsection (4), together with any additional amount charged as a consequence of an adjustment made in accordance with subsection (5).

(7) This section does not apply to shares acquired by a director or employee under the terms of a scheme approved of by the Revenue Commissioners under Schedule 11, 12, 12A or 12C.

(8) Where in any year—

(a) a person awards restricted shares to a director or employee, or

(b) an event that comes within paragraph (a) or (b) of subsection (5) occurs in relation to restricted shares awarded,

then the person shall deliver to the Revenue Commissioners on or before 31 March in the year of assessment following the year in which the award was made or the event occurred, as the case may be, particulars of the award or the event, as the case may be.

(9) For the purposes of subsection (8), a person shall be deemed to award restricted shares to a director or employee where the director or employee acquires the restricted shares on the exercise of a right to which section 128 applies, and the right was granted to the director or employee by the person.