Tax Briefing Issue 02, published by Revenue last month, follows the publication of eBrief 17/11 which addressed the issue of allowing employers additional time to comply with their new USC and PRSI obligations arising from the changes introduced to tax treatment of employee share based remuneration by Finance Act 2011.

Tax Briefing Issue 02 addresses some of the practical issues arising from the changes to the tax treatment of employee share based remuneration introduced by Finance Act 2011, identified during discussions held between Revenue, the Dept. of Social Protection and practitioners’ bodies, which included Chartered Accountants Ireland.

The key issues addressed in the Tax Briefing are:

Share Awards

The Tax Briefing confirms that Revenue is prepared to postpone collection of the tax and PRSI on share awards until the date on which the shares are settled rather than the vesting date, provided that the settlement date is not more than 60 days after the vesting date. Readers should note that the chargeable date for tax purposes remains the date of vesting and the date of valuation for the purpose of establishing the taxable amount in respect of the shares and the foreign currency conversion date will continue to be the vesting date.

Where shares in a private company are awarded to employees, the employer should make a ‘best estimate’ of the amount of notional pay to be charged to income tax, PRSI and USC. It is confirmed in the Tax Briefing that Revenue will regard an employer as having made a best estimate where a genuine attempt has been made to calculate the taxable benefit based on all of the information available to the employer at the time the shares are awarded.

Share Options

USC on gains made on the exercise of share options should be paid when the form RTSO1 is being returned to the Collector General and should be included with the amount of the RTSO in the “Total Tax Liability” box. Where an employee pays RTSO at the marginal income tax rate, the marginal USC rate of 7% should apply. For USC purposes, the 3% USC surcharge does not apply as Revenue considers gains on the exercise of share options to be relevant emoluments.

Approved Profit Sharing Schemes

USC and PRSI is to be charged on the Initial Market Value (IMV) of the shares that are appropriated in lieu of salary forgone. However, where employers chose to do so, they may deduct and pay USC and PRSI when salary is forgoing.

SAYE Schemes

To address the potential double change on the same gain arising under section 531AM(1)(a) which requires USC to be charged on both the grant of an option (where the market value is discounted) and the exercise of that option, Revenue will only seek to collect USC and PRSI on the gain arising on the exercise of an option.

Forfeitable Shares and Refunds

Where shares are forfeited, any income tax charge already imposed in respect of the acquisition of the shares is to be reduced to nil and any tax overpaid is to be repaid on foot of an appropriate claim. USC and PRSI will similarly be repaid where shares are forfeited.

The full text of Revenue Tax Briefing Issue 02 is produced on here.