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14 1982

FINANCE ACT, 1982

Chapter IX

Profit Sharing Schemes

Interpretation ( Chapter IX ).

50. —(1) In this Chapter and in the Third Schedule

the appropriate percentage”, in relation to any shares, shall be construed in accordance with section 52 (8);

approved scheme” shall be construed in accordance with section 51 (2);

the company concerned” has the meaning assigned to it by paragraph 1 (1) of the Third Schedule ;

group scheme” and, in relation to such a scheme, “participating company” have the meanings assigned by paragraph 1 (2) of that Schedule;

initial market value”, in relation to any shares, shall be construed in accordance with section 51 (4);

locked-in value”, in relation to any shares, shall be construed in accordance with section 53 (2);

market value”, in relation to any shares, has the meaning assigned to it by section 49 of the Capital Gains Tax Act, 1975 ;

ordinary share capital” has the meaning assigned to it by section 155 of the Corporation Tax Act, 1976 ;

participant” shall be construed in accordance with section 51 (2) (a);

the period of retention” has the meaning assigned to it by section 52 (5);

the release date” has the meaning assigned to it by section 52 (7);

shares” includes stock;

the trust instrument”, in relation to an approved scheme, means the instrument referred to in paragraph 1 (3) (c) of the Third Schedule ;

the trustees”, in relation to an approved scheme or a participant's shares, means the body of persons for the establishment of which the scheme must provide as mentioned in paragraph 1 (3) of the Third Schedule .

(2) Any provision of this Chapter with respect to—

(a) the order in which any of a participant's shares, are to be treated as disposed of for the purposes of this Chapter, or

(b) the shares in relation to which an event is to be treated as occurring for any such purpose,

shall have effect notwithstanding any direction given to the trustees with respect to shares of a particular description or to shares appropriated to the participant at a particular time.

(3) For the purposes of capital gains tax—

(a) no deduction shall be made from the consideration for the disposal of any shares by reason only that an amount determined under this Chapter is chargeable to income tax;

(b) any charge to income tax by virtue of section 54 shall be disregarded in determining whether a distribution is a capital distribution within the meaning of paragraph 1 of Schedule 2 to the Capital Gains Tax Act, 1975 ; and

(c) nothing in any such provision as is referred to in subsection (2) shall affect the rules applicable to the computation of a gain accruing on a part disposal of a holding of shares or other securities which were acquired at different times.

Approved profit sharing schemes: appropriated shares.

51. —(1) The provisions of this section apply where, after the 5th day of April, 1982, the trustees of a profit sharing scheme which has been approved of in accordance with Part I of the Third Schedule appropriate shares—

(a) which have previously been acquired by the trustees, and

(b) as to which the conditions in Part II of that Schedule are fulfilled,

to an individual who participates in the scheme.

(2) In this Chapter references to an approved scheme are references to a scheme approved of as mentioned in subsection (1); and in relation to such a scheme—

(a) any reference to a participant is a reference to an individual to whom the trustees of the scheme have appropriated shares; and

(b) subject to section 55 , any reference to a participant's shares is a reference to the shares which have been appropriated to him by the trustees of an approved scheme.

(3) Notwithstanding anything in the Income Tax Acts, a charge to tax shall not be made on any individual in respect of the receipt of a right to receive the beneficial interest in shares passing or to be passed to him by virtue of such an appropriation of shares as is mentioned in subsection (1).

(4) Any reference in this Chapter to the initial market value of any of a participant's shares is a reference to the market value of those shares determined—

(a) except where paragraph (b) applies, on the date on which the shares were appropriated to him; and

(b) if the Revenue Commissioners and the trustees of the scheme agree in writing, on or by reference to such earlier date or dates as may be provided for in the agreement.

(5) Notwithstanding anything in the approved scheme concerned or in the trust instrument or in section 52 , for the purposes of capital gains tax a participant shall be treated as absolutely entitled to his shares as against the trustees.

(6) Where the trustees of an approved scheme acquire any shares as to which the conditions in Part II of the Third Schedule to this Act are fulfilled and, within the period of eighteen months beginning with the date of their acquisition, those shares are appropriated in accordance with the scheme—

(a) section 13 of the Finance Act, 1976 , shall not apply to income consisting of dividends on those shares received by the trustees; and

(b) any gain accruing to the trustees on the appropriation of those shares shall not be a chargeable gain;

and, for the purpose of determining whether any shares are appropriated within that period of eighteen months, shares which were acquired at an earlier time shall be taken to be appropriated before shares of the same class which were acquired at a later time.

(7) The Revenue Commissioners may by notice in writing require any person to furnish to them, within such time as they may direct (but not being less than thirty days), such information as they think necessary for the purposes of their functions under this Chapter, including, in particular, information to enable them—

(a) to determine whether to approve of a scheme or withdraw an approval already given; and

(b) to determine the liability to tax, including capital gains tax, of any participant in an approved scheme.

(8) Schedule 15 of the Income Tax Act, 1967 , is hereby amended by the insertion in column 2 of “Finance Act, 1982, section 51 (7)”.

The period of retention, the release date and the appropriate percentage.

52. —(1) No scheme shall be approved of as mentioned in section 51 (1) unless the Revenue Commissioners are satisfied that, whether under the terms of the scheme or otherwise, every participant in the scheme is bound in contract with the company concerned—

(a) to permit his shares to remain in the hands of the trustees throughout the period of retention;

(b) not to assign, charge or otherwise dispose of his beneficial interest in his shares during that period;

(c) if he directs the trustees to transfer the ownership of his shares to him at any time before the release date, to pay to the trustees before the transfer takes place a sum equal to income tax at the standard rate on the appropriate percentage of the locked-in value of the shares at the time of the direction; and

(d) not to direct the trustees to dispose of his shares at any time before the release date in any other way except by sale for the best consideration in money that can reasonably be obtained at the time of the sale.

(2) No obligation placed on the participant by virtue of subsection (1) (c) shall be construed as binding his personal representatives to pay any sum to the trustees.

(3) Any obligation imposed on a participant by virtue of subsection (1) shall not prevent the participant from—

(a) directing the trustees to accept an offer for any of his shares (in this paragraph referred to as “the original shares”), if the acceptance or agreement will result in a new holding, as defined in paragraph 2 (1) (b) of Schedule 2 to the Capital Gains Tax Act, 1975 , being equated with the original shares for the purposes of capital gains tax; or

(b) directing the trustees to agree to a transaction affecting his shares or such of them as are of a particular class, if the transaction would be entered into pursuant to a compromise, arrangement or scheme applicable to or affecting—

(i) all the ordinary share capital of the company in question or, as the case may be, all the shares of the class in question; or

(ii) all the shares, or shares of the class in question, which are held by a class of shareholders identified otherwise than by reference to their employment or their participation in an approved scheme; or

(c) directing the trustees to accept an offer of cash, with or without other assets, for his shares if the offer forms part of a general offer which is made to holders of shares of the same class as his or of shares in the same company and which is made in the first instance on a condition such that if it is satisfied the person making the offer will have control of that company, within the meaning of section 158 of the Corporation Tax Act, 1976 ; or

(d) agreeing, after the expiry of the period of retention, to sell the beneficial interest in his shares to the trustees for the same consideration as, in accordance with subsection (1) (d), would be required to be obtained for the shares themselves.

(4) If, in breach of his obligation under subsection (1) (b), a participant assigns, charges or otherwise disposes of the beneficial interest in any of his shares, then, as respects those shares, he shall be; treated for the purposes of this Chapter as if, at the time they were appropriated to him, he was ineligible to participate in the scheme and section 56 shall apply accordingly.

(5) In this Chapter “the period of retention”, in relation to any of a participant's shares, means the period beginning on the date on which they are appropriated to him and ending on the second anniversary of that date or, if it is earlier—

(a) the date on which the participant ceases to be an employee or director of a relevant company by reason of injury or disability or on account of his being dismissed by reason of redundancy, within the meaning of the Redundancy Payments Act, 1967 ;

(b) the date on which the participant reaches pensionable age, as defined in section 2 of the Social Welfare (Consolidation) Act, 1981 ; or

(c) the date of the participant's death.

(6) In subsection (5) (a)relevant company” means the company concerned or, if the scheme in question is a group scheme, a participating company, and in the application of subsection (5) (a) to a participant in a group scheme, the participant shall not be treated as ceasing to be an employee or director of a relevant company until such time as he is no longer an employee or director of any of the participating companies.

(7) In this Chapter “the release date”, in relation to any of a participant's shares, means the seventh anniversary of the date on which the shares were appropriated to him.

(8) Subject to section 56 (4), for the purposes of provisions of this Chapter charging an individual to income tax under Schedule E by reason of the occurrence of an event relating to any of his shares, any reference to “the appropriate percentage” in relation to those shares shall be determined according to the time of that event, as follows:—

(a) if the event occurs before the fourth anniversary of the date on which the shares were appropriated to the participant and paragraph (c) (i) does not apply, the appropriate percentage is 100 per cent.;

(b) if the event occurs on or after the fourth anniversary and before the fifth anniversary of the date on which the shares were appropriated to the participant and paragraph (c)(i) does not apply, the appropriate percentage is 75 per cent.;

(c) if—

(i) in a case where the participant—

(I) ceases to be an employee or director of a relevant company as mentioned in subsection (5) (a), or

(II) reaches pensionable age, as defined in section 2 of the Social Welfare (Consolidation) Act, 1981 ,

the event occurs before the sixth anniversary of the date on which the shares were appropriated to him, or

(ii) in any other case, the event occurs on or after the fifth anniversary of that date and before the sixth anniversary of it,

the appropriate percentage is 50 per cent.; and

(d) if the event occurs on or after the sixth anniversary and before the seventh anniversary of the date on which the shares were appropriated to the participant, the appropriate percentage is 25per cent.

Disposal of scheme shares.

53. —(1) If the trustees dispose of any of a participant's shares at any time before the release date or, if it is earlier, the date of the participant's death, then, subject to subsections (3) and (4), the participant shall be chargeable to income tax under Schedule E for the year of assessment in which the disposal takes place on the appropriate percentage of the locked-in value of the shares at the time of the disposal.

(2) Subject to sections 55 and 56 (6), any reference in this Chapter to the locked-in value of any of a participant's shares at any time shall be construed as follows:

(a) if prior to that time the participant has become chargeable to income tax by virtue of section 54 on a percentage of the amount or value of any capital receipt (within the meaning of that section) which is referable to those shares, the locked-in value of the shares is the amount by which their initial market value exceeds the amount or value of that capital receipt or, if there has been more than one such receipt, the aggregate of them; and

(b) in any other case, the locked-in value of the shares is their initial market value.

(3) Subject to subsection (4), if, on a disposal of shares falling within subsection (1), the proceeds of the disposal are less than the locked- in value of the shares at the time of the disposal, subsection (1) shall have effect as if that locked-in value were reduced to an amount equal to the proceeds of the disposal.

(4) If, at any time prior to the disposal of any of a participant's shares, a payment was made to the trustees to enable them to exercise rights arising under a rights issue, then, subject to subsection (5), subsections (1) and (3) shall have effect as if the proceeds of the disposal were reduced by an amount equal to that proportion of that payment or, if there was more than one, of the aggregate of those payments which, immediately before the disposal, the market value of the shares disposed of bore to the market value of all the participant's shares held by the trustees at that time.

(5) For the purposes of subsection (4)

(a) no account shall be taken of any payment to the trustees if or to the extent that it consists of the proceeds of a disposal of rights arising under a rights issue; and

(b) in relation to a particular disposal, the amount of the payment or, as the case may be, of the aggregate of the payments referred to in that subsection shall be taken to be reduced by an amount equal to the total of the reduction (if any) previously made under that subsection in relation to earlier disposals;

and any reference in subsection (4) or paragraph (a) to the rights arising under a rights issue is a reference to rights conferred in respect of a participant's shares, being rights to be allotted, on payment, other shares in the same company.

(6) Where the disposal referred to in subsection (1) is made from a holding of shares which were appropriated to the participant at different times, then, in determining for the purposes of this Chapter—

(a) the initial market value and the locked-in value of each of those shares, and

(b) the percentage which is the appropriate percentage in relation to each of those shares,

the disposal shall be treated as being of shares which were appropriated earlier before those which were appropriated later.

(7) If at any time the participant's beneficial interest in any of his shares is disposed of, the shares in question shall be treated for the purposes of this Chapter as having been disposed of at that time by the trustees for (subject to subsection (8)) the like consideration as was obtained for the disposal of the beneficial interest, and for the purpose of this subsection there is no disposal of the participant's beneficial interest if and at the time when that interest becomes vested in any person on the insolvency of the participant or otherwise by operation of the law of the State.

(8) If—

(a) a disposal of shares falling within subsection (1) is a transfer to which section 52 (1) (c) applies, or

(b) the Revenue Commissioners are of opinion that any other disposal falling within that subsection is not at arm's length and accordingly direct that this subsection shall apply, or

(c) a disposal of shares falling within that subsection is one which is treated as taking place by virtue of subsection (7) and takes place within the period of retention,

then for the purposes of this Chapter the proceeds of the disposal shall be taken to be equal to the market value of the shares at the time of the disposal.

(9) In subsection (5)shares”, in the context of shares allotted or to be allotted on a rights issue, includes securities and rights of any description.

Capital receipts in respect of scheme shares.

54. —(1) Subject to the provisions of this section if, in respect of or by reference to any of a participant's shares, the trustees become or the participant becomes entitled, before the release date, to receive any money or money's worth (in this section referred to as a “capital receipt”), the participant shall be chargeable to income tax under Schedule E for the year of assessment in which the entitlement arises on the appropriate percentage (determined as at the time when the trustees become or the participant becomes so entitled) of the amount or value of the receipt.

(2) Money or money's worth is not a capital receipt for the purposes of this section if or, as the case may be, to the extent that—

(a) it constitutes income in the hands of the recipient for the purposes of income tax;

(b) it consists of the proceeds of a disposal falling within section 53 ; or

(c) it consists of new shares within the meaning of section 55 .

(3) If, pursuant to a direction given by or on behalf of the participant or any person in whom the beneficial interest in the participant's shares is for the time being vested, the trustees—

(a) dispose of some of the rights arising under a rights issue, as defined in section 53 (5), and

(b) use the proceeds of that disposal to exercise other such rights,

the money or money's worth which constitutes the proceeds of that disposal is not a capital receipt for the purposes of this section.

(4) If, apart from this subsection, the amount or value of a capital receipt would exceed the sum which, immediately before the entitlement to the receipt arose, was the locked-in value of the shares to which the receipt is referable, subsection (1) shall have effect as if the amount or value of the receipt were equal to that locked-in value.

(5) Subsection (1) does not apply in relation to a receipt if the entitlement to it arises after the death of the participant to whose shares it is referable.

(6) Subsection (1) does not apply in relation to any receipt the amount or value of which (after any reduction under subsection (4)) does not exceed £10.

Company reconstructions, amalgamations etc.

55. —(1) This section applies where there occurs in relation to any of a participant's shares (in this section referred to as “the original holding”) a transaction (in this section referred to as a “company reconstruction”) which results in a new holding, as defined in paragraph 2 (1) (b) of Schedule 2 to the Capital Gains Tax Act, 1975 , being equated with the original holding for the purposes of capital gains tax.

(2) (a) Where shares are issued, as part of a company reconstruction, in circumstances such that section 85 (1) of the Corporation Tax Act, 1976 , applies, those shares shall be treated for the purposes of this section as not forming part of the new holding.

(b) Nothing in this Chapter shall affect the application of section 84 (2) (c) or 86 (1) of the Corporation Tax Act, 1976 .

(3) In this section—

new shares” means shares comprised in the new holding which were issued in respect of, or otherwise represent, shares comprised in the original holding;

the corresponding shares”, in relation to any new shares, means those shares in respect of which the new shares were issued or which the new shares otherwise represent.

(4) Subject to the following provisions of this section, references in this Chapter to a participant's shares shall be construed, after the time of the company reconstruction, as being or, as the case may be, as including, references to any new shares, and for the purposes of this Chapter—

(a) a company reconstruction shall be treated as not involving a disposal of shares comprised in the original holding;

(b) the date on which any new shares are to be treated as having been appropriated to the participant shall be that on which the corresponding shares were appropriated; and

(c) the conditions in Part II of the Third Schedule shall be treated as fulfilled with respect to any new shares if they were (or were treated as) fulfilled with respect to the corresponding shares.

(5) In relation to shares comprised in the new holding, section 53 (2) shall apply as if the references in that subsection to the initial market value of the shares were references to their locked-in value immediately after the company reconstruction, which shall be deter mined by—

(a) ascertaining the aggregate amount of locked-in value immediately before the reconstruction of those shares comprised in the original holding which had at that time the same locked-in value; and

(b) distributing that amount pro rata among—

(i) such of those shares as remain in the new holding, and

(ii) any new shares in relation to which those shares are the corresponding shares,

according to their market value immediately after the date of the reconstruction, and paragraph (a) of that subsection shall apply only to capital receipts after the date of the reconstruction.

(6) For the purposes of this Chapter if, as part of a company reconstruction, trustees become entitled to a capital receipt, within the meaning of section 54 , their entitlement to the capital receipt shall be taken to arise before the new holding comes into being and, for the purposes of subsection (5), before the date on which the locked- in value of any shares comprised in the original holding falls to be ascertained.

(7) In the context of a new holding, any reference in this section to shares includes securities and rights of any description which form part of the new holding for the purposes of paragraph 2 (1) (b) of Schedule 2 to the Capital Gains Tax Act, 1975 .

Excess or unauthorised shares.

56. —(1) If the total of the initial market values of all the shares which are appropriated to an individual in any one year of assessment (whether under a single approved scheme or under two or more such schemes) exceeds £1,000, subsections (4) to (7) shall apply to the excess shares, that is to say, any share which caused that limit to be exceeded and any share appropriated after that limit was exceeded.

(2) For the purposes of subsection (1), if a number of shares is appropriated to an individual at the same time under two or more approved schemes, the same proportion of the shares appropriated at that time under each scheme shall be regarded as being appropriated before the limit of £1,000 is exceeded.

(3) If the trustees of an approved scheme appropriate shares to an individual at a time when he is ineligible to participate in the scheme by virtue of Part III of the Third Schedule , the following provisions of this section shall apply in relation to those shares, and in those provisions those shares are referred to as “unauthorised shares”.

(4) For the purposes of any provision of this Chapter charging an individual to income tax under Schedule E by reason of the occurrence of an event relating to any of his shares—

(a) the appropriate percentage in relation to excess shares or unauthorised shares shall in every case be 100 per cent.; and

(b) without prejudice to section 53 (6), the event shall be treated as relating to shares which are not excess shares or unauthorised shares before shares which are.

(5) Excess shares or unauthorised shares which have not been disposed of before the release date or, if it is earlier, the date of the death of the participant whose shares they are shall be treated for the purposes of this Chapter as having been disposed of by the trustees immediately before the release date or, as the case may require, the date of the participant's death, for a consideration equal to their market value at that time.

(6) The locked-in value at any time of any excess shares or unauthorised shares shall be their market value at that time.

(7) Where there has been a company reconstruction to which section 55 applies, a new share (within the meaning of that section) shall be treated as an excess share or unauthorised share if the corresponding share (within the meaning of that section) or, if there was more than one corresponding share, each of them was an excess share or an unauthorised share.

Assessment of trustees in respect of sums received.

57. —Where in connection with a direction to transfer the ownership of a participant's shares to which paragraph (c) of section 52 (1) applies, the trustees receive such a sum as is referred to in that paragraph—

(a) the trustees shall be chargeable to tax under Case IV of Schedule D in an amount equal to the appropriate percentage of the locked-in value of the shares at the time of the direction, and

(b) the amount on which the participant is to be charged to tax as a result of the transfer shall be deemed to be an amount from which tax has been deducted at the standard rate pursuant to the provisions of section 434 of the Income Tax Act, 1967 .

Schedule D deduction of payments to trustees.

58. —(1) As respects any accounting period, any sum expended in that accounting period by the company concerned in making a payment or payments to the trustees of an approved scheme shall be included—

(a) in the sums to be deducted in computing for the purposes of Schedule D the profits or gains for that accounting period of a trade carried on by that company, or

(b) if that company is an investment company within the meaning of section 15 of the Corporation Tax Act, 1976 , or a company in the case of which that section applies by virtue of section 33 of that Act, in the sums to be deducted under section 15 (1) of that Act as expenses of management in computing the profits of the company for that accounting period for the purposes of corporation tax,

if, and only if, one of the conditions in subsection (2) is fulfilled:

Provided that no deduction shall be allowed under this section or under any other provision of the Tax Acts in respect of so much of any sum or the aggregate amount of any sums so expended in that accounting period as exceeds 20 per cent. of the company's—

(i) trading income for that accounting period, in the case of a company to which paragraph (a) applies, or

(ii) income for that accounting period, in the case of a company to which paragraph (b) applies, after taking into account any sums which, apart from this section, are to be deducted under section 15 (1) of the Corporation Tax Act, 1976 , as expenses of management in computing the profits of the company for the purposes of corporation tax.

(2) The conditions referred to in subsection (1) are—

(a) that before the expiry of the relevant period the sum in question is applied by the trustees in the acquisition of shares for appropriation to individuals who are eligible to participate in the scheme by virtue of their being or having been employees or directors of the company making the payment, and

(b) that the sum is necessary to meet the reasonable expenses of the trustees in administering the scheme.

(3) In subsection (1)trading income”, in relation to any trade, means the income from the trade computed in accordance with the rules applicable to Case I of Schedule D before any deduction under this Chapter and after any set-off or reduction of income by virtue of section 16 or 18 of the Corporation Tax Act, 1976 , and after any deduction or addition by virtue of section 14 of that Act, and after any deduction or addition by virtue of section 31A of the Finance Act, 1975 .

(4) In subsection (2) (a)the relevant period” means the period of nine months beginning on the day following the end of the period of account in which the sum in question is charged as an expense of the company incurring the expenditure or such longer period as the Revenue Commissioners may allow by notice in writing given to that company.

(5) For the purposes of this section, the trustees of an approved scheme shall be taken to apply sums paid to them in the order in which the sums are received by them.