Department of Finance looks into SME share option schemes

The Department of Finance is investigating the viability of introduction tax-advantaged share options to enable small and medium-sized businesses to retain top talent and encourage business growth.

The Department launched a public consultation yesterday to obtain views on current ‘Revenue approved’ share schemes and the tax treatment of other remuneration in the form of shares.

Michael Noonan, Minister for Finance, confirmed a move to share option schemes could boost both employment and economic growth.

“International research has shown that when employees share in the profits of the company, this can be effective in fostering partnership, increasing competitiveness and in helping companies to attract and retain staff in a competitive international labour market,” said Noonan.

“This can then support employment and economic growth. Now is a good time to review the tax treatment of share based remuneration, including consideration of whether existing supports can be targeted more effectively.”

Last year, a pre-Budget release from the Department of Jobs stated that there was little incentive for employees to take stock options over cash sums.

“No cash earnings arise directly from the exercise of share option. Employees working in SMEs, whose shares are not listed on a stock exchange and where there is no readily available market, do not have the option to sell a sufficient portion of their shares to generate the cash to pay the tax like their peers in listed companies,” the submission said.

The Department stated that an SME employee must find the money for the tax payment from their own resources unless their employer has the necessary internal funds to carry out a share buyback.

The Department of Finance has responded by saying it is investigating the prospect of an SME share reward scheme as the Programme for a Partnership Government includes a commitment to exploring such avenues.

The Department will examine the tax treatment of share-based remuneration as part of its analysis, whilst taking into account the net Exchequer benefit, the potential impact on economic growth and employment, compliance with EU State Aid rules and the overall position of public finances.

Last updated: 6th June 2016