KEEP is a share based tax incentive that is intended to support Small and Medium Sized Enterprises (SME’s) in attracting and retaining key employees through deferring the point of taxation of qualifying share option awards to the date of the ultimate disposal of the shares. In addition, gains on the disposal of KEEP shares are subject to Capital Gains Tax (CGT) at a rate of 33% instead of being subject to income tax and Pay Related Social Insurance (PRSI) at combined rates of up to 52%.
The take up of KEEP by SMEs has been disappointing. The consultation asks for feedback on what aspects of the current structure and design of KEEP work effectively, and which do not.
KPMG’s response highlights the main barrier to the effectiveness of KEEP as a tool for SMEs to attract and retain key employees is that the qualifying conditions for the relief do not reflect the commercial structures through which SMEs operate in Ireland.
If KEEP is to work effectively, the conditions attaching to the relief must accommodate corporate group structures and key employees who spend their time working for different group members as business needs dictate.
KEEP must also allow SMEs to preserve the CGT treatment for KEEP share gains realised by employees under arrangements which companies put in place to provide liquidity in the shares and provide greater certainty on the perceived value of KEEP share awards for employees.
This consultation on KEEP forms part of a number of linked consultations in which Ireland’s policy makers are seeking feedback on a range of tax incentive supports for SMEs.
KPMG is also responding to the consultations on CGT Entrepreneur Relief and the consultation on the R&D tax credit regime.
Our suggestions in all of these consultations are designed to support Irish based SMEs in growing their business from an Irish base. In the case of KEEP, this means attracting and retaining key employees to:
TaxWatch is KPMG’s client-only portal on tax insights. Registered TaxWatch users can also read more about KPMG’s submission on KEEP here.
If you wish to discuss KPMG’s response to the KEEP consultation, please contact any member of your KPMG team.