Revenue has issued two e-briefs in relation to share incentive arrangements and associated reporting obligations. eBrief No. 120/21 (Revenue eBrief No. 120/21) sets out the updates made to the Revenue’s Share Scheme Manual in light of the new reporting requirements for unapproved share arrangements. It also sets out their position in relation to awards where sell to cover applies and includes two new chapters relating to Growth Shares and Cash-Settled Share Awards.
In eBrief No. 123/21 (Revenue eBrief No. 123/21) Revenue released the new Employers Share Award (ESA) return to be completed by employers. The ESA form sets out the information to be returned for employees and directors in the company in relation to all unapproved employer share awards but must also include cash payments which derive their value directly or indirectly from shares. Prior to this release, there was no prescribed format for the reporting of unapproved equity arrangements other than for share option related transactions.
Filing of the ESA will apply retrospectively for the 2020 tax year with the deadline for the 2020 tax year being 31 August 2021. For subsequent years, the filing deadline will be 31 March following the year in question which is in line with the filing deadline for other share scheme informational returns (such as the Forms RSS1, ESS1 and KEEP1). Failure to comply with this mandatory filing obligation can result in a monetary penalty.
Why this matters
The updates to the Share Scheme Manual are important to review and understand. The updates set out Revenue’s view of a Growth Share Scheme, the treatment of Cash-Settled Awards as well as the differences between share settled and sell to cover arrangements for employer and employee reporting obligations.
With respect to the Form ESA, the level of detail required to be completed on the new electronic form is extremely broad. The form covers all share awards including those that are cash-settled as well as incentive cash payments whose value has been processed through Irish payroll but is based upon a notional share value e.g. Phantom Shares.
The Form ESA must include details relating to directors of the company, domestic employees as well as globally mobile employees working in Ireland. The period between release of the 2020 Form ESA and the filing deadline is extremely short and collating all the information needed to complete the return within this timeframe may be challenging.
In addition, the ESA form, which is in spreadsheet format, must be filed electronically via an upload to the Revenue online system (“ROS”). Employers need to be a registered ROS user and must also separately register through ROS under the Share Scheme Reporting (SSR) facility to enable upload of the completed spreadsheet. Additional time should therefore be factored in by employers where they need to register for SSR. Where a tax agent will file the ESA return on behalf of the employer the advisor must be linked as a tax agent for this purpose with Revenue. Both registration processes can take several days to complete so should be organised well in advance of the deadline.
It should be noted that where reporting is required for globally mobile employees, a connected Irish group company can report relevant details on behalf of a foreign employer which avoids the need for a separate registration process to be completed
Revenue has indicated that as well as gaining an understanding of the range of equity arrangements in place across companies, the detail provided from the Form ESA will assist them in confirming whether or not employees have met personal tax compliance and payment obligations – this will be particularly relevant where there has been a disposal or transfer of shares by the employee upon which Irish capital gains tax and/or capital acquisitions tax may arise. Given the personal tax filing deadline for the 2020 tax year is 31 October 2021, employers should also consider what level of employee communications are needed with respect to the 2020 ESA return.
Details which are out of scope of the ESA Reporting Obligation
Details do not need to be provided in relation to an incentive arrangement which is already subject to a separate informational return. It should be noted that inclusion of relevant details in the statutory payroll return as part of the calculation of payroll withholding due on the award does not constitute a separate informational return. Examples of arrangements which may be excluded include all Revenue approved share scheme arrangements include Key Employee Engagement Programme (KEEP) options, Approved Profit Share Schemes, Save as You Earn (SAYE) options. In addition, for 2020, detail relating to unapproved Share Option transactions is outside the scope of the ESA having been separately dealt with under the annual RSS1 return in March 2021. It remains to be seen whether the ESA return will be expanded to include unapproved share option transactions for 2021 and later years.
Details in scope of the ESA Reporting Obligation
Depending upon the incentive arrangement in place, employers may be obliged to report the details associated with grant, vesting, forfeiture, disposal, and/or cash payment made for each respective director or employee. Where there are multiple awards or vesting in the tax year, each transaction should be listed as an additional line item for that employee. Where an element of an award is cash settled, these details should be outlined separately from any awards which are share settled.
Notwithstanding that the statutory payroll return would have included details of the taxable value arising in relation to a specific award, the ESA form also requires confirmation of items that have been processed through payroll e.g. Restricted Stock Units as well as whether payroll withholding has been applied.
When considering whether the grant of an award is reportable, Revenue have confirmed that awards which are taxable only at vesting do not need to be returned on the basis that there is no beneficial entitlement at grant. Examples of such award arrangements may include Restricted Stock Units, Performance Shares where beneficial ownership does not pass until the date of vesting, etc.
Relevant share arrangements to be reported on the ESA form are:
- Restricted Stock Units,
- Free or Discounted Shares;
- Restricted Shares;
- Convertibles Securities or Shares;
- Forfeitable Shares;
- Employee Share Purchase Plans;
- Stock Appreciation Rights;
- Growth/Hurdle/Flowering Shares
- Other share awards
- Cash awards indirectly linked to share values e.g. Phantom Shares
- Cash-Settled Awards
Employers should now consider the following:
- A review of current share plans and cash-based incentive arrangements to ensure that the taxation and reporting position is fully understood. It is also an opportunity to consider whether the current arrangements remain fit for purpose.
- Identification of the stakeholders that will be responsible for providing the information needed.
- Documentation of the processes and procedures relating to securing the information including, where possible, automaton.
- Assessment of the reporting obligations in relation to domestic directors and employees and globally mobile employees
- Preparation of an employee communication regarding the changes and information that will be disclosed to Irish Revenue.
Get in touch
If you have any queries in relation to the above or if would like any assistance in relation to preparation and completion of the form, procedures and employee communications, please contact a member of the Reward Advisory Services team below and we would delighted to assist you.
Contact the team
Tax Principal, People Services & Head of Global Mobility
KPMG in Ireland