24 March Review of Approved Profit Sharing Scheme Kathleen Corley Revenue Commissioners

24 March Review of Approved Profit Sharing Scheme Legislation introduced in 1982 Key principles –all employee –similar terms Revenue concerns Review of administrative practices

24 March Review of Approved Profit Sharing Scheme IPSA submission Use of bonuses –Fixed –Discretionary –Sales commission –Team bonuses Certain other agreed payments

24 March Review of Approved Profit Sharing Scheme Carry forward of contributions –Salary forgone –Contributory schemes Different bonus dates Electronic communications APSS schemes for sister companies

24 March APSS - Use of bonuses Original intention of legislation Use of bonuses generally –Funding of acquisition of shares - company –Basis of entitlement – participants Continue with general principle

24 March APSS - Use of bonuses Fixed bonus –Contractual entitlement (written or implied) Tax Briefing Issue No 56 (July 2004) No change in Revenue’s position

24 March APSS - Use of bonuses Discretionary bonuses Payment and amount at discretion of employer Performance criteria/performance appraisal schemes No change in practice

24 March APSS - Use of bonuses Team Bonuses Revenue will now consider these –Not fixed –Team performance measures Business results Other objective tests

24 March APSS - Use of bonuses Different teams –Equal opportunities –Measurement of achievement –Ratings applied Full particluars to Employee Share Scheme Section

24 March APSS - Use of bonuses Sales and non-sales staff Different bonus structure Sales commission Similar terms rule paramount Portion of sales commission can be used Full particulars to Employee Share Scheme Section

24 March APSS - Use of bonuses Example Discretionary bonus payable to non-sales staff under a performance appraisal scheme 0- 5% Sales Commission payable to sales staff under a performance appraisal scheme 0-20%

24 March APSS - Use of bonuses Non-sales employee received 5% bonus Sales employee received 20% sales commission Lowest common percentage is 5% Maximum amount that can be invested in APSS is to be determined using the formula:

24 March APSS - Use of bonuses Lowest maximum common denominator x Bonus % Maximum bonus % Non-sales employee can invest: 5 x 5 = 5% 5 Sales employee can invest: 5 x 20 = 5% 20

24 March APSS - Use of bonuses Example Discretionary bonus payable to non-sales staff under a performance appraisal scheme 0- 5% Sales Commission payable to sales staff under a performance appraisal scheme 0-20% Non-sales employee received 5% bonus Sales employee received 10% sales commission

24 March APSS - Use of bonuses Lowest common percentage is 5% Maximum amount that can be invested in APSS is to be determined using the formula: Lowest maximum common denominator x Bonus % Maximum bonus %

24 March APSS - Use of bonuses Non-sales employee can invest: 5 x 5 = 5% 5 Sales employee can invest:5 x 10 = 2.5% 20

24 March APSS - Use of bonuses Agreed payments Collective bargaining arrangements Cost savings, changes in work practices, transformation, staff reductions; increased productivity General position – no change Examine each case based on specific facts

24 March APSS – Carry forward of contributions Salary Forgone –Similar terms at each appropriation date –Exceptional circumstances – different dates Carry forward within same tax year –Company funded shares appropriated first –Normal limits apply Maximum 7.5% of salary or company’s contribution 1:1 ratio

24 March APSS – Carry forward of contributions Example A bonus of €1,000 is payable to an employee on 31 March The employee is forgoing salary of €100 per month. The employee opts to take shares in lieu of his/her bonus. The market value of the shares at 31 March 2009 is €2.00 per share. The market value of the shares at 31 December 2009 is €1.00 per share.

24 March APSS – Carry forward of contributions 31 March 2009 Bonus – Shares appropriated to the value of €1,000 (500 shares with market value of €2.00 each). Salary Forgone Jan – March €300 – 150 shares appropriated (market value €300).

24 March APSS – Carry forward of contributions 31 December 2009 Salary forgone April – December is €900. The maximum number of shares that can be appropriated is 350 (market value €350). The balance of the salary forgone €550 must be repaid to the employee after making appropriate PAYE/PRSI/Levies deductions.

24 March APSS – Carry forward of contributions Contributory schemes (BOGOF) Aggregate contributions insufficient to purchase whole number of shares Carry forward within same tax year –Excess plus normal cannot > max allowable monthly contribution –Monthly contribution fixed at beginning of year –Participant’s agreement

24 March APSS – Different bonus dates Different bonus dates – management and other staff Participant elects to take cash –Similar terms rules –At each appropriation date Change in Revenue practice –Employee opts not to participate in APSS –Contract of participation/Form of acceptance –Need not defer payment of cash

24 March Review of Approved Profit Sharing Scheme Electronic communications No objection where no legal restrictions Consent from participant –Electronic Commerce Act 2000

24 March Review of Approved Profit Sharing Scheme Group schemes Sister companies Administration of one scheme for sister companies No change in Revenue position

24 March Summary Protection of fundamental principles Broadening of some practices –Sales commission –Team Bonuses –Different bonus dates – payment of cash –Carry forward of contributions Next issue of Tax Briefing – early April

24 March Review of Approved Profit Sharing Scheme Thank You