1. GLOBAL EQUITY ORGANISATION Approved Share Options – where to next?
Rosaleen Boyle, PricewaterhouseCoopers
7 January 2003
Pwc

2. Outline of Talk Overview of FA2001- Approved Share Option Rules
Difficulties in application
Challenges for the Future
Other recent developments in employee share plans
Global Equity Organisation
PricewaterhouseCoopers

3. Overview of Finance Act 2001
Share Option Rules
Overview of Finance Act 2001
Pwc

4. Approved Share Option Schemes
Options for all employees on similar terms
3 year holding requirement from grant to sale
No discount on option price
Favourable tax treatment
Group scheme/individual company scheme
Other features: 30% key employee rule; new hires
Global Equity Organisation
PricewaterhouseCoopers

5. Tax Treatment Income Tax No tax at either Grant or Exercise
Capital Gains Tax [CGT]
On Sales Proceeds less Exercise Price
Indexation from date of exercise
20% tax rate
Corporate Tax
Set up costs deductible
PricewaterhouseCoopers
Global Equity Organisation

6. Difficulties in Application
Pwc

7. Lobby Group Unified Approach IPSA/ISA  IBEC Survey of Members
Extensive Consultation
Meetings/Discussions with Finance/Revenue
Global Equity Organisation
PricewaterhouseCoopers

8. Primary Issues Identified
Similar Terms – what is included
Eligibility – who is included
Housekeeping Issues – practical application
Global Equity Organisation
PricewaterhouseCoopers

9. Similar Terms APSS Approach Remuneration ‘basic’ or ‘total’ ?
Grading, promotion, role value ?
Perfomance related ?
Same day/same price
Global Equity Organisation
PricewaterhouseCoopers

10. Eligibility APSS Approach Temporary/contract workers ?
Participation rather than eligibility
Discretion problematic
Global Equity Organisation
PricewaterhouseCoopers

11. Housekeeping Issues Grants on anniversary of hire ?
Application of discretion
Need for Audit certificates
Uncertainty of approval process and cost
Global Equity Organisation
PricewaterhouseCoopers

12. Trends Multi-Nationals in Ireland stepped vesting
grants to “All Employees”
Irish/UK Companies
cliff vesting typically after 3 years
subject to performance conditions
aimed at key employees
Private companies ?
Global Equity Organisation
PricewaterhouseCoopers

13. Facts Only 15 schemes approved to date
Most companies with existing schemes fail to meet the
rigid requirements
Not commercially attractive to companies
Global Equity Organisation
PricewaterhouseCoopers

14. Output ‘Educational’ Process Draft Guidelines prepared and put forward
Housekeeping issues identified and proposals made
Detailed legislative proposals presented
Willingness to resolve issues
Global Equity Organisation
PricewaterhouseCoopers

15. Result No changes in Finance Act 2002 Hugely Disappointing to IPSA
to companies involved
for the team
No announcements in Budget Finance Bill?
Global Equity Organisation
PricewaterhouseCoopers

16. Challenges For the Future
Pwc

17. Next steps Minister of Finance willing to review fresh proposals
No guarantees
Lobby groups preparing new proposals – IPSA, ICT Ireland
- “clean sheet” approach
- international comparisons
- draft model
Global Equity Organisation
PricewaterhouseCoopers

18. Working with existing legislation
Pre 1992 Options - History
Retrospective Approval – No longer possible
Approval only impacts on future grants
Will SAYE meet your all-employee needs?
Do you have an APSS?
Is policy determined locally or at corporate level ?
Global Equity Organisation
PricewaterhouseCoopers

19. What can companies do? Green field Approach - tail wagging the dog ?
‘Carve out’ from existing scheme
- need to ‘disapply’ certain provisions
- include other provisions
Approved/Unapproved
Need Approval in Advance
Push the Envelope
Global Equity Organisation
PricewaterhouseCoopers

20. Existing Share Option Schemes
Rule changes will be required
Does existing scheme make provision ?
Board approval ?
Revenue approval
Global Equity Organisation
PricewaterhouseCoopers

21. New Share Option Schemes
Approval at general meeting
IAIM guidelines
Revenue approval
Global Equity Organisation
PricewaterhouseCoopers

22. Other Tax and Legal Issues
Pwc

23. Finance Act 2002 No changes to Finance Act 2001
Filing date for Form SO2 now 31 March
- For 2001, SO2 due by 30 June 2002
- For 2002, SO2 due by 31 March 2003, etc.
SO2 reporting requirement extended to Irish branches/agencies
- previously, applied only to employees of resident company
Global Equity Organisation
PricewaterhouseCoopers

24. Unapproved Share Option Schemes - Deferral of Income Tax
Tax still applies to year of exercise
Only defer collection
until earlier of 7 Years or Sale
timely election essential
Identification of shares is an issue
Benefit flows through for preliminary tax
Global Equity Organisation
PricewaterhouseCoopers

25. Restricted Share Schemes
Restrictions on sale reduce taxable value and thus overall tax bill
Range from 10% reduction for 1 year restriction to 50% reduction for
5 years, and 55% reduction for restriction of over 5 years
Limits on early release provisions
Agreement of Inspector required
Improvements needed
Global Equity Organisation
PricewaterhouseCoopers

26. APSS & Salary Foregone New Revenue Guidelines - Dec 2001
Cannot straddle tax years in collection
Salary foregone in 2001 can be used towards 2002 purchases
Affects appropriations from 1 Jan 2003
NB for co’s with awards in Jan-Mar
Action required now
Global Equity Organisation
PricewaterhouseCoopers

27. APSS & Salary Foregone If your company is affected, 4 choices
Move appropriation date to later in 2003
Suggest that employees plan now for all s/f to come from
Jan/Feb 2003 payroll
Do nothing
Revenue ‘solution’
Jan/Feb -award employer element
Feb-Nov: forego salary & appropriate that element only
in Nov/Dec 2003
Global Equity Organisation
PricewaterhouseCoopers

28. UK Share Scheme Issues
Profit Sharing Schemes abolished in UK on 31 Dec 2002 (replaced by SIP)
Statutory corporate tax deduction in UK proposed for options
Global Equity Organisation
PricewaterhouseCoopers

29. Recent Developments Part Time workers EU prospectus provisions
Data Protection
Part Time workers
EU prospectus provisions
Global Equity Organisation
PricewaterhouseCoopers

30. Recent Developments Data Protection
EC data protection regulations came into force on 1 April 2002
Will allow transfer of data outside the EEA only where adequate data
protection is deemed to exist
Global Equity Organisation
PricewaterhouseCoopers

31. Recent Developments Part Time Work Act 2001
New Irish legislation 20 December 2001
Any grading or allocation system could be viewed as discriminatory
Global Equity Organisation
PricewaterhouseCoopers

32. Recent Developments EU Prospectus Provisions
Companies Act general requirement
Exemption for Irish companies in respect of employee share plans
Less clear for foreign companies
EU draft directive in circulation
- Wholesale exemption for employee share plans rejected
Current climate seeks openness – Enron etc
Global Equity Organisation
PricewaterhouseCoopers

33. Q & A
Pwc