Section 519 Employee share ownership trusts
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(1)(a) This section shall apply to an employee share ownership trust which the Revenue Commissioners have approved of as a qualifying employee share ownership trust in accordance with Schedule 12 and which approval has not been withdrawn.
(b) This section shall be construed together with Schedule 12.
(2) Where, in an accounting period of a company, the company expends a sum-
(a) in establishing a trust to which this section applies, or
(b) in making a payment by means of contribution to the trustees of a trust which at the time the sum is expended is a trust to which this section applies, and-
(i) at that time the company or a company which it then controls has employees who are eligible to benefit under the terms of the trust deed, and
(ii) before the expiry of the expenditure period the sum is expended by the trustees for one or more of the qualifying purposes,
then, the sum shall be included-
(I) in the sums to be deducted in computing for the purposes of Schedule D the profits or gains for that accounting period of a trade carried on by that company, or
(II) if the company is an investment company within the meaning of section 83 or a company in the case of which that section applies by virtue of section 707, in the sums to be deducted under section 83(2) as expenses of management in computing the profits of the company for that accounting period for the purposes of corporation tax.
What costs of implementing an employee share ownership trust can my company obtain a deduction on?
(1)-(2) As a company that implements an approved employee share ownership trust, you may deduct the costs of establishing, and contributing to, the trust from your business profits for tax purposes. As an investment company, you are entitled to a sim...
(3) Where-
(a) subsection (2)(a) applies, and
(b) the trust is established after the end of the period of 9 months beginning on the day following the end of the accounting period in which the sum is expended by the company,
then, for the purposes of subsection (2), the sum shall be treated as expended in the accounting period in which the trust is established and not in the accounting period mentioned in paragraph (b).
In what accounting period can my company take a tax deduction for the cost of establishing an employee share ownership scheme?
(3) If a trust is not established until more than nine months after the accounting period in which its establishment costs were incurred, the costs may be treated as incurred in the accounting period in which the trust was established.
(4) For the purposes of subsection (2)(b)(i), the question whether one company is controlled by another shall be construed in accordance with section 432.
How is "control" defined under the employee share ownership trust rules?
(4) A company controls another company if the first company can control the second company's affairs, or obtain more than half the second company's shares, voting power, income, or assets (on a winding up) (see section 432(2)).
(5) For the purposes of subsection (2)(b)(ii)-
(a) each of the following shall be a qualifying purpose-
(i) the acquisition of shares in the company which established the trust,
(ii) the repayment of sums borrowed,
(iii) the payment of interest on sums borrowed,
(iv) the payment of any sum to a person who is a beneficiary under the terms of [the trust deed,]1
[(iva) the payment of any sum or the transfer of securities to the personal representatives of a deceased beneficiary under the terms of the trust deed, and]2
(v) the meeting of expenses,
and
(b) the expenditure period shall be the period of 9 months beginning on the day following the end of the accounting period in which the sum is expended by the company or such longer period as the Revenue Commissioners may allow by notice given to the company.
Amendments
1 Substituted by Finance Act 2001 section 13(a)(i)(I).
2 Para (iva) inserted by Finance Act 2001 section 13(a)(i)(II).
(6) For the purposes of this section, the trustees of an employee share ownership trust shall be taken to expend sums paid to them in the order in which the sums are received by them, irrespective of the number of companies making payments.
(7) The trustees of a trust to which this section applies shall not be chargeable to income tax in respect of income consisting of dividends in respect of securities held by the trust if, and to the extent that, the income is expended within the expenditure period (within the meaning of paragraph 13 of Schedule 12) by the trustees for one or more of the qualifying purposes referred to in that paragraph …1.
Amendments
Subs (7) substituted by Finance Act 1998 section 36(1)(b) as on and from 27 March 1998.
1 Repealed by Finance Act 2000 section 69(2) and Schedule 2 Part 2 in the case of income tax as on and from 6 April 1999, and in the case of corporation tax as respects accounting periods commencing on or after 6 April 1999.
Are trustees of an employee share ownership trust liable for income tax on dividend income?
(7) The trustees of an employee share ownership trust are not chargeable to income tax on dividend income arising from shares held under the trust, provided the income is spent within the expenditure period (Schedule 12 para 13)....
(7A) Where the trustees of a trust to which this section applies-
(a) sell securities on the open market, or
(b) receive a sum on the redemption of securities,
any gain accruing to such trustees shall not be a chargeable gain if, and to the extent that the proceeds of such sale or redemption, as the case may be, are used-
(i) to repay moneys borrowed by those trustees,
(ii) to pay interest on such borrowings, or
(iii) to pay a sum to the personal representatives of a deceased beneficiary.
Amendments
Subs (7A) substituted by Finance Act 2002 section 13(1)(c)(i) as on and from 16 April 2001.
(8) Where the trustees of a trust to which this section applies transfer securities to the trustees of a profit sharing scheme approved under Part 2 of Schedule 11, any gain accruing to those first-mentioned trustees on that transfer shall not be a chargeable gain.
(8A) Where the trustees of a trust to which this section applies transfer securities to the personal representatives of a deceased beneficiary, any gain accruing to the trustees on that transfer shall not be a chargeable gain.
Amendments
Subs (8A) inserted by Finance Act 2001 section 13(a)(iii).
(8B) The payment of any sum as is referred to in [subsection (7A)(iii)]1 or the transfer of any securities to which subsection (8A) applies shall, notwithstanding any other provision of the Income Tax Acts, be exempt from income tax.
Amendments
Subs (8B) inserted by Finance Act 2001 section 13(a)(iii).
1 Substituted by Finance Act 2004 section 89 and Schedule 3 para 1(n) from 25 March 2004.
(9) Notwithstanding anything in [subsections (1) to (8B)]1, where the Revenue Commissioners in accordance with Schedule 12 withdraw approval of an employee share ownership trust as a qualifying employee share ownership trust, then, as on and from the date from which that withdrawal has effect, this section shall not apply in relation to-
(a) any sum expended by a company in making a payment to that trust,
[(b) income consisting of dividends in respect of securities held by that trust,
(c) the transfer of securities to a profit sharing scheme approved under Part 2 of [Schedule 11,]2
[(ca) the payment of any sum or the transfer of securities to the personal representatives of a deceased beneficiary of the trust, or]3
[(d) the gain accruing to the trustees of that trust from-
(i) the sale on the open market, or
(ii) the redemption,
of securities.]4]5
Amendments
1 Substituted by Finance Act 2001 section 13(a)(iv)(I).
2 Substituted by Finance Act 2001 section 13(a)(iv)(II).
3 Para (ca) inserted by Finance Act 2001 section 13(a)(iv)(III).
4 Subs (9)(d) substituted by Finance Act 2002 section 13(1)(b)(ii) as on and from 16 April 2001.
5 Subs (9)(b)-(d) substituted (for subs (9)(b)-(c)) by Finance Act 1999 section 69(1)(b)(ii) as respects employee share ownership trusts approved under Schedule 12 para 2 on or after 25 March 1999.
Simons D2.227
Employee share ownership - a new approach? Martin Scully, Irish Tax Review, July 1995
Employee share ownership, Finance Act 1997, Tony Collins, Irish Tax Review, July 1997.
(10) For the purposes of this section-
"deceased beneficiary" means a person who on the date of such person's death-
(a) would have been eligible to have [securities]1 appropriated to him or her, had such [securities]1 been available for appropriation, under a scheme approved of by the Revenue Commissioners under Schedule 11 and for which approval has not been withdrawn, and
(b) was a beneficiary under the terms of a trust deed of an employee share ownership trust approved of by the Revenue Commissioners under Schedule 12 and for which approval has not been withdrawn and which trust deed contained provision for the transfer of securities to the trustees of the scheme referred to in paragraph (a) and for the payment of sums and for the transfer of securities to the personal representatives of deceased beneficiaries.
Amendments
Subs (10) inserted by Finance Act 2001 section 13(a)(v).
1 Substituted by Finance Act 2002 section 13(1)(b)(iii) as on and from 16 April 2001.
What conditions apply to the exemption for a deceased beneficiary from tax for transfer of shares from an employee share ownership trust?
(10) This subsection is related to the exemptions from capital gains tax (see (7A)) and from income tax (see (8A)) given where the trustees of an ESOT transfer shares, or the proceeds arising from the sale of such shares, to the personal representati...
