25 August 2022
The Irish Revenue recently sent a communication to employers who have indicated that they operate share-based scheme(s) for their employees, as reported on Form RSS1 (for reporting option plans) and/or Form ESA (for reporting other share-based remuneration). The Employer Notice in respect of unapproved (i.e. not tax-qualified) share options was issued to such employers on 12 August 2022 (here).
The Irish Revenue notes that employees may not be fully aware of their tax obligations where they are engaged in a share-based remuneration scheme(s), for example, where they exercised, assigned or released share options, and/or disposed of shares. As such, the Irish Revenue is requesting that all employers operating share-based remuneration scheme(s) circulate the information provided in the Employer Notice to all employees to inform them of their tax obligations under sections 128 (the charging provision) and 128B TCA 1997 (which sets out that the tax is to be paid on the Form RTSO1). Employers should be able to access this notice through their ROS (online reporting) inbox.
Remember that in Ireland, employees are actually responsible for reporting (on Form RTSO1) and paying any taxes arising upon exercise of their share options (which must be reported and paid within 30 days of exercise).
Our counsel in Ireland is aware that, in some cases, employers are operating payroll when their employees exercise share options but, by doing so, employers are inadvertently creating tax issues for employees. It is clear that the Irish Revenue are cross-checking information provided on the Form RSS1 and reaching out to employees who they have been notified have exercised share options but who have not filed a Form RTSO1.
It is important that employers and employees are aware of and adhere to their obligations under Irish tax law in respect of share awards, and in particular, share options.
We would like to thank our relationship law firm in Ireland McCann FitzGerald for providing us with the information in this alert.
Tapestry comment: this intervention by the Irish Revenue demonstrates a very real concern that employees are not aware of their reporting and tax payment obligations in respect of share options. The system in Ireland is unusual in requiring employer withholding for some types of employee share plan but not for plans that are treated as options for Irish tax purposes. This is not always straightforward as, depending on the terms of the plan, this may include a share purchase plan. If the plan is treated as a share option, the employee is responsible for declaring and paying any taxes, including social security, on the benefit. It goes without saying that employees do not want to be in default in their tax obligations and employers may want to take extra care to ensure that the obligations are explained. Employers will also want to make sure that their payroll is aware that withholding does not apply to option plans.
Please let us know if you have any questions about the share plan reporting obligations, whether in Ireland or elsewhere.
Sharon Thwaites and Matthew Hunter