24 march 20091 review of approved profit sharing scheme kathleen corley revenue commissioners
TRANSCRIPT
24 March 2009 1
Review of Approved Profit Sharing Scheme
Kathleen Corley
Revenue Commissioners
24 March 2009 2
Review of Approved Profit Sharing Scheme
• Legislation introduced in 1982• Key principles
– all employee – similar terms
• Revenue concerns• Review of administrative practices
24 March 2009 3
Review of Approved Profit Sharing Scheme
• IPSA submission• Use of bonuses
– Fixed– Discretionary– Sales commission– Team bonuses
• Certain other agreed payments
24 March 2009 4
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 2009 5
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 2009 6
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 2009 7
APSS - Use of bonuses
• Discretionary bonuses
• Payment and amount at discretion of employer
• Performance criteria/performance appraisal schemes
• No change in practice
24 March 2009 8
APSS - Use of bonuses
• Team Bonuses
• Revenue will now consider these– Not fixed– Team performance measures
• Business results
• Other objective tests
24 March 2009 9
APSS - Use of bonuses
• Different teams – Equal opportunities– Measurement of achievement – Ratings applied
• Full particluars to Employee Share Scheme Section
24 March 2009 10
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 2009 11
APSS - Use of bonuses
ExampleDiscretionary 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 2009 12
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 2009 13
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 2009 14
APSS - Use of bonuses
ExampleDiscretionary 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 2009 15
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 2009 16
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 2009 17
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 2009 18
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 2009 19
APSS – Carry forward of contributions
• Example
A bonus of €1,000 is payable to an employee on 31 March 2009. 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 2009 20
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 2009 21
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 2009 22
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 2009 23
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 2009 24
Review of Approved Profit Sharing Scheme
• Electronic communications
• No objection where no legal restrictions
• Consent from participant– Electronic Commerce Act 2000
24 March 2009 25
Review of Approved Profit Sharing Scheme
• Group schemes• Sister companies• Administration of one scheme for sister companies • No change in Revenue position
24 March 2009 26
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 2009 27
Review of Approved Profit Sharing Scheme
Thank You