Review of Approved Profit Sharing Scheme

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 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 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 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 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 24 March 2009