The Irish economy is at a Brexit disadvantage because companies here cannot offer their employees share incentives that are as attractive as those available in the UK and other EU countries.
That was the warning from the Irish ProShare Association (IPSA) today as it called on the Government to fast-track tax reform and introduce new measures which encourage employee financial involvement in companies.
Gill Brennan, CEO of IPSA, suggsted there are significant opportunities for Ireland to attract companies seeking to establish EU bases in the wake of the UK’s decision to leave the bloc but that means being able to compete when it comes to those companies being able to attract and retain talent.
“Currently Ireland is at significant competitive disadvantage due to our poor employee ownership record and employee share incentive schemes. The current tax measures in this area lag the UK and our EU competitors, and we have a short period of time to remedy this.
“The UK has a scheme called the Enterprise Management Incentive which enables share options to be received by employees without any tax bill arising until the shares are sold. This scheme is now being replicated throughout Europe and it would put Ireland at a competitive disadvantage to ignore this and to fail to develop its own version of EMI.
“EMI uses tax-advantaged equity to attract and incentivise staff who might otherwise be paid higher cash amounts by larger businesses. A scheme like this would be of great benefit to start-ups and SMEs considering a base in Ireland, not to mention companies that are already here.
“The tax system must be reformed to make it easier and more efficient for smaller firms to participate in share-based remuneration, so that they can compete for top talent with larger multinational enterprises. Across Europe Governments and the EU Commission have recognised the importance of providing, particularly start-ups and SME’s, with the right tools to attract and retain the best talent that will help grow indigenous business, increase employment, and provide stability in their economies.
“By offering employees a stake in the business they work in, employees have a vested interest in ensuring that the business thrives and at present in Ireland we cannot do this effectively.”
The IPSA have pointed out that at present the main option for unlisted smaller businesses to attract the best talent is to offer shares through unapproved schemes under which, from the outset, employees must pay income tax, USC and PRSI even though there is no market for the shares to which the employee becomes entitled.
Tey have suggested this means the employee must self-generate the funds to pay the tax, and then face a second tax bill when they dispose of the shares, usually by selling them back to the company, as they are also subject to Capital Gains Tax.
Ms Brennan went on: “Revenue-approved plans (APSS) are too rigid and complex for many companies, particularly for start-ups and SMEs. They are really only suited to large quoted Irish companies or publicly-listed multinationals with Irish operations who can afford to administer them.
“Ireland needs a new share ownership incentive scheme to attract home key talent and then encourages them to remain. Such a scheme which is easy to administer both from the employer and the Revenue’s perspective and can be used by the smaller employers who would benefit from it most.”
* The issue of Brexit and employee ownership will be one of the topics addressed at IPSA’s inaugural Employee Share Ownership Day (ESOD) on June 22nd. The event, at Google EMEA Headquarters in Dublin, is being held in collaboration with the Global Equity Organisation (GEO), Proshare UK and Google. It will feature a series of talks and workshops by global experts on the benefits of employee incentives and ownership for businesses.