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In brief

In furtherance of our November 2023 Client Alert, the Irish Government enacted the Finance (No. 2) Act 2023 on December 18 and the new tax withholding and reporting requirements for the exercise of unapproved share options by employees in Ireland will become effective on January 1, 2024

Despite concerns raised by various industry groups and tax practitioners, the final legislation did not include any amendments, and further guidance and instructions are expected to be issued by Irish Revenue shortly.

In the interim, companies should prepare to comply with these new requirements for any unapproved options exercised by employees in Ireland on or after January 1, 2024. 


Legal analysis

Historically, Irish employers were not typically subject to any tax withholding and reporting obligations in connection with employee share options (other than annual tax reporting obligations to Irish Revenue via Form RSS1). Rather, employees personally were responsible for reporting any taxable income arising upon the exercise of unapproved share options and paying the applicable income tax, USC, and PRSI charges within 30 days of the date of exercise (via Form RTS01).

Under the new requirements, the responsibility for tax withholding and reporting on the exercise of unapproved share options occurring on or after 1 January 2024 will shift to employers (unapproved share options exercised before 1 January 2024 will remain subject to the existing rules, which require self-reporting and tax payment by employees via Form RTS01 within 30 days of exercise). Further, employers will continue to be subject to the existing annual employee share option reporting obligations to Irish Revenue via Form RSS1 for calendar year 2023 (to be filed by 31 March 2024), but it is unclear whether additional/new reporting obligations will be established for unapproved share options for 2024 onwards, in conjunction with these changes.

Next steps

Currently, the Finance Bill is progressing through normal legislative channels, and although further amendments are anticipated, it is expected that the Finance Bill will be finalized and enacted prior to the end of the calendar year 2023. 

Given this short timeline before the new requirements are expected to become effective in January 2024, employers should closely review and modify their existing payroll procedures on an expedited basis to ensure that they will be able to comply with the new tax withholding and reporting requirements for unapproved share options (including stock purchase rights that are subject to taxation as unapproved share options). Further, employers should review and update all share option grant documentation (e.g., award agreements, employee communication materials, tax discussions) to ensure they accurately reflect the new employer tax withholding and reporting obligations for employee share options.


We would like to thank our colleagues at A&L Goodbody LLP, Matheson LLP and McCann FitzGerald LLP for their assistance with this alert. Their guidance and commentary can be directly accessed via the following links: A&L Goodbody LLP,  Matheson LLP, and McCann FitzGerald LLP.

Author

Denise Glagau is a partner in the Firm's North America Employment and Compensation practice and leads the Compensation practice in the Firm's California offices. Denise has authored several articles and frequently speaks on topics of interest for legal and other professionals dealing with share plan issues. She is on the Advisory Board of the Certified Equity Professionals Institute (CEPI) of Santa Clara University and is a member of the National Association of Stock Plan Professionals (NASPP) and Global Equity Organization (GEO). She is recognized as a ranked practitioner by Chambers USA in the area of Employee Benefits & Executive Compensation. She is also a member of the Firm's Financial Institutions and Healthcare & Life Sciences Industry Groups.

Author

Barbara Klementz is the chair of Baker McKenzie’s North American Compensation Practice. She has practiced in the area of global equity and executive compensation for over 20 years. Barbara has authored several articles on global equity issues for the BNA Executive Compensation Journal, Journal of Corporate Taxation and San Francisco and Los Angeles Daily Journal, among others, and she is the author of a blog on global equity related topics called the Global Equity Equation. She is also a frequent speaker on a variety of global equity topics. Barbara is recognized as a ranked practitioner by Chambers USA. Chambers states that she "consistently delivers top-notch assistance and work product, and is a true expert in the field." Barbara is admitted to private practice in California and Düsseldorf, Germany.

Author

Brian K. Wydajewski practices in the area of compensation and employment. He also heads the Chicago Office’s Global Equity Services Practice which assists multinational corporations with the design, implementation and operation of global equity compensation plans. Mr. Wydajewski has authored numerous articles, and is a frequent speaker on employee benefits, executive compensation and global equity compensation issues. In addition, Mr. Wydajewski is past chair of the Illinois State Bar Association’s Employee Benefits Section Council, and is an adjunct professor at the Center for Tax Law and Employee Benefits at the John Marshall Law School.

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