As
you may recall, under the 2011 Irish Finance Act, legislation was
introduced pursuant to which, effective January 1, 2011, employee share
awards are subject to employer and employee Pay Related Social Insurance
("PRSI"). The initial legislation indicated that PRSI
would be due with respect to any taxable event occurring on or after
January 1, 2011, regardless of when the award was granted.
In
a positive development, on Friday, March 18, 2011, the Irish Minister
for Finance clarified that the charge to PRSI under the Finance Act 2011
will not apply where the awards were the subject of a written agreement
between the employer and the employee issued prior to January 1, 2011. Obviously, many grants are made unilaterally by a company without a written agreement between the company and the employee. Nevertheless,
the language in the Minister's statement was presumably meant to
provide that all grants made prior to January 1, 2011 would be exempt. For ESPPs, the exemption should apply if the enrollment form/subscription agreement was completed prior to January 1, 2011. The precise scope of the grandfather provision, however, is not entirely clear at this time.
In
any event, the result of this clarification should be that most (if not
all) equity awards granted prior to January 1, 2011 will not be subject
to PRSI in Ireland. Since the clarification did not
address the Universal Social Charge ("USC"), USC likely will continue to
be due on any share-based awards, regardless of when granted. Similarly,
PAYE withholding will be due on all share-based awards, except options
and possibly ESPP, regardless of the grant date. It
remains unclear whether employee PRSI will need to be withheld and
employer PRSI will have to be paid on options granted on or after
January 1, 2011.
To
the extent that companies have already withheld/paid PRSI on awards
granted prior to January 1, 2011 (with taxable events between January 1,
2011 and now), it should be possible to obtain a refund although it
remains to be clarified whether companies have to apply for a refund
with the social security authorities or whether they can simply claim
the refund on the next payroll.
The
legislation giving effect to the Minister's clarification will be
included in Ireland's next Social Welfare Bill and will hopefully
clarify the remaining uncertainties. Until then, please
contact your GES attorney to determine whether grants made prior to
January 1, 2011 are exempt from the PRSI charge and how you can obtain a
refund for any PRSI paid relating to awards made prior to January 1,
2011.
