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Advance Ruling Case No. 22
1. The provisions of the Ordinance
| This ruling applies in respect of sections 8 and 9(1) of the Inland Revenue Ordinance ("IRO"). |
2. Background
| (a) | X Company is a company incorporated in country A with its shares being listed in the stock market of country A. |
| (b) | X Company is proposing to launch a stock purchase plan to the employees employed by entities within the X Company group. |
| (c) | The stock purchase plan consists of two offers, a Basic Offer and a Multiple Offer. |
3. The arrangement
| Basic Offer | |
| (a) | The employees may subscribe the shares at a 20% discount of a reference price fixed by the company. |
| (b) | The shares subscribed are registered in the name of the employees. The employees will have the same rights as other shareholders, including the right to receive dividends. |
| (c) | The allocated shares are subject to a 5-year Lock-Up Period, during which the employee is not allowed to sell the shares except under certain predetermined conditions. |
| Multiple Offer | |
| (a) | Under this offer, the subscription price is also fixed at a 20% discount of a reference price. |
| (b) | The rights and restrictions attached to the shares allocated to an employee under the Multiple Offer are identical to those under the Basic Offer. |
| (c) | Additionally, the employees are allocated a Right for each subscribed share. |
| (d) | At the end of the 5-year Lock-Up period, a Right will entitle the employee to a payment equal to a predetermined multiple of the average share price increase above the reference price. |
4. The ruling
| Basic Offer | |
| (a) | Taxable income arises under sections 8 and 9(1) of the IRO on the date when the shares are allocated to the employees. |
| (b) | The amount of taxable income is - No. of shares allocated x [ Discounted Market Value - Subscription Price ]
|
| Multiple Offer | |
| (a) | The tax treatment of the shares allocated to the employees is the same as that of the shares allocated under the Basic Offer. |
| (b) | The payment received from the Right is taxable income accrued to the employees when they receive it. |
5. The period for which the ruling applies
| The ruling applies as from the year of assessment 2005/2006 but subject to legislative changes, if any, in the future. |
6. The material assumptions in respect of a future event or any other matter made by the Commissioner
| There are no assumptions made by the Commissioner. |
7 . Date of ruling issued
| 17 June 2005. |