Jersey’s Treasury and Resources Minister, Phillip Ozouf, has launched a consultation on how employees’ and office holders’ share options and share awards should be taxed.
According to the recently published consultation document, Jersey plans to introduce legislation to govern the tax treatment of this area. Unlike in the UK and other tax jurisdictions, there is no legislation in Jersey that specifically deals with this matter.
Currently, Jersey’s Comptroller has to revert to the findings in appeals against assessments brought before the UK courts when appeals are brought before the Jersey Commissioners of Appeal or the Royal Court.
As a result, the Comptroller has to spend considerable time and resources reviewing share option and share award schemes presented to him by employing companies, in addition to handling appeals and corresponding with individuals who receive tax assessments.
The consultation also notes that the schemes are constantly changing, as companies seek new ways to reward their employees and office holders in the current economic climate.
According to the document, the fundamental tax principle currently applied to share option schemes is that employees or office holders are taxed on the market value of the options when they are granted, rather than the market value of the shares when they exercise the options. A similar principle applies to share awards.
This means that employees or office holders are taxed on the value of something they are due to receive. However, if there is a dramatic fall in the value of shares, what they actually receive in future could be worth far less.
This is in contrast to previous years, when the economic conditions were better and the value of the shares was more likely to have increased rather than decreased. Jersey has said that the economic downturn has highlighted the need for legislation.
The current tax treatment of share option and share awards schemes is not confined to long-term Jersey resident employees and office holders of Jersey-resident companies; it also extends to individuals who are seconded to Jersey on short-term contracts.
Any amendment to the Jersey legislation will also take into account new and ceasing residents and the source of their options or share awards - i.e. whether they are granted or issued by an overseas employing company.
Comments and views are sought on how any changes to Income Tax (Jersey) Law may affect share option and share award schemes and the beneficiaries or participants.
The closing date for responses is February 1, 2010.
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