This ruling applies
in respect of sections 9(1) and 52 of the Inland Revenue
Ordinance.
2. Background
X Group is a multinational
business and its shares are listed on a foreign stock
exchange. It introduces a Restricted Stock Plan ("the
Plan") to reward selected employees of its group.
3. The arrangement
(a)
Under the Plan, a committee
will decide from time to time to grant an award of X Group
shares to eligible employees. Subject to rules regarding
cessation of employment during the vesting period, an
eligible employee will become entitle to receive the shares
on the vesting date, which is the day after the end of
the vesting period. The vesting period is a period of
2 calendar years commencing on the date on which an award
is granted.
(b)
If an eligible employee
ceases to be a director or an employee of X Group during
the vesting period, the award will lapse. However, where
the cessation is by reason of death, permanent disability,
serious illness or retirement on an agreed basis, the
award will be reduced on a pro-rata basis to reflect
the proportion of the vesting period between the grant
and the cessation.
(c)
An eligible employee
shall not be entitled to any voting right or dividends
in respect of the shares of the award until such time
those shares are transferred to the employee. At the
time of discharge of award, the committee may decide
to transfer both the awarded shares and the additional
shares of an amount equal to that which could have been
purchased if the dividends arising in the vesting period
had been used to purchase additional shares.
4. The ruling
(a)
Taxable
benefit will not arise upon the mere enrollment of an
employee in the Plan or when an award is granted. Taxable
benefit will arise on the vesting date.
(b)
The
value of the taxable benefit to be assessed to salaries
tax would be the open market value of the X Group shares
awarded and any additional shares accruing during the
vesting period on the vesting date, which is a trading
day, or on the immediately following trading day if
the vesting date is not a trading day.
(c)
The value of the taxable benefit will
be reported by the employer in the year of assessment
that the award is vested in the employee to follow the
provisions of section 52 of the Inland Revenue Ordinance.
5. The period for which the ruling applies
The ruling applies to the year of
assessment 2006/07 and subsequent years of assessment.
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
27 June 2007.
8. Commentary
Share or stock awards derived from
an office or employment constitute taxable perquisites.
When this perquisite will be taxed and on what value it
will be taxed will generally depend on the terms governing
such award and circumstances under which the award is
granted.
(This commentary is not a legally
binding statement and it does not form part of the Ruling.)
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