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Advance Ruling Case No. 32

1. The provisions of the Ordinance

  This ruling applies in respect of sections 9(1) and 52 of the Inland Revenue Ordinance ("IRO").

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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.


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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.

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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 IRO.


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5. The period for which the ruling applies

  The ruling applies to the year of assessment 2006/07 and subsequent years of assessment.

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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.

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7 . Date of ruling issued 

  27 June 2007.


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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.)