Key Employee Engagement Programme (KEEP) Questionnaire 2022

KEEP is a tax incentive for SMEs to support the use of share options as a form of staff remuneration. It is subject to a sunset clause and is currently due to expire on 31 December 2023 (this is in accordance with normal practice for tax expenditure measures which are reviewed usually every three years).

The aim is to have a scheme in place which successfully supports the objective of allowing smaller firms to compete with larger firms when it comes to the hiring and retention of staff. KEEP should compare favourably with approaches in this area taken by our international peers; it should also achieve its objectives in a cost effective manner from an Exchequer perspective.

In June 2019, the Department of Finance undertook a public stakeholder consultation event on tax incentives for the SME sector. During this event, proposals to improve the KEEP scheme were discussed following on from which the Government, on the recommendation of the Minister for Finance, decided to legislate for a number of improvements to the scheme. This was done in the Finance Act 2019. The changes made are intended to:

• alter the definitions within the legislation relating to qualifying companies and holding companies so as to allow companies that operate through a group structure to qualify for KEEP;
• modify the conditions relating to qualifying employees to allow for part-time/flexible working and movement within group structures (as business needs dictate); and to
• allow existing shares to qualify for use in a KEEP arrangement.

The KEEP scheme is a notified state aid scheme*. As a result, it has been necessary to engage with the European Commission to ensure that the above changes may be implemented within the terms of the original state aid approval for the scheme. The intervention of the Covid-19 pandemic has had a significant impact on progress in this area. As of today’s date, it has not yet been possible to commence the relevant provisions of the legislation. However, the Department continues to liaise with the Commission with the intention of the changes being activated soon.

While the above changes have yet to be implemented, a further review of KEEP is now warranted ahead of Budget 2023 and Finance Bill 2022. In addition to the aim of having an effective measure in place, the challenges facing young SMEs including after effects from the Covid-19 pandemic, skills shortages which are particularly acute in certain sectors, and input cost increases, not least on the energy front, also provide an important context and rationale for the review.

Accordingly, the Department of Finance is seeking an update on the views of stakeholders as to how they currently view the operation of the scheme by means of a short three-week written consultation process.

Responses received will also help to inform decisions of the Minister for Finance on further possible enhancements to the operation of the scheme in the forthcoming Finance Bill.

Questions

From the perspective of your organisation/enterprise:

1)What aspects of the current design of KEEP as it operates at present work effectively and why?

2) What aspects of the current design of KEEP do not work effectively and why?

3) What do you see as the most important barriers to further take-up of the KEEP, and what is your suggestion for overcoming these constraints?

4) As is outlined above, there are currently three amendments to the operation of the KEEP scheme which are intended to be commenced shortly. What impact do you expect these changes will have on the take up and operation of the KEEP scheme?

5) Do you have further proposals for changes to the operation of KEEP assuming it is extended for a further three year period from the start of 2023? If so, please provide a brief description of these.

The deadline for responses to this questionnaire is close of business on Friday the 17th of June 2022.

Responses should be emailed to the following address:

keepconsultation@finance.gov.ie

Responses will be evaluated against the Department of Finance Tax Expenditure Guidelines as they apply to tax expenditure measures such as KEEP. These address the assessment of existing schemes and proposals for changes to the schemes, as follows:

Ex-post assessment of schemes:

• Is the tax expenditure still relevant?
• How much did the tax expenditure cost?
• What was the impact of the tax expenditure?
• Was it efficient?

Ex-ante assessment of new schemes and proposals for significant changes to existing schemes:

• What objective does the tax expenditure aim to achieve?
• What market failure is being addressed?
• Is a tax expenditure the best approach to address the market failure?
• What economic impact is the tax expenditure likely to have?
• How much is it expected to cost?

Consultation process on Key Employee Engagement programme (KEEP)

• Notification is the process by which Member States submit state aid measures to the European Commission for assessment before they are implemented. Notification is required of all new aid measures. The Commission assesses the compatibility of the proposed aid with internal market rules.