"Growth Shares" are a relatively common feature of the Irish corporate world. They are sometimes referred to as "ratchet shares" or "flowering shares". Growth shares are a special class of ordinary shares that generally have a low or nil value until a certain target or hurdle is reached by the business. They are frequently made available to senior management in Irish companies. Recent Revenue guidance provides some valuable insight into how the Irish tax authority views these arrangements. 

The guidance confirms that there can be income tax on the acquisition of "growth shares", where the value of the shares exceeds the price paid by an employee. In our view, the initial day-one value should take into account the potential for growth (or "hope" value) as this does distinguish a growth share from an ordinary share. The guidance notes that the valuation should be based on valuation method which complies with accounting standards. 

Significantly, the guidance confirms that, when appropriately structured, there should be no additional income tax charge when the shares increase in value due to the various thresholds being met. It notes that capital gains tax should apply on an ultimate disposal. 

However, the guidance does note that growth shares may be convertible shares. Income tax does arise when convertible shares become more valuable and this is a clear signal that this point should be carefully considered on implementing any arrangement.

The guidance is welcome particularly in the Irish SME and technology sector where growth shares have been used for a number of years. Revenue are likely to have increased visibility on the use of growth shares due to the new reporting arrangements implemented with respect to 2020.