BIM44225 - Measuring the profits (specific rules & practices) - receipts & deductions: specific deductions - employee share schemes: providing shares - accounting periods starting before 1 January 2003: intra-group recharges
Where employees of a subsidiary company are eligible to receive shares or share options under a group employee share scheme set up by a parent company, an intra-group recharge may be payable by the subsidiary company, particularly within multinational groups, see BIM44195.
The main issues to consider in relation to intra-group recharges for employee share schemes are:
- Are the employees concerned working wholly and exclusively for the UK company;
- What is the accounting treatment of any intra-group recharge under UK GAAP;
- Whether FA89/S43 applies to defer the timing of any allowable deduction, see BIM44230;
- For UK subsidiary companies in groups with non-UK parents, whether the transfer pricing legislation applies to determine the amount of the allowable deduction for UK tax purposes, see BIM44230.
Generally accepted accounting practice (GAAP)
Where the subsidiary company has an obligation to pay an intra-group recharge in respect of its employees’ participation in a global group scheme, and the amount to be recharged is dependent on future share prices, generally accepted accounting practice is to deduct the intra-group recharge in the subsidiary company’s profit and loss account applying the spreading principles in UITF25, see BIM44215.
These principles are illustrated by example 3 at BIM44205.