ACCA Advanced Taxation (ATX) Practice Exam

What is the primary factor for an employer when issuing shares using 'free shares'?

1. Shareholder approval

2. Cost of shares

3. Compliance with tax regulations

4. Maximal value allowed per employee

The correct answer is: Maximal value allowed per employee

When an employer issues shares using the 'free shares' method, one of the primary factors to consider is the maximal value allowed per employee. This is because tax regulations often dictate limits on the value of shares that can be distributed tax-free to employees, which impacts how the employer structures their share issuance plan. By staying within this limit, the employer can provide a motivational incentive to employees without triggering additional tax implications for either party. In this context, factors like shareholder approval, cost of shares, and compliance with tax regulations are certainly relevant to overall share issuance strategies. However, the specific concern regarding 'free shares' primarily revolves around ensuring that the value allocated per employee adheres to the allowed threshold, as exceeding this limit could result in tax liabilities or other complications for both the employer and the employee.