ACCA Advanced Taxation (ATX) Practice Exam

Where are SIP shares held for employees?

1. In a bank account

2. Within the company accounts

3. In a trust for the employees

4. In a separate investment fund

The correct answer is: In a trust for the employees

SIP (Share Incentive Plan) shares for employees are typically held in a trust on behalf of the employees. This arrangement allows for a structured way to manage the shares. The trust is designed to hold the shares until certain conditions are met, such as a qualifying period, at which point the shares may be transferred to the employees' personal accounts. By holding shares in a trust, the plan ensures that employees can benefit from the shares while also complying with regulatory and tax requirements. This structure provides security for the shares and ensures they are managed by a third party, which can also help in avoiding complications related to the direct ownership of shares by employees. The other choices do not accurately represent how SIP shares are typically managed. Holding shares in a bank account would not provide the necessary trust structure for managing the interests of multiple employees. Keeping shares within the company accounts does not separate the employees' interests from the company's financials. Storing shares in a separate investment fund might imply an investment strategy separate from the direct ownership associated with SIP plans. Thus, the correct choice of a trust aligns with the intended purpose and regulatory framework of SIP shares for employees.