EBT’s have received negative publicity in recent times due to their use in conjunction with tax avoidance schemes. However the vast majority of EBTs are established for purely commercial reasons that are not necessarily related to tax. Some benefits are as follows;
To create an internal market for the shares in the company
Where an employee is required to sell their shares on leaving employment, the EBT can purchase and then recycle them in providing benefits to other employees.
To deliver free shares
Companies cannot generally issue shares for less than nominal value so an EBT can be used as a source of shares where a share award has a nil exercise price.
Should the company become insolvent the company’s creditors cannot access the EBTs assets. Instead such assets remain available for the benefit of employees.
Protect the interests of beneficiaries
Normally companies appoint an independent professional trustee whose overriding objective is to act in the best interests of the beneficiaries/employees.