Dáil Éireann debate -
Thursday, 9 May 1985

Vol. 358 No. 3

Finance Bill, 1985: Committee State (Resumed).

Debate resumed on amendment No. 32a:

NEW SECTION.

In page 14, before section 12, to insert a new section as follows:

"12.—

That a marketing representative who is based abroad of an Irish resident employer shall have his Irish tax payable reduced by reference to the following formula:

T - (T × f/a)

where

T is total Irish liability to tax in respect of the employment

F is total number of days abroad on employers business

A is 365 days.

provided:

(a) No relief shall be granted unless in excess of 60 days are spend abroad on the instructions of the employer and such days are spent exclusively in the business of marketing the products of the employer, in the income tax year.

(b) No relief shall be granted to any person who is a participator, or an associate of a participator, of the employer.

(c) No relief shall be granted unless a marketing programme is submitted to and agreed with Córas Tráchtála in advance of the tax year for which relief is claimed.

(d) Provided all the foregoing conditions are met, relief shall be given by way of repayment of tax paid on production to the Revenue Commissioners of verification by the employer and employee of days spent abroad in a form prescribed by the Commissioners.".

—(Deputy O'Kennedy.)

Mr. O'Kennedy

I was trying to persuade the Minister of the desirability of adopting this amendment so as to encourage marketing personnel to get out into the marketplace, the consequence of which would be of major importance to domestic industry. I explained the reasons and indicated that the provisos included in our amendment would guarantee that this would only apply to marketing personnel certified by their employers, subsequently certified by CTT and finally authorised by the Revenue Commissioners to qualify for the tax allowance. I mentioned that the revenue implications would be few. If 500 people qualified under this proposal the cost to the Exchequer would be £200,000. That is the amount of money we are talking about for something that would have a major impact on the economy and something that would give a signal to industry that from now on industry would not be penalised but encouraged to get into the marketplace.

I will demonstrate the need for this proposal from my own experiences. I have been approached by many Irish industrialists who agree that the weakness in their programmes to maintain viability is their lack of capacity to exploit good markets and even their lack of capacity to maintain existing markets. I will not use the increasing numbers of liquidations to overstate the case, but liquidations have been increasing at an enormous rate. The usual problems bringing a company to liquidation are inadequate accounting practices and very bad marketing. By and large the problem relates to a company's failure to introduce new products to fill the demands of the market. The multinationals involved in pharmaceuticals and high technology industries know the market and they determine from which point they can supply the market. I am sure any industrialist and the CII will tell the Minister that what I have stated is the case. A company in my home town, Castle Brand went under with a great deal of publicity and one of the great weaknesses there was ineffective marketing strategy. The product was excellent, the workforce were excellent, the skills were beyond compare but marketing strategy was a major problem. That problem applies across the board.

This year the Government are providing something of the order of £270,000 for marketing in the agri-food industry, through the Vote of the Department of Agriculture. That is the order of priority out of a total expenditure allocation of £9,000 million.

One can travel the supermarkets of Europe and in some of the most sophisticated food presentations one would find anywhere, one will not find one Irish product. In my time as Commissioner in Brussels I tried to purchase Irish food. I travelled around the supermarkets and I could not find one Irish product apart from the well known liquid product that I too tried to promote wherever I could. The Minister spent time in Brussels and if the Minister can say that during his time in Brussels he saw many Irish products on the shelves, he must have had a unique experience. All the marketing surveys demonstrate this fact and it has now been clearly pointed out that although we are a member of the EC and Malta is not, their market penetration of the EC is at the same level as ours — and look at the size of Malta and the disabilities they have to overcome.

That is the measure of the problem I am trying to address here, but I am not just addressing a problem. I am much more interested in the wonderful potential there. I have mentioned European countries. Until such time as our people can communicate as easily in French, German, Italian or Dutch, wherever they are selling, until they get into the thought process of the Germans, Italians, French, Dutch or wherever they are selling, until they think and behave like these people, they will not know what the market demand in those countries will be. We talk about technology and advances, when our real potential is in people. That would also argue that the cutbacks in education, for instance, at second and third levels really are just crazy when we should be promoting people who can begin to communicate and then begin to understand the time in which they live.

An Ceann Comhairle

I think the Deputy is going a bit far away from tax.

Mr. O'Kennedy

This is not going too far away from it. I just happened to mention education in passing as an essential part of it.

An Ceann Comhairle

This is another matter.

Mr. O'Kennedy

It is not.

An Ceann Comhairle

We are dealing with tax.

Mr. O'Kennedy

I am giving the reasons I am proposing this tax adjustment and they should be fairly clear. This is to be only one debate, and the Minister will respond to it or he will not, on the cost of the implications of perhaps a few hundred thousand pounds. I stress that if our clothing industry generally, apart from the high fashion designers, is manufacturing for a society who have different habits of dress, people who have different tastes in dress, shoes or whatever else, we cannot supply them. They will not buy just because we think they should dress as we think they should dress.

The same is true of the agri-food industry. Unfortunately, I have seen the very limited, nearly non-existent impact, with very few honourable exceptions, of our agri-food industry in the EC, and I am sure the same must apply elsewhere. I am proposing that people get out into the marketplace. That is why I put a minimum of 60 days on the right to qualify under this proposal. Incidentally, for each day after 60 days the qualification under the formula proposed, which I explained before the adjournment, would be that much greater so that at the extreme only a marketing representative who is totally abroad for a year will get total relief, and you will not find many of them. I hope that appeals to the Minister. There is nothing more I can say in respect of it.

Of all the amendments I put down on this, having regard to the revenue implications I am so totally convinced of this from my own experience and from consultations with people in industry that I hope the Minister will be able to respond in a positive way. He will get the credit. It will be forgotten fairly soon that it was the Opposition spokesman who proposed it. It will be remembered later that the Minister for Finance of the day, Deputy Dukes, was the man who introduced in legislation this very worthwhile proposal. Let the credit go that way; I am concerned about the consequences.

You, Sir, have mentioned that I should move the other amendment also although they are on a totally different topic.

An Ceann Comhairle

You cannot move them but we are discussing them with this amendment. They will be moved separately.

Mr. O'Kennedy

I will be much briefer on this. It is important although not quite so important as the matter I have been addressing. The logic of this proposed section is that for many years the Irish individuals who are educated and trained through the Irish system, who cannot find appropriate employment in Ireland and who need experience in certain skills to return to Ireland to utilise these skills must go abroad. Because of the poor economic climate here at the moment and the lack of employment opportunity more and more of them are going abroad. Only this morning we heard of the experience of some nurses who went to Libya and found that what they went abroad for was different from what they were promised.

That is another matter, but everyone recognises that a very considerable number of our people are going abroad these days to seek temporary and sometimes more than temporary employment. Their situation has been exacerbated substantially by the current economic recessionary conditions in Ireland, which is clearly evident in the unemployment here. This means that more and more people are taking work abroad particularly on two or three year assignments in the hope that at the end of the period they can come back and perhaps things will be better then than they are now. Under existing legislation if such individuals — some of whom are married men and have a place of abode available to them in Ireland, namely where their wives are living and many of them leave their wives and families at home for obvious reasons — come home for any period at all while their wives are resident here although they are working abroad almost all of the year in Saudi Arabia, Libya or wherever else, they are resident for the entire tax year and capable of being taxed on their total foreign income in Ireland. They are classed as resident in Ireland. Their income is taxed as earned in Ireland for the full tax year although clearly they are not resident in Ireland and their income is earned outside Ireland. They are forced to go, like blind Sheehan in Kickham's Glen of Aherlow.

I have put in a proviso about the US because it follows a pattern that the Minister has in the section. The reason for the proviso in this case is that they are not to be taxable in a country with which we have a section 361 agreement or the US, and these are countries with which we have double taxation agreements anyway. Therefore, if a person were to be taxed in a country such as the UK between which and Ireland traffic is continuous, the provisions of the double taxation agreement would provide that the tax take in such a country would be deducted from the Irish tax liability, which means that the Irish person is getting full credit for foreign tax. However, in countries outside the double tax areas with which we have no agreement the foreign tax is purely deduction from the gross income and the balance is taxed totally to Irish taxation.

This can be extremely onerous on individuals and I suggest to the Minister that it is extremely unfair, particularly where because of a casual visit home even for the Christmas holidays with the family they become liable to tax at the full rate in Ireland on the foreign income. In the early days of going abroad, particularly to most of the Middle East and European countries, it was the younger people who went because invariably at the end of a two or three year assignment they got a gratuity which enabled them to come back home and buy a house, get married and set up businesses or have sufficient experience to get an appropriate job. Now very many people are going abroad, even people with substantial skills and people who are married for some considerable time, to work in foreign countries, sometimes on a temporary basis for two to three years. Therefore, the proviso that I have at (a) and (b) on this will ensure that the concession which would be available would be available only to people who are basically abroad and would not be abused.

I want to add another factor to it before the Minister replies. If they are forced to go and if they are earning their money abroad, at least they can generate capital and foreign currency which can be a significant boost at home when eventually they return. Should we not encourage people, if they have to go, to save and transfer in the end as much as possible of what they have earned abroad in foreign currency and thereby relieve our balance of payments and so forth in the circumstances?

That is my case on both these fronts. I consider them both important but if asked to choose, although there is no reason why I should have to, I would come down in favour of the first as being not only important but absolutely essential. I hope the Minister will respond positively.

Mr. Dukes

The general rules of income tax produce a situation under which a person who is resident in the State is chargeable to tax on his income from all sources, irrespective of the source of the income. If he is not resident in the State he is not chargeable to tax, except in the case of income that arises in the State. Amendment No. 32a proposes to grant special income tax relief to a marketing representative — that term is not defined — who carries out part of his employment abroad on condition that he spends more than 60 days abroad doing his work, and the relief would bear the same proportion to his total liability as the period spent abroad. That proposed relief is very similar to one provided in the United Kingdom in 1974 and amended in 1977 relating to employment abroad. When it was introduced the Chancellor of the day said the measure was aimed primarily at increasing exports. We took a different view. We took the line that the appropriate reliefs to encourage exports should be composed of reliefs to exporting firms engaged in manufacturing and service sectors. That, in turn, gave rise to the export sales relief scheme and was a big factor in the subsequent decision made on the 10 per cent rate of corporation tax applied to manufacturing and service industries. The same concern gave rise very largely to the Shannon Airport tax free zone.

Deputy O'Kennedy may not be aware that the United Kingdom relief was withdrawn in 1984. The main reason given for its withdrawal was that it was being abused. In the United Kingdom now relief is given only where an employee spends 365 days or more abroad. I am not persuaded that there is solid evidence that Irish marketing people are dissuaded from carrying out their employment abroad by the lack of a specific tax exemption for their activities. The companies have been provided with a favourable tax system to assist them in increasing exports and that goes into the total package the company can offer to their employees.

Where marketing representatives of the kind Deputy O'Kennedy has in mind are paid abroad, they are chargeable to Irish tax by reference to section 76(4) of the Income Tax Act, 1967, on the amounts remitted to this country out of their total earnings and not on the full income arising. There is an exception to that in the case of the United Kingdom where earnings in the UK are chargeable in full in this country where the individual concerned is an Irish resident. In addition, an employee of an Irish company abroad is in the position that his foreign earnings are chargeable under case III of Schedule D——

Mr. O'Kennedy

I am not talking about Irish employees working abroad. I am talking about Irish companies located here.

Mr. Dukes

I have examined this amendment very carefully and I find the general drift rather familiar. I have seen similar things elsewhere——

Mr. O'Kennedy

That is not true.

Mr. Dukes

The proposal Deputy O'Kennedy is making could be reasonably regarded as being fairly discriminatory by other employees of the company, including those involved in the production process. It could be argued that they, as much as anybody else, make a contribution to the efforts of the company, yet they would not receive any tax reduction of the kind Deputy O'Kennedy is talking about. It might be argued, although it might be splitting hairs, that under Deputy O'Kennedy's proposal people who had to travel abroad in a purchasing capacity might have the same problems as the people who go abroad on marketing but they would not get the relief.

I am loath to say this kind of thing but we have to talk about facts. This proposal represents the kind of unquestioning and uncritical acceptance of a particular point of view which has bedevilled our tax system for years. I have every understanding of the people who produce another good idea for a tax relief for a worthy activity and persuade a Government to include it, but we find after a period that the system is a mish-mash of a series of reliefs and exemptions which are very difficult to operate. I am sure somebody, if not Deputy O'Kennedy then somebody else, will represent what I am saying as the "Iron Duke" being totally opposed to any consideration of these marketing people who do so much for our companies. I am not. That is far from being the case, but I want to put this point. People involved in marketing have special skills and we need them, but I do not think their position is such as to justify a special tax relief. What about the people involved in production who are needed as much as the marketing people? What about the people in purchasing? What about the people whose skills are such that they can be exercised on behalf of the company only in this country?

Some time ago I had discussions with a group of industrialists, all involved in exporting, who were making this point. I asked them if they were seriously inviting me to visit their factories and go into the marketing department and say to the people involved in marketing and travel that because they travel, and that is a tough job, I will give them tax relief; and then I go down to the factory floor and talk to the fitters or production line operators and say I am sorry for them, that although I appreciate what they are doing for the economy, I cannot give them any tax relief because they are not mobile.

Mr. O'Kennedy

That is why they came to speak to the Minister. They were wasting their time.

Mr. Dukes

Total discrimination. There are many marketing people who spend a lot of their time on the roads in this country marketing Irish products which substitute for imports. Every £1 million of import substitution is worth just as much to the economy as every £1 million worth of exports. Why should we discriminate there? I cannot see an objective reason for that kind of discrimination.

The real problem is the overall level of taxation. It may seem strange to hear the Minister for Finance accepting that fact in the debate on the Finance Bill, but nobody is more aware than I of the effects of the present level of taxation. We will solve that problem only by making headway against the conditions that give rise for the need for high taxation. I have not found any evidence on the opposite side of the House of any preparedness to deal with that problem. Deputy O'Kennedy tacked on some remarks about education. I do not want to be misinterpreted in this matter but he said fairly clearly that this is an area of expenditure where we do not want to see any reductions. I am quite sure there are many other areas of expenditure where he would say the same thing.

Mr. O'Kennedy

That is right. Cut it out of the Department of Labour.

Mr. Dukes

We will not solve all the tax problems by firing the consultants from the Department of Labour, as Deputy O'Kennedy would like us to do.

Mr. O'Kennedy

Take £50 million from that Department and give it to Education.

Mr. Dukes

It is that kind of attitude which has got us into the present difficulties. The sooner the better we face up to it. The less time we spend chasing meaty hares of the kind put up by Deputy O'Kennedy the better off we will be.

Mr. O'Kennedy

Perhaps I could help the Minister by telling him that I do not want him to reply to my second point. I know it is hopeless. It is being treated with the same contempt.

An Ceann Comhairle

The Deputy is out of order.

Mr. Dukes

This is part of what bedevils any debate of this kind. Deputy O'Kennedy believes that because I analyse his arguments and look at the objective factors underlying them, I am thereby treating his arguments with contempt. If I were treating his proposals with contempt I would not still be talking about them. I have done him the honour — indeed, it is part of my duty — of analysing the arguments he has put forward and the justification for his case.

Mr. O'Kennedy

The Minister has not. I can write his reply to the second point. I could deliver it for him.

An Ceann Comhairle

That would not be in order.

Mr. Dukes

I do not find it defensible to single out one specific group in Irish industry who are making a big contribution—others are too—and to give them a special tax relief because they spend much time travelling abroad or have some other special characteristic. The more of that kind of thing we do the less able we will be to deal with the problem on the wider scale.

I understand that Deputy O'Kennedy does not want me to deal with amendment No. 32b.

Mr. O'Kennedy

Do not bother.

Mr. Dukes

If Deputy O'Kennedy is not pressing it I will not waste the time of the House.

Mr. O'Kennedy

I can write the Minister's reply before he gives it. There is no original input from the Minister.

Mr. Dukes

I would have some doubts about that. Some of the situations described by Deputy O'Kennedy do not arise in the normal course of events in our tax system. If he wishes me to go further into that point I will do so; if to pursue that matter would irritate him then I apologise to him and to the House. I do not think there is a solid case for making the specific amendment he has proposed. The wording is ambiguous and, if I have understood his intention correctly, we do not need a section in the Bill to deal with that problem because it does not arise in that way.

Mr. O'Kennedy

Had I written a reply to the second part I would have opened with that all too predictable line "I do not think there is a solid case" and then repeated all the jargon he gave in response to the first point. He did not address himself to the cost, which is rather important. He talked about the UK experience and mentioned that the measure was dropped ten years later. Our situation is entirely different, but at least they introduced it. The provisos that I am proposing here are not those which apply in the UK. Any Minister who is prepared to say that there is no difference between marketing personnel working to a considerable extent abroad and those working at home is not listening. He is giving out the predictable line from his advisers, although I do not want to be too critical of his advisers, and proving his capacity to read a formal reply prepared for him. It proves beyond doubt that he has not given any consideration to the proposal I made.

A typical response from the Minister is that he cannot give a concession to people working in the marketing area without giving it also to those in the production area. It is not just a question of the interests of these individuals. I am much more concerned about the interests of this nation and its fantastic potential. I am aware of all the reports which tell us that we have a totally inadequate marketing strategy and far too few marketing personnel working abroad on a permanent basis. That is one of the reasons we are not generating new export markets. Anybody who has a mind which is in any way open to new possibilities will realise that there is a hell of a difference between a person who spends 60 to 120 days away from his own home living and working in a different environment and civil servants who live here and go home at 5.30 p.m.

Mr. Dukes

The Deputy is a fraud.

Mr. O'Kennedy

I am not a fraud. There is a great difference between those who work in their own factories or accounting departments and live in their own homes and those who spend over 60 days abroad. There has to be an incentive to these people.

Mr. Dukes

There already is.

Mr. O'Kennedy

There is not. There must be an incentive to these people who are spending so much time abroad. The Minister does not choose to see that he is discriminating against companies who would want to send individuals out into the market. He seems to suggest that the introduction of an adjustment of the type I am suggesting would discriminate unfairly against those who are living and working at home. This demonstrates that he simply is not interested.

For some time I have been very concerned about the Minister's capacity to do anything to generate a new climate for activity. I have no doubt of his capacity to deliver the lines pat from the Department of Finance or from the Revenue Commissioners as if they were original. I have no doubt of his capacity to adhere to the jargon of rectitude, the proper balance, as he has so often called it. I am sure he will give all the reasons why this proposal would not work but an adjustment of this nature would probably cost something in the order of £200,000 per annum and, even for something as small as this, he does not have the imagination or perhaps the personal authority to say to someone in the Revenue Commissioners that he is going to adopt this proposal.

One of the reasons the Minister gave for rejecting this proposal is that there were abuses of the system in Britain and that they got rid of it in 1974, ten years after it was introduced. I cannot see that there will be any abuses but, if his reason for rejecting it is that it might be abused, then as long as the Minister remains in office there will be even greater depressions in the country. He should be prepared to open his eyes and his mind and to keep in touch with reality through speaking to workers, business people, promoters and industrialists. Perhaps I am being personal but, in view of the utterly unreasonable response which I got from the Minister, as long as he remains Minister, God save Ireland because she will need salvation.

Mr. Dukes

I really have very little to add to this debate. It would be impossible to estimate how much this proposal would cost. Deputy O'Kennedy laid emphasis on the fact that we have generally inefficient marketing strategies but we will not solve the problem by his proposal. I am not sure whether the Deputy made a distinction between people going abroad for employment abroad——

Mr. O'Kennedy

I meant those who are engaged abroad.

Mr. Dukes

I had the experience of being employed abroad by an Irish organisation and there was no Irish tax liability at all. Indeed, I remember a long and entertaining correspondence I had with the Revenue Commissioners when I had bought a house here although I was living abroad. Over a period of six or eight months we had a series of increasingly intimate letters regarding my intentions. However, that is by the way. Of course, Deputy O'Kennedy is very good at this kind of jargon and cant and he is a fair old hand at reading out lines himself.

Mr. O'Kennedy

Everything here is original. The Minister may check my notes and he will see that they are in my handwriting.

Mr. Dukes

Deputy O'Kennedy is reading out things that have been said to him. I do not criticise him for doing that and I do not object to him making those remarks.

Mr. O'Kennedy

I listen to people.

Mr. Dukes

As I said, I do not criticise Deputy O'Kennedy for taking that line unless he feels that everyone should be an original philosopher and have a compendious knowledge of everything that goes on. However, I do not think that is the position——

Mr. O'Kennedy

The smile on the Minister's face is reassuring.

Mr. Dukes

I have looked at the Deputy's amendment to see if there is a case for special treatment for people who simply go abroad but I have come to the conclusion that there is not a case for special privileges for them.

Mr. O'Kennedy

I did not say that I was looking for a special case for people going abroad simply because they go abroad. I talked about people who will be engaged abroad for not less than 60 days in marketing and selling under the approved programme from CTT, confirmed by their employers to the satisfaction of the Revenue Commissioners. The Minister should not misrepresent what I said. The Minister should answer the case.

Mr. Dukes

I have nothing more to add.

Amendment put.

The Committee divided: Tá, 61; Níl, 72.

Tá

• Ahern, Michael.
• Barrett, Michael.
• Brady, Vincent.
• Brennan, Mattie.
• Brennan, Paudge.
• Briscoe, Ben.
• Browne, John.
• Burke, Raphael P.
• Byrne, Hugh.
• Byrne, Seán.
• Calleary, Seán.
• Collins, Gerard.
• Conaghan, Hugh.
• Connolly, Ger.
• Coughlan, Cathal Seán.
• Cowen, Brian.
• Daly, Brendan.
• Doherty, Seán.
• Fahey, Francis.
• Faulkner, Pádraig.
• Fitzgerald, Liam Joseph.
• Flynn, Pádraig.
• Noonan, Michael J. (Limerick West)
• O'Connell, John.
• O'Dea, William.
• O'Hanlon, Rory.
• O'Keeffe, Edmond.
• O'Kennedy, Michael.
• O'Leary, John.
• Ormonde, Donal.
• O'Rourke, Mary.
• Gallagher, Denis.
• Gallagher, Pat Cope.
• Geoghegan-Quinn, Máire.
• Harney, Mary.
• Haughey, Charles J.
• Hilliard, Colm.
• Hyland, Liam.
• Kirk, Séamus.
• Kitt, Michael.
• Lenihan, Brian.
• Leonard, Jimmy.
• Leonard, Tom.
• Leyden, Terry.
• Lyons, Denis.
• McCarthy, Seán.
• McCreevy, Charlie.
• McEllistrim, Tom.
• Molloy, Robert.
• Morley, P.J.
• Moynihan, Donal.
• Nolan, M. J.
• Power, Paddy.
• Reynolds, Albert.
• Treacy, Noel.
• Tunney, Jim.
• Wallace, Dan.
• Walsh, Joe.
• Walsh, Seán.
• Wilson, John P.
• Wyse, Pearse.

Níl

• Allen, Bernard.
• Barnes, Monica.
• Barrett, Seán.
• Barry, Myra.
• Barry, Peter.
• Begley, Michael.
• Bell, Michael.
• Bermingham, Joe.
• Birmingham, George Martin.
• Boland, John.
• Bruton, John.
• Bruton, Richard.
• Carey, Donal.
• Cluskey, Frank.
• Collins, Edward.
• Conlon, John F.
• Connaughton, Paul.
• Coogan, Fintan.
• Cooney, Patrick Mark.
• Cosgrave, Liam T.
• Cosgrave, Michael Joe.
• Coveney, Hugh.
• Creed, Donal.
• Crowley, Frank.
• D'Arcy, Michael.
• Deasy, Martin Austin.
• Desmond, Barry.
• Desmond, Eileen.
• Donnellan, John.
• Dowling, Dick.
• Doyle, Avril.
• Doyle, Joe.
• Dukes, Alan.
• Farrelly, John V.
• Fennell, Nuala.
• Flaherty, Mary.
• Flanagan, Oliver J.
• Glenn, Alice.
• Griffin, Brendan.
• Harte, Patrick D.
• Hegarty, Paddy.
• Kavanagh, Liam.
• Keating, Michael.
• Kenny, Enda.
• L'Estrange, Gerry.
• McGahon, Brendan.
• McGinley, Dinny.
• McLoughlin, Frank.
• Manning, Maurice.
• Mitchell, Gay.
• Mitchell, Jim.
• Naughten, Liam.
• Nealon, Ted.
• Noonan, Michael. (Limerick East)
• O'Brien, Fergus.
• O'Brien, Willie.
• O'Keeffe, Jim.
• O'Leary, Michael.
• O'Sullivan, Toddy.
• O'Toole, Paddy.
• Owen, Nora.
• Pattison, Séamus.
• Quinn, Ruairí.
• Ryan, John.
• Shatter, Alan.
• Sheehan, Patrick Joseph.
• Skelly, Liam.
• Spring, Dick.
• Taylor, Mervyn.
• Taylor-Quinn, Madeline.
• Timmins, Godfrey.
• Yates, Ivan.

Tellers: Tá, Deputies V. Brady and Barrett (Dublin North-West); Níl, Deputies Barrett (Dún Laoghaire) and Taylor.

Amendment declared lost.

NEW SECTION.

Mr. O'Kennedy

I move amendment No. 32b:

In page 14, before section 12, to insert a new section as follows:

"12.—An individual who spends in excess of 300 days outside the State in an income tax year and is not taxable in a country with which the State has an agreement as provided for by section 361 of the Income Tax Act, 1967, or the United States of America, shall be exempt from income tax in respect of foreign remuneration provided:—

(a) the person is employed by a foreign employer who does not have a permanent establishment in Ireland or is not connected for the purposes of the Taxes Acts with an Irish resident; or

(b) that the main, or one of the main, purposes of such employment is not the avoidance of Irish tax by arrangement.".

An Ceann Comhairle

Is the amendment being pressed?

Mr. O'Kennedy

Yes.

An Ceann Comhairle

I am putting the question: "That the new section be there inserted."

Question put and declared lost.

Amendment declared lost.

Section 12 agreed to.

NEW SECTION.

Mr. Dukes

I move amendment No. 33:

In page 14, before section 13, to insert a new section as follows:

"13.—Chapter III of part I of the Finance Act, 1984, is hereby amended—

(a) in section 11 (1), in the definition of `associate', by the insertion after `participator' of `except that the reference in paragraph (a) of that section to a relative of a participator shall be excluded from such meaning',

(b) in section 12 (4), by the substitution of the following paragraph for paragraph (b):

`(b) if the company is not carrying on that trade at the time when the shares are issued, unless the company—

(i) expends not less than 80 per cent. of the money subscribed for the shares on research and development work which is connected with and undertaken with a view to the carrying on of the trade, and begins to carry on the trade within three years after that time,

or

(ii) otherwise begins to carry on the trade within two years after that time.',

(c) in section 15, by the insertion in paragraph (b) of subsection (7) of `and section 26 (2),' after `subsection',

(d) in section 26—

(i) by the deletion in paragraph (b) of subsection (1)—

(I) of `was incorporated in the State and', and

(II) in subparagraph (ii), of `wholly or mainly in the State',

and

(ii) by the substitution, in subsection (2), of the following paragraph for paragraph (a):

`(a) that the subsidiary is a 51 per cent. subsidiary of the qualifying company;',

and

(e) in section 27 (8), by the substitution of the following paragraphs for paragraphs (d) and (e):

`(d) that any amounts received by way of dividends or interest are, subject to a commission in respect of management expenses at a rate not exceeding a rate which shall be specified in the deed of trust under which the fund has been established, to be paid without undue delay to the participants,

(e) that any charges to be made by way of management or other expenses in connection with the establishment, the running, the winding down or the terminating of the fund shall be at a rate not exceeding a rate which shall be specified in the deed of trust under which the fund is established,',

and the said definition of `associate', the said paragraph (b) of subsection (7) of section 15, and the said paragraph (b) of subsection (1) of section 26, as so amended, are set out in the Table to this section.

TABLE

`associate' has the same meaning in relation to a person as it has by virtue of section 103 (3) of the Corporation Tax Act, 1976, in relation to a participator, except that the reference in paragraph (a) of that section to a relative of a participator shall be excluded from such meaning;

(b) In this subsection and section 26 (2), `51 per cent. subsidiary', in relation to any company, has the meaning assigned to it, for the purposes of the Corporation Tax Acts, by section 156 of the Corporation Tax Act, 1976.

(b) the subsidiary or each subsidiary is a company—

(i) falling within section 15 (2) (a), or

(ii) which exists solely for the purpose of carrying on any trade which consists solely of any one or more of the following trading operations—

(I) the purchase of goods or materials for use by the qualifying company or its subsidiaries,

(II) the sale of goods or materials produced by the qualifying company or its subsidiaries,

or

(III) the rendering of services to or on behalf of the qualifying company or its subsidiaries.".

I want to draw the attention of the House to two small modifications. One is in amendment No. 33. In the proposed section 13 at paragraph (a) in the second line I want to insert a comma between the first quotation mark and the word "accept".

Mr. O'Kennedy

We agree to the comma. The Minister is good at commas.

Mr. Dukes

I thought that might commend itself to Deputy O'Kennedy. In amendment No. 40a in subsection (3) of the proposed section 16 I propose to insert——

Mr. O'Kennedy

We are on section 13.

Mr. Dukes

I want to make the corrections in the chapter. In subsection (3) of the proposed section 16, the "f" following the (3) should be a capital "F" rather than a lower case `f".

Mr. O'Kennedy

I will resist making any comment on that.

Mr. Dukes

That comment might be rude and unparliamentary.

Mr. O'Kennedy

That occurred to me. The two proposals are agreed. I want to say a few words on this generally. This is in respect of a scheme introduced last year in the Finance Bill. This was the famous venture capital scheme which we spent some time debating in 1984. In the course of that debate, as the record will show, while supporting the idea in principle I expressed to the Minister very serious concern that the scheme would not get off the ground because it was so surrounded by so many qualifications, complexities, conditions and unnecessary restrictions that nobody but the most qualified accountant would begin to understand how it could be operated. I indicated that, if the intention really was to encourage equity participation in the manufacturing sector to which it was being confined, it should be made as simple as possible so that potential investors could understand it.

I was talking in particular about small investors and employees of enterprises who wanted to take a share in the enterprise and have a greater commitment to it. I said it should be reasonably understandable to them. I said that the people in the Revenue Commission and in the Parliamentary Draftsman's office who drew up the scheme were not likely to invest in it. If they understood it, they would be the only ones who did. For those and other reasons nothing in the scheme got off the ground. Two funds were launched. I have no idea of how much money was involved in either of those two funds.

It is a measure of the Minister's inability to understand the realities for business people and potential investors and those who are interested in taking a stake or a risk, that last year he gave us about 30 pages of the most extraordinary gobbledegook which he justified line by line and at the end of the day we had nothing. Now belatedly the Minister has adopted two of the many proposals we made last year. That does not go far enough to make any sense or to have any impact on the scheme.

This is the Minister's attitude despite all he said last year in his calm, confident but predictable fashion. Constantly during the debate last year he referred to such provision giving rise to abuse, being used for purposes of evasion or avoidance. But all the reasons advanced by the Minister last year were totally artificial and one might say also detached from reality. He is proposing now to change that.

Even as the scheme stands it has no hope of achieving the purpose for which I understood it was introduced last year. Having said that, I wish the scheme well. Clearly, there are a number of points to be improved on. First, investors in non-quoted securities to which last year's relief applies should be eligible for tax relief on their investments on providing documentary evidence of having invested in a bona fide designated fund recognised under the Act. That is much simpler than the whole paraphernalia of qualification certificates and guarantees that must be produced now. Why limit investment in designated funds to the figures suggested? If the Minister will agree to the proposed change, even on Report Stage, he would be doing a good day's work because otherwise small investors and anyone interested in the scheme will have to wait until the designated fund is invested in a qualifying company. The point made last year was that until the fund was invested in a qualifying company, the Minister could not see his way to allowing the investor participate in the scheme. I am saying that the relief should apply from the time the person invested in a designated fund because how can he know at that point when the investment in the qualifying company would be made? The small investor, the one we are anxious to encourage to invest, is not in a position to finance the waiting period and consequently he will not be willing to make the investment.

Secondly, the procedures for the granting of the tax allowance should be such that the allowances would be made to the PAYE taxpayer by way of the issue as soon as possible of an amended certificate of tax free allowances, that is, as soon as possible after the receipt of documented evidence of investment in the designated fund. At that point the investment has been made in the fund and the investor should not be penalised on the basis that at that point the fund has not been transferred for investment in a qualifying company. That is a matter over which the investor has no control. There is precedent for this practice in respect of mortgage relief and life insurance policies, for example.

We are trying to create a climate in which the small investor will have an opportunity to invest, not just in equity participation in companies but also perhaps in companies in which they work. But the period during which the investment must be retained by the investor is too long so far as some of these small investors are concerned. They should be allowed cash their shareholdings in designated funds after a minimum of two years. We will not encourage investment in the fund if we say that the fund is to be locked up and that no investment is to be released until after the expiration of the period outlined in the Bill. This will not encourage people to buy and sell.

The provision that the tax relief shall apply only when the conditions of the Act are satisfied will also guarantee that the small investor will not be interested, because this would involve engaging an accountant and that would not be feasible if one were investing, say, £400 or £600. Neither would any accountant consider it worth his while taking on such a case, having regard to the guarantees, qualifications and so on that are required. If as a basis there was the requirement that the managers of the designated funds be required at the end of each income tax year to provide evidence of investments made or investments redeemed during the year the requirement should be satisfied.

Neither should we penalise the investor because a manufacturing or trading company loses its status as a qualified company under the act because, for instance, it goes public or loses its eligibility for the 10 per cent tax relief. In such cases the company and not the investor should be penalised. The company should be required to make good to the Revenue Commissioners any loss of tax revenue and at a rate equal, say, to the composite rate that applies to building societies.

I trust the Minister will realise that my efforts are aimed at encouraging the small investor particularly. Some of the major investors who would have available to them the advice of some of the big houses in the city might be able to work their way through the gobbledegook of the legislation, though the evidence is that not even they are interested. I am talking about creating a climate in which people with upwards of £200 to invest are encouraged to do so. We need this sort of investment. As I said last year, any of us who have been to the US has been impressed by the fact that everyone there is a potential entrepreneur. One sees people there coming from offices and looking up the latest Dow Jones average at the bottom of the Pan-Am or TWA buildings. These people are all investing but that is not the case here, the reason being that we have made it so complicated and so difficult for them to invest. There is no need for the ridiculous qualifications.

The managers of designated funds should be allowed invest the funds in equity so as to replace borrowings. In this instance most Irish companies are overborrowed. They cannot fund their borrowing programmes. So long as all other conditions of the scheme are complied with, can there be anything wrong with equity participation to replace borrowing commitments that are sending most companies to the wall? We must encourage venture capital as distinct from forcing most of these companies to raise funds on the banking market. Far too many Irish companies rely far too heavily on borrowing and then become seriously undercapitalised. A stronger equity base would enable many of them who otherwise would be overborrowed to survive and expand.

These are just selections from a whole series of points that have been conveyed to me and, I am sure, to the Minister also. Small potential investors have asked me how they qualify for participation in the scheme. I have to reply that I cannot tell them. How could you? No one else can.

Mr. Dukes

Of course, one can.

Mr. O'Kennedy

They are told to go to the Revenue Commissioners and that they can tell them, or to an accountant.

Mr. Dukes

There was no trouble at all in designating the provisions last year, not in the slightest.

Mr. O'Kennedy

The proof of the pudding is in the eating. Nobody invested last year and we wasted our time here.

Mr. Dukes

That is not true and I will give the Deputy the facts.

Mr. O'Kennedy

After all the hullabaloo, there were two funds. There might be two plus another two this year—some considerable achievement. The successful operation of a designated fund requires expenditure on promotion in order to attract investment. There is need to advertise, to promote. Quite frankly, it requires the employment of expert personnel to assess the applications from companies and monitor the performance of those companies in which funds have been invested. That is the type of market condition about which we are talking. For that reason, designated funds should have the freedom to apply charges to investors commensurate with the promotional and other necessary expenditure in the fund. It should not be restricted to the limit of the charge in the Finance Act of last year.

We had all the limitations on fund managers last year, on the amount which they could charge. Because of the time restriction on the whole operation of this legislation, I cannot go into all that. Last year, we told the Minister that those restrictions in relation to fund managers were guaranteed to ensure that they would not be interested in promoting funding. I do not want to say too often "I told you so". I certainly can say it here, as I said it on other occasions. Even if belatedly, the Minister might consider what he introduced, which we supported, although it was far too complicated. We pleaded with him last year to get rid of these unnecessary restrictions and I am pleading with him now on the scheme which, in general principle, we support but which is far too complicated.

This scheme should be extended to the service sector. I have had that view for a very considerable time. I argued about it last year for the very good reason that the employment potential in the manufacturing sector, particularly in the domestic industries, is limited enough. The growth potential is to a greater extent in the service sector. As far as anyone outside this House is concerned, a job is a job. An investment in any sector which provides the jobs so badly needed should not be discriminated against because it is not in a designated sector in this legislation.

Mr. Dukes

First, I want to make a few brief points about the amendments which I propose. The first amendment will ensure that the connection of relations with the company will not serve to deprive an individual of relief under the scheme.

Mr. O'Kennedy

Hear, hear.

Mr. Dukes

That is one matter which we debated at length last year and to which I have given a great deal of thought in the meantime. To an extent, I am giving the benefit of the doubt here because I am still not entirely happy that the difficulties which we foresaw last year can be avoided. However, I have given the benefit of the doubt to the case which Deputy O'Kennedy and a great many others, including my own colleagues on this side of the House, made last year.

Mr. O'Kennedy

If there was one of them that made that point.

Mr. Dukes

I am sorry if Deputy O'Kennedy feels that somebody else has taken his lollipop away from him.

Mr. O'Kennedy

I remember the debate very well.

Mr. Dukes

There has been a great deal of interest in this scheme on all sides of the House and outside it.

The second amendment proposed, which was already in the Bill as circulated, is to provide that where a qualifying company expends not less than 80 per cent of the amount subscribed for shares on research and development work, which work is required in connection with the trade, the start-up period allowed would be three years rather than two. Thirdly, we have an amendment which removes the obstacles which were in the scheme originally to 51 per cent subsidiaries and foreign subsidiaries. Fourthly, there is an amendment to remove two specific restrictions which were on funds — restrictions which did not have anything to do with the management expenses of the funds when it was running, but were very specifically stated in last year's Act to cover charges made in connection with the establishment of the fund — charges made on dividends or interest accruing to those who had invested in the fund itself. All those restrictions are now removed. There is no restriction, nor was there ever, of the ongoing management charges that a fund might make.

Mr. O'Kennedy

We have never said there was.

Mr. Dukes

There never has been.

Mr. O'Kennedy

I know that.

Mr. Dukes

As far as progress with the scheme has been concerned, as I pointed out on a number of occasions, the Finance Act of last year provided that no claims for relief could be made before 1 January of this year. Most inquiries which we got before that date were of a very general nature. So far, two investment funds have been designated by the Revenue Commissioners.

Mr. O'Kennedy

What is the amount?

Mr. Dukes

One raised close to its £½ million target. There is another one, particulars of which I do not have at the moment. That is a figure which can change from time to time.

Mr. O'Kennedy

No better man to change it.

Mr. Dukes

I have here information on a couple of other companies. Ten companies have applied for authorisations to issue certificates to subscribers for an amount in excess of £1½ million. Outline approval has been sought by 20 companies, where it would appear that the investment will be in excess of £2 million. There are inquiries in 32 other cases. For Deputy O'Kennedy to claim that the scheme has not got started is simply not accurate.

Mr. O'Kennedy

The figures which the Minister has given just now prove that beyond any doubt.

Mr. Dukes

As far as the designated funds are concerned, we have now published the Unit Trust Bill which, when passed, will allow the designated funds to advertise freely so that we will have got over that difficult quite soon.

I would remind Deputy O'Kennedy that there is no limit for investment through a designated fund. I do not know where he got the figure he mentioned. It is quite conceivable that fund managers themselves, for reasons of their own administrative convenience, may set a lower limit, but it should be clearly understood that in cases where that happens that is a decision of the fund rather than one forced on it by the legislation.

I remain opposed to the idea of giving the relief when money is subscribed to a designated fund, for the same reasons as I gave last year. The objective of the scheme is to get investment funds into companies where it is going to be used. If we were to give relief before that event took place, the pressure would be off the funds to get the money into companies where it will be used. Since we are concerned with getting equity funds into companies, that is the appropriate moment at which to give the relief.

Mr. O'Kennedy

Could the Minister deal with that point, please?

Mr. Dukes

I am not quite sure that I follow Deputy O'Kennedy's claim that the small investor is unable to finance the waiting period, unless that small investor is borrowing in order to provide the investment. That is a matter for the particular investor. In most cases, their maximum waiting period would be a year. The funds are anxious to get the money into use. There is a provision for giving relief through the PAYE system. I take the point made by Deputy O'Kennedy, but there is already that provision.

Progress reported; Committee to sit again.