Last night on Second Stage of this Bill I raised the question of the definition of export goods. There is a possibility that these trading houses could be abused to the extent that if there were not a very tight definition of exports one could have somewhat bogus companies importing merchandise and re-exporting again. What is the specific definition provided for in this regard? Will there have to be a given percentage of Irish materials in finished products? Will the country of origin have to be put on these products, or will there be any restrictions on the way these companies operate? The Minister would agree that it would be totally improper if we were to leave any loophole whereby people could import and subsequently export and avail of 10 per cent profits tax. Before we make any decision on section I perhaps the Minister would clarify that aspect.
Estimates, 1987. - Export Promotion (Amendment) Bill, 1987: Committee and Final Stages.
Section I deals with export goods and special trading houses. The definition of export goods and special trading houses is the same as in the Finance Bill, 1987. Section 29 of that Bill provides that:
"export goods" means goods, which, in relation to the manufacturer of those goods, are goods for the purposes of this Chapter and which are exported by a Special Trading House, which is not the manufacturer of the goods, but which, in relation to the relevant accounting period, is the company claiming relief from tax by virtue of this subsection where the selling by the Special Trading House of the goods so exported is selling by wholesale;
The Minister for Finance included that in section 29 of that Bill. For the purposes of section 29 of the Finance Bill, and hence this Bill, the goods which may be handled by special trading houses are Irish manufactured goods as defined in the 1980 Finance Act. That is goods which are manufactured in the normally accepted meaning of that term. That also includes data processing equipment and computer software. Under the definition of "export goods" used in the 1987 Finance Bill the special trading houses are confined to selling by wholesale. The definition of export goods and special trading houses are well covered in the 1980 Finance Bill and in the 1987 Finance Bill. This will not allow goods to be imported and re-exported, because the provisions of section 29 of the 1987 Finance Bill which govern the scheme are being inserted into Chapter 6 of Part I of the 1980 Finance Act in which goods are given a specific meaning and refer only to goods manufactured in the State. In effect, the finance legislation confines the tax relief to the exports of Irish manufactured goods. The term manufactured goods embraces manufacturing as generally understood and also computer software and data processing equipment. In practice, the inspector of taxes dealing with the case will determine whether or not the company is dealing in Irish manufactured goods. In the final analysis the individual company would have recourse under the law to challenge any decision of the Revenue Commissioners. I am confident that we have tied down manufacturing and the export element of it and that there is no scope for anybody to get out of that by trying to import goods for subsequent re-export.
Will the Minister clarify in the area of companies who might import components and might add certain value to it for re-export, people involved in components, or in assembly and who would be involved in legitimate export, using foreign components, what clear parametres are laid down in relation to the definition of export there? I am talking about percentages of Irish input. I presume that it is reasonable to have some added value utilising foreign components particularly in a country which does not have for instance indigenous steel. This is a question of balance. We should be flexible in our interpretation. The whole purpose of this is to stimulate enterprise. One can quickly recognise the chancer or the cowboys. I want to be sure that genuine Irish industries do not find themselves bound hand and foot because of a percentage on the wrong side of a rubric of some kind.
There is a reasonably normal procedure in defining manufacture. It comes down to the interpretation of the individual inspector of taxes in following the legislation. There is scope, as the Deputy knows, for some goods to be reprocessed and for that to be defined as manufacture. There would have to be a very substantial element of reprocessing in the State, for it to be defined for tax purposes as manufacturing. I understand that that is a system which the Revenue Commissioners are well used to handling.
How substantial? What kind of percentage?
I understand it is not a percentage.
What are the proportions? Is there a figure of some kind? I am not looking for exact definitions. This could very well be the first test of this Act, if someone believes that they are making a genuine contribution and some revenue commissioner with no particular skill in the area of manufacturing but who is involved in taxation may decide to the contrary.
I appreciate the Deputy's point but at the moment there is no real difficulty about the definition of manufacture in the State.
But we do not have special trading houses now.
Special trading houses will be purchasing Irish manufactured goods. The Revenue Commissioners are fully confident in the way in which they will tackle the question of what is manufacturing and what is not. There is not a set percentage. It depends on the nature of the process, some of which are very complicated. It depends on how substantial is the element of reprocessing. At the moment the definition of manufacturing is tried and tested. The fact that a trading house will be purchasing Irish manufactured goods will not cause any problem because we already have a working system for what is manufacturing and what is not. That will not present a problem.
I am not clear on the answer.
On section 1, I want to raise the question of the compatibility of this section with the Treaty of Rome. My understanding is that section 42 of the Finance Act, 1980, was introduced to provide for 10 per cent corporation profits tax for manufactured goods. That replaced Part IV of the Corporation Tax Act, 1976. That part of the Corporation Tax Act, 1976, had provided for nil corporation tax in respect of exported goods. It was found by the Government at that time that distinguishing for tax purposes between exported goods and non-exported goods was discriminatory and contrary to the provisions of the Treaty of Rome which were quoted at that time. As a result the Government had to introduce section 42 of the Finance Act, 1980 which abolished the export profits tax relief and the wording used at the time was that:
Save as is provided for in subsections (2) and (3), relief from corporation tax shall not be given under Part IV of the Corporation Tax Act, 1976, in respect of any accounting period or part of an accounting period falling after the 31st day of December, 1980.
We have in this Bill, which relies on section 29 of the 1987 Finance Bill, the reintroduction of this discrimination as between exported goods and other goods, which would appear to be a reintroduction into our law of the same discrimination which had to be removed under section 42 of the Finance Act, 1980. Interestingly enough, it is only two sections previous to the section which the Minister has just relied on to answer the case made by Deputy Keating in regard to another matter. This is a serious matter. It is not desirable that business people should be invited by the Oireachtas — because in a sense that is what we are doing by making a special tax provision in section 29 of the Finance Act and by laying down a special procedure in this Bill — to undertake investments on the assumption that they have a certain protection in Irish law if that protection in Irish law is not compatible with superior law, namely, that provided in the Treaty of Rome. There is a danger that people could lose their money if this legislation is subsequently struck down.
I do not make this point lightly. I was a Minister for Industry for more than three years. I thought of analogous measures which would be of special assistance in the tax area to people who were exporting as distinct to those who were simply, to use the Telesis jargon, in the non-trade sectors but my opinion was that to attempt anything of that kind would run smack into the Treaty of Rome. I cannot quote the precise article of the Treaty of Rome which is involved although I could do so if necessary. I would refer the Minister to the debate in the House on section 42 of the Finance Act, 1980. I am sure he will find in that debate ample justification in the contribution made by the then Minister for Finance as to why the section doing away with export profits and tax relief for new companies was necessary. I would like a full explanation from the Minister on this. I hope there is a perfectly adequate explanation and that my fears are not warranted.
This is rather convoluted legislation. Section 1 defines export goods as "having the meanings assigned to them in subsection (ICC2) (inserted by the Finance Act, 1987) of section 39 of the Finance Act, 1980". When you look at the said section 39 you see that "export goods are goods exported by a special trading house". What is a special trading house? A special trading house is one selling export goods. This does not enlighten us very much as to the meaning of this legislation. One term is defined in terms of the other so that you end up with a definition that seems to be something approaching nonsense.
In section 29 (b) of the Finance Bill, 1987, there is a definition of exported goods. It says: "For the purposes of this subsection goods are exported when they are transported out of the State in the course of selling by wholesale of those goods ...". This may be the key to the problem but it does not refer back either to the definition of "export goods" or the definition of a "trading house". It seems that they are not interrelated. Therefore, I have to think that the matter is extremely complicated and perhaps the Minister hopes, by making this legislation so incomprehensible, the bureaucrats in Brussels will not be able to understand it sufficiently to discover whether it is compatible with the Treaty of Rome and meanwhile the Minister will go on merrily issuing licences and people will go on merrily acting on them solely on the faith of the Minister — and I am sure people have immense confidence in his veracity and good intentions in issuing licences — and that this cosy arrangement will be conducted quite independently of the law. That would be fine but I do not think it is compatible with the spirit of the Constitution which is that the law should be clear and people should know where they stand. I do not think that is the case so far as this legislation is concerned.
I am putting two questions to the Minister: (1) how can this legislation be said to be compatible with the Treaty of Rome, given what happened in 1980 in regard to export profit tax relief and (2) does this definition make any sense in view of the rather circular definitions that are used to explain what is involved?
The points raised by Deputy Bruton are extremely sensitive and I think the Deputy knows that. I am not saying he should not be raising those points — that is his duty as a Member of this House — but they are sensitive issues. Any decision of this House that might ultimately end up in a court, be it the Supreme Court in this country or a European court, is obviously something one has to be very careful about. In particular, one has to be very careful about what one says in this Chamber about those issues because there are people with an interest in this debate who are looking at Irish legislation.
A recent decision from Commissioner Peter Sutherland's office regarding small and medium-sized industries states that "countries in the peripheral regions and suffering from disadvantages would be allowed to introduce measures for the effective marketing of their exports". That is a recent decision in regard to the question of competition and, in particular, exports. I am relying somewhat on the small and medium-sized industries scheme within the EC to clear up any difficulties. This is a scheme which assists small companies and countries on the periphery and, in particular, small companies, that happen to be in countries on the periphery. There are no guarantees that any scheme or law passed by this House will not ultimately be shot down by the courts. There was a case recently which ultimately led to a referendum. There is no guarantee that what we do here will not ultimately be tested by a citizen.
We have officially notified the EC commission in regard to this legislation. We have no reason to believe that it will be contrary to the Treaty of Rome in any way. Taking that into account, as well as the situation of small and medium-sized companies and Commissioner Sutherland's recent decision in that area, we are reasonably satisfied that this will not conflict with EC legislation. Deputy Bruton is a very experienced Member of this House and he knows that in any area dealing with the EC one is exposed and one has to be very careful. It would be silly of me to give a cast iron guarantee that no court anywhere will not strike this down. There are other parts to which Deputy Keating, or perhaps Deputy Yates, referred last night about the Circuit Court and so on. One cannot judge what might go on in that area. We are satisfied, having notified the Commission, that this scheme is not contrary to the Treaty of Rome. The Deputy also asked about definitions. He is longer dealing with the parliamentary draftsman than I am. Advice from the Attorney General's office and from the parliamentary draftsman is that the definitions in this Bill, in a somewhat convoluted fashion as the Deputy suggests, are necessary to cover what we want to achieve. I said last night — Deputy Bruton may not have had an opportunity to read that part of the debate — that I am very keen to have a simple, quick and as fair a scheme as possible. That is why export goods are simply defined——
They are not defined——
——and is why "special trading houses" means a company which exists solely for the purpose of carrying on a trade which consists solely of the selling of export goods. That is specific and clean. A "trading house" means a company which exists solely for the purpose of carrying on a trade which consists solely of the selling of export goods. It is a reasonably clean definition. I take the advice of the parliamentary draftsman but that is simple English to me.
What trading house is that?
That is simple English to me — a "special trading house" means a company which exists solely for the purpose of carrying on a trade which consists solely of the selling of export goods. That is quite simple.
What are export goods?
Export goods are clearly defined in section 29 of the Bill.
They are not, if you read the Bill.
"Export goods" means goods which are exported by a trading house that is not the manufacturer of the goods and which in relation to the relevant accounting period is the company claiming relief under the subsection where the selling by the trading houses of the goods so exported is selling by wholesale. I think that is clear also.
It does not describe it.
This is a point in relation to the definition of exports and it is a very simple one. I am anxious to be as helpful as I can to the Minister and not to protract something which cannot be answered. There is an inescapable circulatory as he describes it so far as "special trading houses" includes in its definition the word "export". The main thrust of the questions have been about the definition of exports which includes within it the definition of manufacture. The initial question raised by Deputy Keating was in relation to the Revenue Commissioners consideration. The Minister referred to it as a tried and practical operation in terms of its definition. To what extent is the labour content which is involved taken into consideration by the Revenue Commissioners? If it and other factors that might define what is an Irish origin manufacture which turns out to be an export are taken into consideration what are the proportions involved? If the Revenue Commissioners stand apart from the Minister's office in operating this Act, does the Minister propose to enter into negotiations with the Revenue Commissioners to try to answer some of these considerations in terms of proportions which would satisfy those of us who are asking questions?
May I add briefly to what Deputy Higgins has said? I am trying to get clarity on these issues. Anybody who is going to be attracted to the financial lure — if I can call it that — of this Bill will want clarity in these definitions. These are business people who are practical hard-headed people and in the context of putting together their business plan they will need to define the provisions of the Bill. The Minister referred to data processing. There is no way in which that can be wholly domestic in origin. It seems to me to be reasonable to press a little on this. I am not over-happy about an arrangement which takes refuge in tradition carried on by the Revenue Commissioners. We should be a little more explicit on these definitions. I agree with Deputy Bruton that there is a degree of evasion — not by the Minister — and a degree of nonsense about a definition which defines a "special trading house" as being a house which is involved in the export of goods and the export of goods as being something which the "special trading houses" do, which essentially is the Minister's reply. We are saying this in a spirit of trying to be helpful so that the Bill will succeed so that we do not have people who are interested in putting projects together coming back and asking the Minister, or perhaps asking us, that question in a few months time.
I also want to be helpful. I should like to make two points. First, manufactured goods are already assessed by the Revenue Commissioners. All the manufacturing companies around the country have to go through this process at present. Unless they satisfy the Revenue Commissioners as to the definition of manufacturing they will not get the 10 per cent. That is the existing legislation. All we are doing here is taking another group of people and applying exactly the same regulations to them. We are debating regulations which are already in place, operated under the last Government and this Government, but they do not form part of this Bill. This Bill does not set out to define manufacturing because that is already covered by the Revenue Commissioners. Manufacturing companies, under existing laws, have to clear with the Revenue Commissioners the definition of manufacturing.
But the definition——
That is already going on. Manufacturing companies have to get the approval of the Revenue Commissioners before receiving the 10 per cent. All I am doing here is adding on a few more people to that process. That process does not come up for debate in this Bill because it is already going on and defined in other legislation. It is important to point out at this stage that this section is in the Finance Bill. We are talking now for the past 20 minutes about export goods and their definition. Section 29 of the Finance Bill was passed by this House last week. With respect, I have a different Bill before the House tonight and there are many amendments ——
I appreciate what the Minister is saying. Before the Minister replies, may I suggest that section 1 deals solely with the definitions.
My question, a Leas-Cheann Comhairle, was whether there was an element of labour content in the definition of manufacture.
We appear to be discussing on this section matters that are more appropriate to other sections.
It is a very short Bill.
That does not justify our discussing on section 1 matters not appropriate to section 1. We must confine ourselves on Committee Stage to what is in the particular section, This section deals with definitions.
The Minister's reply has hinged largely around the definition of manufacture traditionally espoused by the various industries——
——and already in legislation.
I accept all that but——
It was a different Bill on a different night.
My point is this is that a manufacture——
I am not defining "manufacturing" tonight.
A manufactured process, the yardstick to which the Minister is referring, is easily definable. I can walk into a place and see what is being manufactured. I can gauge the input value of goods at one end of the factory. We are talking about somewhat more ephemeral concepts like marketing and value added in certain areas and the kind of activities which a special trading house would be doing which are not manufacturing. In that context, how easy is it to take the manufacturing idiom and simply apply it to a totally different concept? There will be arguments in the market place about this and it is as well that we dispose of them and be as explanatory as we can.
It is important to say there will be no more arguments in the market place than there are before this Bill came in. The need to define manufacturing and get it through the Revenue Commissioners is already the law of the land. This does not change it. It only extends it to more people.
It is harder to apply it to somebody who has a special trading house.
I do not see why it would be. The definition of manufacturing is something that is worked out with the Revenue Commissioners, the IDA and the legislation.
——and the courts.
It is already decided what is manufacturing.
The question of what are exports is the problem.
The processes that are going on in a special trading house——
Export goods and special trading houses have the meanings assigned to them respectively in sub-sections of the Finance Act. That is a recent Act and it is not as if we were updating something from the last century. It seems a rather futile exercise, especially in view of the fact there are other amendments tabled, to be pursuing this to a point that will yield very little return.
Bearing in mind the remarks of the Leas-Cheann Comhairle, I think the Chair should bear in mind that there are only four sections to the Bill.
That is not the point. We must always deal in relevant matters. We do not apply Murphy's law to legislation.
Section 1 relies heavily on section 39 of the Finance Act, 1980——
1987?
No, the last line of that Act——
Both actually.
——section 39 of the Finance Act, 1980 which I have in front of me and there is no reference whatsoever to export goods in that. There is a definition of goods and manufactured goods, but there is no definition of export goods. The Minister did not answer my very first question which is what is an export good. Is it something that can be imported and re-exported? I was intrigued during the debate on the Finance Bill this year that this whole Bill and what it refers to were described as "trading houses" but when we came near to Report Stage the Minister for Finance changed the term to "special trading houses" which makes one curious about the insertion of the word "special". Is this some political marketing logo, or is it because there are other forms of trading houses? Will the Minister clarify why the word "special" was inserted?
Deputy Yates has raised a valid question in so far as we have not inherited any definition for export goods. Perhaps the Minister might clarify the point.
The decision to use the title "special trading house" is simply a device to distinguish those companies from other entities which engage in similar activities but not exclusively so and thus do not qualify for the special trading house scheme.
This is a minefield.
There is no particular reason. It is merely to highlight it and give it some emphasis. If somebody feels extraordinarily upset about the word "special" and want them called trading houses I would concede to that if I had time but obviously I do not have time tonight because I need this legislation before the House rises in order to get these trading houses moving. I do not understand the objection to the word "special", because it is an attempt to emphasise that they are a special scheme, licensed by the Government and are special in that sense.
As opposed to what?
As opposed to not being special.
The Minister did not answer my first question.
I have to point out that this Bill does not set out to define export goods. It sets out to define export goods for the purposes of trading houses that was defined in section 29 of the Bill last week, and which I have read out to the House a number of times. Deputy Yates is concerned about importation and re-export and I have tried to deal with that, in that this legislation says it must be manufactured in Ireland. The definition of manufactured is in other legislation, but the goods must be manufactured in Ireland and exported by the trading house. I know what is being said but I have to try to redirect the debate. It is quite clear that it has to be manufactured in Ireland and it has to be exported by one of these companies that have a licence. We could spend a great deal of time getting into all types of side roads. Ninety nine per cent of the people reading this would be reasonably happy as to whether something is manufactured or not manufactured in Ireland. That has already been tried and tested by the Revenue Commissioners who have been defining manufacturing for God knows how long. Secondly, it must be exported. It must be manufactured here and exported for a trading house to be able to avail of the concession. I think it is another day's work if we want to have a full debate on what is manufacture and export.
The issue is not whether a commodity is manufactured or not, as there is legislation and a substantial body of case law on that. The case law, interestingly enough, is rapidly widening the definition of what is manufacturing and we may soon find ourselves with virtually all activity classed as manufacturing as defined by the courts. We may find that what was intended as a special incentive becomes a general incentive now that the corporation profit tax basis disappears. However, that is a separate matter. What we are concerned about here — it is strictly relevant to section 1 and it is impossible to raise it on section 2 — is the meaning of the terms "export goods" and "special trading house". I want to raise the problem of the circularity of the definitions of "special trading house" and "export goods". The latter is defined in terms of being goods sold by a special trading house and a "special trading house" is defined as a body that sells export goods. The Minister has not clarified that point and I stress——
May I ask the Deputy what is wrong with that?
It is gobbledegook.
I think it is quite clear.
You do not know what it means because you do not know where you are starting from. Nobody knows what is a special trading house other than by the fact that the Minister recognises it as such. If there is no definition of export goods, then the Minister could recognise any activity as being the activity of a special trading house and any goods as export goods by consequence of the fact they were being handled by a special trading house. Therefore, the legislation is a lot of rubbish. If that is the case, we might as well give the Minister a one line Bill saying, "whoever the Minister, Deputy Seamus Brennan, says should have tax relief shall have tax relief". Because the definition is so circular it means there is no guidance, no containment of what he may or may not do, given to him by the House, and under this legislation he could end up doing virtually anything. Let us not say that is negative thinking; it is not negative thinking. The fact is that business people will invest their money on the strength of this legislation. They must know what the thing means. We are not, therefore, raising niggling little points, or sensitive issues as the Minister chooses to describe them. We are raising important questions on the basis of which people are going to invest their money.
Another point I wanted to raise related directly to this. This definition of export goods relies on section 29 of this year's Finance Bill. We have a statement here that export goods are goods which are exported by a special trading house which is not a manufacturer of the goods. So far that is clear. We go further in the same section of the Finance Bill.
Excuse me. Let me say to the people in the gallery that any intervention by them is not tolerated. If I hear any laughter or sniggers from the gallery again those people will be removed immediately.
We can laugh if we wish. Let me start this point again. I was slightly thrown off my train of thought. I have raised the first anomaly, that this circular definition essentially means nothing except that the Minister can do as he likes. The second problem is the question of what export goods are so far as special trading is concerned. In the new subsection (ICC2) (a) of the Finance Act, 1980 as inserted by the Finance Bill, 1987, export goods are defined as goods which are exported by a special trading house which is not a manufacturer of the goods. However, subsection (ICC2) (c) provides that "export goods when exported in the course of its trade by a Special Trading House shall be deemed to have been manufactured by the Special Trading House, nothwithstanding that the manufacturer has claimed, or is entitled to claim, relief under this Chapter in respect of the sale by it of those goods". Therefore, we have a statement that goods which have not been manufactured by the special trading house in order to qualify shall be deemed to have been manufactured by it. That again is going to cause considerable difficulty. Who is going to do the deeming? On what criteria will they deem goods that have not been manufactured to have been manufactured? What is meant by the provision that goods which qualify a special trading house for the relief only if it does not manufacture them shall be deemed nonetheless to have been manufactured by it for the purposes of another subsection of the same section? I can see many people having difficulty in working that out.
It behoves this House to pass legislation that is clear. I am not asking that our legislation should contain prose as limpid as that in The Decline and Fall of the Roman Empire or Shakespeare's sonnets or any thing of that kind. A certain amount of turgidness is inevitable in legislation, but some attempt should be made to make definitions internally consistent and, as far as possible, clear. Section 29 of the Finance Bill, 1987 on which this definition relies is completely confusing. If something is completely confusing it is likely to be completely ineffective. I hesitate to say it, and I do not wish to say it in a partisan fashion, but the Minister of State has been making great political play of the orginality of this proposal. However, if this proposal is totally ineffective and nonsensical because it does not rest on proper definitions, his whole case will go rapidly out the window. That is something that we as politicians in this House, being asked to spend our time on this legislation, cannot ignore.
The Minister referred to the consistency of the legislation with the Treaty of Rome and he says that he is relying for this on a statement made by Commissioner Sutherland.
That is one of the areas.
Commissioner Sutherland was a lawyer but he is now a politician and what he says about anything is simply the word of a politician. What counts as far as this is concerned is what the courts say, interpreting what the law says.
Unless you are going to quote the Commissioner in respect of his attempt at defining what to you is indefinable I do not see it as all that relevant to section 1.
The Minister of State quoted it in support of his contention that this legislation is compatible with the Treaty of Rome.
The Minister could have been out of order, too, in respect of extending this which refers solely to definitions.
My contention is that this legislation, on the face of it, is possibly not worth the paper it it written on.
The Deputy is an experienced Member of the House. Unless he can relate that to weaknesses in the definition he is not entitled to extend it into the Treaty of Rome. He is not entitled to bring in the compatibility of the legislation with the Treaty of Rome unless it refers to what he can show are weaknesses in the definition. He is not entitled to discuss the incompatibility of it on section 1.
The problem here is that the definition of export goods is what is to be the basis on which the Minister will be able to assure that this legislation can be used only by companies exporting Irish goods. If, however, the definition of exports which distinguishes between goods produced here and goods produced elsewhere is incompatible with the Treaty of Rome as discriminating between one country and another within the Community, Deputy Keating's fears that this could become simply a system of trading houses to obtain tax relief for the organisation of imports into this country could very easily be well founded.
The Deputy is listing all this on a premise of hypothesis which is not relevant to section 1. If he said on one occasion that the definitions as far as he is concerned are indefinable and mean nothing, how can he proceed then to establish that the definitions are incompatible with the Treaty of Rome? He cannot have it both ways and neither is relevant to section 1 of the Bill.
On a point of order, I submit that I am doing this on the basis that it will be familiar to the Leas-Cheann Comhairle as used by learned counsel in the courts. They say: "My client is not guilty, but if he is guilty he is insane". I say that this definition is nonsense but if it is not nonsense it is incompatible with the Treaty of Rome. I must, therefore, seek to elucidate both aspects of this.
The Deputy on the other hand argued earlier that one definition led from another and where it was going to be deemed to be the same as another it was inconsistent. That again is part of the legal jargon we have.
On a point of order, I submit that the internal inconsistency of any argument I might make is not a matter for the Chair.
It is.
The Chair will be concerned not with the consistency of my argument but merely with the relevance of the point I make.
The Deputy has been irrelevant in respect of arguing on section I the incompatibility of the section with the Treaty of Rome.
I must say to the House at this stage that three words were hovering around here tonight, "export", "goods" and "manufacture". This Bill does not set out to define any one of those. Before the Bill came in at all each of those words had an existing meaning either in existing legislation or in existing practice. For example, the Finance Act, 1980 section 39 provides:
In this Chapter "goods" means goods manufactured within the State in the course of a trade by the company which, in relation to the relevant accounting period, is the company claiming relief under this Chapter in relation to the trade:
Goods were already defined in legislation before this Bill was introduced in the House. In section 42 of the Finance Act, 1980, exporting is defined as goods exported out of the State. No attempt has been made by any Government in recent years to define exporting better than it is already defined. There was much industrial legislation before this House in which Governments could have attempted to better define the word "exporting". This Bill is relying on the existing definitions, such as they are and inadequate as they are, of the words "exporting", "goods" and "manufacturing". Those three words are defined in legislation prior to this Bill and this Bill is relying on the existing definitions. If those three definitions, as they are currently understood, are not acceptable they will have to be tackled in other legislation. I did not set out in this legislation to improve the definition of goods, of manufacturing or of exporting but neither was there an attempt made in much of the legislation which was introduced in the House in recent years to better define those words. I am relying on the definitions of those words in existing legislation. We are still debating the Finance Bill which was passed by this House recently.
We never debated section 27.
The whole Bill stands and falls to some extent on definitions. The Minister referred to the definition of three words, "export", "manufacturing" and "goods". In section 1 there is also reference to the definition of a special trading house. Unfortunately, that definition refers to the words we spoke about. There may be argument about what is a special trading house as it refers to the concept of exports which——
It is a company which exists solely for the purpose of carrying out a trade which consists solely of the purpose of selling export goods.
If we say that a special trading house is a house that exports——
It is not just a house that exports. It is a company which exists solely for the purpose of carrying out a trade which consists solely of the purpose of selling export goods.
The basic point which is causing some concern, after the clarification of which we may not have any major problems in this Bill, is about the circularity of definition.
Perhaps loose definitions of exporting, of goods and of manufacturing should have been tightened up in previous legislation.
Trading houses are included in this Bill and that incorporates the word "exports".
This Bill did not set out to define in a legal sense those concepts which are already enshrined in legislation. Long before we came up with the idea of special trading houses people had been operating manufacturing companies around the country and they know what exporting is, what manufacturing is and what goods are covered under the Act. The House could do better than to set out to redefine three fundamentally well-known definitions.
I cannot accept what the Minister is saying, that this is not a matter of importance in that export has already been defined. Where export has been used in legislation up to now it has been used solely in regard to the powers of Córas Tráchtála. This House has complete control over what Córas Tráchtála may do. If they spend money they must give an account of it to the Minister.
It is also in section 42 of the Finance Act, 1980.
It is not. Section 42 withdrew export sales relief and therefore it was no longer relevant.
It attempted to define the term.
The term was defined in Part IV of the Corporation Tax Act, 1976, and that scheme was abolished in 1980. The only place where the definition of export had any operative relevance until this legislation was introduced was in regard to what CTT may or may not do and this House has complete control over that. This legislation in extending it to a new area where it will now be the basis for automatic tax relief which people can get under the provisions of section 2 (7) by going to court if necessary and overturning what the Minister has done. The House is losing control of how this definition can be used. The courts and their business people can now use this legislation as they will.
The definitions become much more important once they become a basis for tax relief than when they were simply a basis for authorising what CTT might or might not do. After all the Minister can completely control them. They may be entitled by law to do something but he can tell them they cannot do it. That is not the case with this legislation. Under section 2 (7) the court will rely on the terms of this legislation and it does not matter what the Minister says. He can say that was not what he meant when he included it in this legislation but that will be of no value. The court will ignore what the Minister, what I or what anybody else in this House says. In coming to their decision they will only be concerned with the definition in the legislation. I submit therefore that the definition is unclear and is possibly incompatibe with the Treaty of Rome. To introduce a tax concession on which people will make substantial investment decisions on the basis of two uncertain supports is to invite people to misinvest.
And to miss the opportunity which this country desperately needs to export more goods. I am trying to get more people into the exporting business.
We are all trying to do that.
At present the only people who get tax relief from successful exporting are manufacturers. I am trying to extend that to include people who are not manufacturers but who could do a good job for the country in finding sales abroad provided they buy Irish manufactured goods. I am setting out to do something very simple which will be of help. I have dealt with the EC situation. I do not accept the suggestion that one will automatically get tax relief in this scheme. They will have to satisfy the conditions which are laid down in this Bill in regard to proper marketing plans and they must also satisfy the Revenue Commissioners. Manufacturing companies have to satisfy the Revenue Commissioners that they are genuinely manufacturing goods and they must comply with the conditions laid down. Therefore there is no question of anybody receiving automatic tax relief. If anything, it is quite the contrary.
I do not want to be difficult but the Minister is wrong.
With respect, the Deputy is wrong.
I presume you think that. You would not be earning your salary if you thought otherwise.
Have you an amendment which I could look at?
The Minister is proposing this legislation and I am not obliged to do his work for him.
Order, Deputies. Perhaps if the Minister and the Deputy in possession will address their remarks through the Chair we might make a little more progress.
I constantly referred to the Minister in the third person. I wish to say to the Minister, through you, Sir, that his statement that the Revenue Commissioners will interpret this matter — I cannot remember the wording——
Satisfy the Revenue Commissioners, just like manufacturing companies.
The fact is that any decision by the Revenue Commissioners is capable of being appealed to the courts on the basis that, among other things, the aggrieved party feel that the decision made by them is incompatible with the law. We make the law and it is the law that will decide what the courts will decide, whether the decision of the Revenue Commissioners was wrong. Therefore, if the law we are passing today, which relies on section 29 of this year's Finance Bill, is unclear or incompatible with the Treaty of Rome it does not matter a fig what the Revenue Commissioners are satisfied or not satisfied with. That can be appealed to the courts and overturned on the basis that the legislation before us in not clear.
We cannot change a Finance Act tonight. The definition relies on two items in different finance legislation. I am relying on law passed by the House. It cannot be changed tonight because it is not on our agenda. Most Ministers rely on existing legislation unless they are seeking to make a fundamental change in the definitions which have been operating in the State for some time. Section 2 (5) states:
The Minister shall not grant a licence in respect of a Special Trading House unless he is satisfied that the applicant for the licence has the structure, organisation and marketing ability to undertake successfully the sale of export goods. That condition will have to be met. The Minister of the day will have to be satisfied that the company is a bona fide concern with a proper structure and organisation before a licence is issued.
That is very nebulous.
I do not think I could be more helpful to the House in saying that this short Bill relies on existing definitions. I did not seek to redefine exporting, manufacturing or the term "goods". If the Finance Act, 1980 or the Finance Bill, 1987 are deficient in any way there is a different procedure for dealing with that.
May I intervene at this stage to say that it is immaterial to the Chair how long Members dwell on any amendment or any section but it is incumbent on me to remind Members that all Stages of the Bill must be passed by midnight. I suggest it is desirable that we make progress on other sections and that we deal with the amendments tabled by Members. We ought not to dwell unduly long on section 1. I observe that there is a great amount of repetition.
I hope not to be repetitious and to enable the House to make progress. I do not wish to protract a discussion which cannot be terminated easily this evening. In his previous contribution on section 1 the Minister suggested that he does not want to open up the question of the process by which the Revenue Commissioners are satisfied by manufacturers approaching them in relation to what is benefit under the existing tax laws. We can solve the problem if the Minister indicates that as this legislation, with other legislation, is crucially dependent on that process it will mean that if the decision of the Revenue Commissioners is contested in court for judgment it will be the decision of the Revenue Commissioners versus the law. The law is the responsibility of the House and the question of proportionality is a policy decision. I am asking the Minister to note the lack of openness in relation to the proportionality content of the process being followed by the Revenue Commissioners. That is the point on which we are all stuck. I would be satisfied if the Minister noted that there is a transparency defect. We know what the process is. I realise that this is making a concession to the idea that if I do not see a transparency that is in previous legislation and we allow another Bill through on a flimsy basis we are taking some risk. I would take that risk but the Minister needs to give a commitment to the House that he will try to make some progress in that regard not only in this legislation but, through his colleagues, in other legislation.
I should like to assure the Deputy that I will undertake a review of the definition of these fundamental words in my Department. I will have a discussion with the Revenue Commissioners on how they arrive at what is and is not substantial in the question of reprocessing. I know the Deputy is concerned about the labour content, as I am. I would like to think that the Revenue Commissioners take into account a very substantial Irish input into whatever is being put on top of the basic product. That is what one would like to see. Following my discussions with the Revenue Commissioners I will communicate with the Deputy, if that is the wish of the House.
The Minister referred to all the conditions that had to be complied with, including the structure of the company and so on. Those decisions taken by him may be appealed to the courts and the courts will look, not at the Minister's bona fides, not at his intentions but at what the law says. If these definitions do not make sense we are making bad law. The Minister challenged me to produce a definition that would make sense rather than relying on the Finance Acts. It was the Minister's choice to rely on the Finance Bill of this year. He could have his own definition of "export goods" if he wished but he chose to rely on another incomprehensible piece of legislation.
I relied on the existing definition of "export goods" which ran through the Deputy's Government and this Government.
No. The definition of "export goods" is a novel one introduced in section 29 of the Finance Bill which was passed by this House last week.
That is export goods for the purposes of the trading houses.
I suggest that "export goods" should be defined in section 1 not by reference to section 29 of the Finance Bill but along the following lines: export goods shall mean goods manufactured in the State which are sold outside the State and not sold back to persons within the State. I suggest that a special trading house instead of being defined as is in the Bill should be defined as follows: a body engaged in selling Irish produce or goods outside the State which are not sold back within the State. Those definitions would make more sense than the impossibly dense wording of section 29 of the Finance Bill upon which the Minister has voluntarily chosen to rely in his definitions in the section.
As I indicated last night this is a genuine attempt to improve exports. I do not want this to become an accountant's plaything or device that accountants will hand off the shelves to everybody for tax dodging. I would certainly want to keep a very close eye on that. Neither do I want it to get into the cowboy area. I just make those comments now because it is my intention to watch this very carefully. This is not casting a stone. If there are indications that people are abusing it or that the professionals are getting around the definitions in it or that our decision to rely on existing definitions was a wrong one, I will have no difficulty in asking for changes in this legislation at any time. A decision was made to rely on existing definitions and a decision was taken on the advice of the parliamentary draftsman and on the advice of the Attorney General to rely on this particular form of words. I understand the Deputy's viewpoint, I see what he is getting at and I understand his worries but there is a greater need in the country right now than getting the Is dotted and the Ts crossed and that is that I would like to get these moving over the summer so that we can get some additional exports.
We want a Bill that will work.
The Bill will work.
Deputy Keating rose.
I was hoping that I might get section 1 agreed or otherwise.
May I ask the Minister, in the nicest possible way, to stop lecturing us about what he wants to do. We are all here tonight because we believe that this Bill might, properly developed, facilitate the Minister's and our collective objectives. It is not desirable to put on the Statute Book sloppy legislation as a mechanism for creating jobs or exports. Does the Minister accept in principle that there is an argument even about whether the concept of definitions outside the ambit of this Bill is causing possible problems theoretically to the Bill itself, possibly involving a challenge to the courts in due course? Might it not be more desirable, as a principle, to incorporate the definitions under question within the Bill, the only purpose of this exercise being that the Bill is as watertight and as efficient and as clean cut as possible, thereby facilitating precisely the objectives which the Minister and all of us want to achieve. It is not that we take a different view or that we do not want to suit the Minister. What we do not want is to end up with a challenge to this Bill in six months' time which turns not just this Bill but some of the definitions we are talking about on their heads and we find that we have a mess of potage. That is the point. One way I would suggest is that he should get some of his colleagues to reflect for maybe half an hour and when we come to the Report Stage in due course he could consider the possibility of incorporating the simple definitions outlined by Deputy Bruton or definitions analogous to those in the context of the Bill itself so that it is self-contained and, therefore, does not rely on questionable definitions outside of the ambit of this measure.
I appreciate what the Deputy is trying to do but self-contained legislation is not something you very often get. Pardon me if I seem to be lecturing the House. That is not my intention. I would like to explain my viewpoint on this legislation. Self-contained legislation, of course, would be preferable if we could define everything afresh——
Not everything, three words.
——but we took a decision in respect of many other Acts down the years, instead of defining things afresh, to rely on existing definitions and if existing definitions are incomplete then they should be tackled in a different way. I will have the Department carry out a review of the fundamental and basic legislation and precedents that those words rely on. I do not think I can be any more helpful this evening. We took a decision to rely on the existing definitions. It is the Finance Act which gives the tax relief. We are trying to be consistent between the definitions there, which we had to work out with the draftsman and the Revenue Commissioners and the Attorney General's Office, and the definitions here. With respect, the House albeit perhaps in controversial circumstances did go along with the Finance Act, at least it was endorsed by the House and I am seeking to rely on something that is already in legislation passed by the House.
Deputy Yates rose.
I was hoping to put section 1 to the House.
I am perhaps the most anxious person here to ensure that the question will be put as quickly as possible. I am seeking clarification so that it may be put. The Minister said earlier that the definition may be inadequate. I would remind him that section 27 of the Finance Act was never debated in this House. It was guillotined.
But it was passed by the House.
It was passed but not discussed. Is the Minister rejecting the particular and specific definition put forward by Deputy Bruton? If so, we will have no choice but to oppose the section.
The definition is contained in the Finance Act. It would be in that Finance Act that the definition that Deputy Bruton put forward would have to be incorporated because the other definition is in the Finance Act since last week, so if we are to put in a new definition of exported goods we would have to go back and put it into the Finance Act which we passed last week.
The Minister did ask me to put forward an alternative wording.
Yes, and I certainly admire the form of wording and I will take a look at it but not on this legislation. I am afraid.
May I ask the Minister in relation to section 2 (1) whether we should have the word "shall" instead of the word "may"? If the applicant meets all the requirements below I wonder is there a need for the optional notion implicit in the word "may"? We in my party take the view that by and large people should have the option in a case like this that is available to the Minister. What is the basis for the word "may"?
All I can tell the Deputy is that that is the word that has been recommended by the AG's Office. I am not hung up on the word "may".
There is a difference. What it seems to me to mean is that the Minister then may refuse even though somebody meets the criteria. Perhaps some of us on this side of the House are paranoid these days. You get troubled by these things.
Will the Deputy please formally move the amendment?
I move amendment No. 1:
In page 2, line 27, subsection (4), after "application" to insert ", provided such information is within the competence of the applicant to provide".
What subsection (4) says is that if the applicant does not supply the Minister with whatever information the Minister requires the Minister shall not consider the application. I have only one worry about that, particularly in the context of the situation where the Minister may apparently decide from time to time fairly arbitrarily what kind of information or data might be needed. I can visualise a case where various bank references or statements of experience in business or trade might be required, and I wonder if one should come down on the side of the individual. There could be circumstances where a person might reasonably make a genuine attempt to provide the information required but because of circumstances outside his control that might not be possible.
Let us say a trading house was formed with a number of members as co-directors or co-partners and it was not possible to supply the depth of information necessary in all cases because of the exigencies of time, the confidentiality of business transactions or because of personal circumstances. If a person has made a genuine attempt to provide such information, it seems to be a little harsh to automatically disbar that person from being considered, because the section says the Minister "shall not consider the application". It does not say "the Minister may not consider the application". This contrasts with the use of the word "may" above.
If the applicant is bona fide and has made a genuine attempt to give the Minister the information he requires, is it not reasonable to suggest that his application should at least be considered? I am suggesting that some form of words be included along the lines mentioned, that is, "the Minister shall not consider the application provided such information is within the competence of the applicant to provide", because there are areas of information which are not necessarily immediately available to him or her. He may have to request that information from a finance house, and in some circumstances he might not get it. The purpose of my amendment is to ensure that a person who is genuine will not be discriminated against due to a problem outside his or her control.
I would like to be of help but I cannot accept the amendment at this stage. The information the Minister is entitled to seek from the applicant is directly relevant to a special trading house operation as proposed by the applicant. It is also reasonably clear in the legislation that this is a freezing mechanism in the sense that nobody will get a licence until the information is provided which enables the Minister to make the decision. In this Bill there is a presumption of reasonableness on both sides, that no unreasonable or frivolous information will be sought.
I suppose there is an argument for building that into legislation but the presumption and wording of the Bill is strong enough to indicate that no Minister would unreasonably demand information from an applicant who is not in a position to provide that information. That would be tantamount to harassment and I do not honestly believe it is something any Minister would contemplate getting into.
As regards the phrase "provided such information is within the competence of the applicant to provide", it is assumed that the person is in a position to supply that information. If he is not, then the Minister will have to make the decision on the basis of the information he has. He will only look for the information he needs to assess if the applicant complies with the three conditions — structure, organisation and marketing ability. The amendment might help but it is assumed in the legislation that information sought from an applicant will be reasonable and not the kind that a person would not be able to provide. I could not envisage anyone demanding such information.
I am somewhat consoled by the Minister's reference to presumption but I do not think he is correct. He makes the point that the information to be sought basically relates to three elements — structure, organisation and marketing ability. Subsection (3) says something to the contrary. It says:
The Minister may require an applicant for licence in respect of a Special Trading House to furnish to him, within such time as may be specified, such further information in relation to the application as the Minister considers to be necessary or desirable.
I am talking about this in the context of an arrangement where the licensing facility — I would not define it as a licence to print money — has at its heart a potential for generating profits. The decision is essentially subject to the appeal of the courts, a political decision. In that context it seems a Minister in some circumstances could make an adjudication which might be open to the allegation that it was politically tainted. That allegation could be brought about by seeking information which is either not reasonably obtainable by an applicant or was such that it could fall under the definition of "necessary" or "desirable" but might be quite spurious, and it was sought simply to make it impossible for someone to present an application which requires all the information the Minister says is desirable or necessary.
It is not a case that the Minister may decide not to grant a licence; under this legislation the Minister shall not consider the application. I do not believe we should presume anything. What we are talking about here is a form of restrictive practice operated by people making very arbitrary decisions in the context of plethora of words that have no definition in this Bill. There is no reference in this Bill to the structure, organisation or marketing ability of a company. They are not defined here and the definition of what is "necessary" or "desirable" does not apply to those three elements. They could be anything from a character reference upwards or downwards. I do not believe it would cause a problem if the Minister was gracious enough to accept that the spirit of the presumption to which he refers could be embodied in the form of words I have mentioned, which are essentially non-contentious, that is, to add the words "provided such information is within the competence of the applicant to provide".
What happens if by some chance a genuine applicant applies when this legislation is law and the Minister finds that the information which is necessary or desirable — whatever that means — cannot be provided? Say, somebody returns from spending some time abroad and the business had accounts in a foreign bank which refused to give bank references. The applicant might tell the Minister he had spent three years in Brazil but could not get a bank reference, although he had a good record and lots of assets and although he might want to help the Minister and the country, the information was not available. In such a case the Minister shall not consider the application even though such information would be essential. In those circumstances and to protect applicants who are bona fide, the Minister might be good enough to think again. He said the information he sought related to organisation, structure and marketing ability but that is not what the Bill says. The Bill allows him, his colleagues or his successors to decide what is desirable and what is necessary. That is very broad.
I appreciate the Deputy is trying to tighten up the legislation, but his example was of people appearing out of the jungle——
I did not refer to the jungle. I was talking about somebody trading abroad.
——and the assets they brought with them. I do not want to be difficult about the phrase "provided such information is within the competence of the applicant to provide". I am satisfied that if a Minister, of whatever colour or at whatever time, wants to be so awkward as to keep demanding information——
Not awkward, politically selective.
——and wants to frustrate an application in any way, and in order to do this continues to seek information which cannot reasonably be provided, then the Minister at the end of the day can refuse a licence. Therefore, why should he go through the tortuous process of seeking more and more information——
He does not have to do that except on the first occasion.
——until he finally gets them on something they can provide and then turn them down? It is much simpler to say that their application has been received and reviewed but that as it does not come within section 5 it is refused.
It is not a tortuous process. He can make the initial request so problematic in view of the application——
I am saying, Deputy——
I am not talking about people who come out of the jungle — although they are perfectly entitled to be considered also — I am talking about somebody——
I do not see any Minister being so difficult as to demand information from companies which they cannot provide. Why should he do that anyway when, at the end of the day, he can turn them down?
We should not be naive. A licence for a special trading house is about giving to a particular applicant, over and above the heads of other unsuccessful applicants, preferential capacity to make a profit. Inevitably, in a small society with a degree of obnoxious repeated representation that permeates the system in this country whenever there is a bob to be made, it is logical that there will be political representations made to the Minister who makes the decision. There may be also inevitably a degree of succumbing to such representations. I am only asking the Minister to take reasonable precautions to minimise that risk.
We intend to rely very largely on CTT in this regard. Any application made will have to receive a recommendation from CTT to the Minister who will rely on such recommendation, although not exclusively. The point I am making in regard to the political aspects is that I am particularly keen to get into the operational detail of the scheme a reliance on CTT in regard to recommending an application. When an application arrives it is our intention to ask CTT to let us have a recommendation in regard——
I have two brief questions. Is it the Minister's decision to grant a licence?
Ultimately, yes.
CTT are facilitated in the Bill in terms of grant-aid by the Minister and I have no doubt that, nine times out of ten, the recommendation of CTT will be observed and acted upon. This legislation will stand for decades and it is not unreasonable to suggest that it should be as watertight as possible. What is the Minister's objection to the few non-controversial words I suggested? It merely gives the bona fide applicant a greater degree of confidence about his application.
I have some sympathy with the Deputy's requirement to make the legislation watertight. However, I am nervous about the wording of the amendment and the parliamentary draftman's office is not satisfied about——
I will not argue with that.
I am very conscious of the fact that after this week the legislation might have to wait until the autumn if it is not passed. There is also a money element in the Bill which is important. The parliamentary draftsman points out that, even if I wanted to accept the amendment, there are difficulties about the wording.
What are they?
Offhand, I do not know. I do not regard the amendment as necessary because no Minister will seek information from a company who do not have the competence to provide it.
How can the Minister say that?
If a Minister wanted to be that difficult in continuing to seek information from a company who did not have the competence to provide it, it would be a very roundabout way of trying to frustrate an application when he merely had to refuse it. I am presuming reasonableness on the part of the Minister and that he will not harass companies for information which they cannot provide.
As there are only two sections dealing with the special trading houses, may we discuss section 2 now?
I would prefer to deal with the amendments but I am in your hands.
Could I suggest — as is often the case in the Finance Bill — that you eventually put the question: "That this section stands part of the Bill".
Deputy Yates has now suggested that in order to make appreciable progress on the Bill, we deal with section 2 and its amendments. Is that agreed? Agreed.
Thank you. Last night, on Second Stage, I said that these trading houses were basically composed of displaced people who were already in the export promotions and sales business and that it would be better to proceed on a commission basis rather than by direct resale. There is no provision in the Bill to limit the number of special trading houses. Has the Minister a limit in mind? There is also no provision in section 2 in regard to whether licences are renewed annually, biennially or every five years. If someone gets a licence do they have it for all time? What are the terms, if any, in which a licence would be revoked by the Minister? Moreover, if such circumstances arose for the revocation of a licence, would there be any penalty for breaches of the law if people were granted a licence on the basis of satisfying section 2 (5)? If it happened after two years that they acted improperly in some way, what provisions are in the Bill to take back the licence? There are no provisions in the Bill which means there is a major gap in the legislation.
If CTT have a lot of input in processing applications, there should be a small fee for this licence which would cover their expenses in examining the cases. CTT are entitled to a small reimbursement for the work involved. I also mentioned last night that legislation sets out criteria by ministerial order to be laid before this House. I appeal to the Minister to bring proper orders forward as to how one would satisfy the criteria of getting a licence, not just the nebulous terms outlined in section 2 (5) which are totally ambiguous. Who decides how professional a structure is or the level of ability required? These are very important questions and as Deputy Bruton said, when these appeals come before the Circuit Court the intentions of the Minister will be totally irrelevant. The law is relevant. I do not criticise this Bill in many of the petty ways in which I could criticise it. There are major omissions in the Bill. It is a very short Bill which does not state the terms of the licence, how long it will last and, if anything goes wrong, the way in which a licence can be revoked. It does not give the breaches which would result in revocation. All these should be set out in a ministerial order.
Section 2 (7) states that appeal is made to the Circuit Court. What precedent is there for the use of the Circuit Court in such manner for appeal? It is not right or proper that we should put applicants through expensive litigation or that expensive litigation would decide who would and who would not get a licence on the basis of having the best senior counsel. That is not fair. As the Minister of State already quoted tonight, in response to the sensitivity of the EC he is basing this on some loose statements of the current Commissioner, Mr. Peter Sutherland, concerning the SME policy. The fact of the matter is that there is no reference whatsoever in section 2 to SMEs which are clearly defined as a particular size of company and a particular scope of company.
This legislation, on appeal to the Circuit Court can get into serious trouble and cause many people serious expenditure. Could the Minister not have used the CTT as the processing unit, with a right of appeal to the Minister in the way that planning permissions were done some time ago? There should be strict criteria so that there will be no political gerrymandering, as Deputy Keating outlined. What is the position of subsidiary companies here? Last night Deputy Michael Higgins made at least one useful point, the one I noticed.
The Deputy is kind.
He made many useful points.
The one useful point that I noted was the notion that free competition exists and marketing practices flourish in free competition. That is not altogether true when you take into account monopolies. I want to know whether in terms of large conglomerates two subsidaries of one multinational could get a licence. Are there any restrictions? Subsidiaries of the one corporation could trade against each other and get the benefits. I hope the Minister is taking a note of this point. Two subsidiaries could thus avail of all the benefits under this legislation. I have tried to be as brief as I can in order to get some opening up of the discussion on section 2, which is full of gaps.
The Deputy has raised a large number of issues. We gave some thought to bringing in very detailed legislation pinning down every last detail, but I want to remind the Deputies about the business expansion scheme precedent in this area. I have said many times when in Opposition that one of the difficulties of that scheme when introduced was that it ran to a substantial length and every conceivable loophole was covered in the legislation, with the result - and the Minister of the day went close to admitting this - that the business expansion scheme for the first year of its operation did not take off. We had to take a second bite at it before it loosened up and not kill it with bureaucracy. I was aware of that precedent and instead opted for a shorter, enabling Bill which would allow us to get this legislation off the ground quickly. There is a whole range of issues which Deputy Yates has raised that I could have included in the Bill like the number of licences, the renewable features, the application fees, the questions on subsidiaries. We decided against that for speed. Also there was a very real commercial problem that until you see the early days of such a scheme you do not really know the creativity and ingenuity of the people who set out to put loopholes in it. You cannot provide for all those matters in legislation at an early stage.
You can try.
We made a decision to have a relatively straightforward piece of legislation going through CTT to the Minister and with the Revenue Commissioners having to be satisfied also. We felt that was a speedier way to get on with the legislation.
On the question of the number of licences, I am on record, and I think the Minister for Finance is also, envisaging between 30 and 50 of these. We have not pinned this down because, quite bluntly, it depends on the number of serious minded companies that come forward to establish these houses. Early indications are that there is a sufficient level of interest out there. We have had sufficient inquiries already to indicate that we could perhaps head towards those numbers. If the House feels that we should put a particular number on it, that is fair enough, but it is not necessary. Let us see what the demand is like. They have to satisfy conditions which are quite stringent. We shall be publishing an explanatory leaflet which will lay down the conditions in small print with which each applicant will have to comply before we finally grant the licence.
Would that be legally binding?
No.
No, it will not be. The CTT, the Minister and the Revenue Commissioners are involved. The Revenue Commissioners subsequently issue permission for the tax relief. What is in the memorandum will be taken account of by these three groups of people in deciding whether to give the go ahead. While it is not legally binding, it will be taken very close account of by the people making decisions.
What would the Circuit Court say?
I cannot say what a court would do in that matter. A court would obviously take account of the operational structure of the scheme. The number of licences is between 30 and 50. That depends on the marketplace.
There is no limit?
No.
That would have made a nonsense of it.
There is no limit, but it would not have made sense to have had licences in the first place if you were going to hand them out like confetti. That would then run the risk of their becoming an accountant's plaything, and we do not want that to happen. We want serious minded companies to comply with the three main conditions of marketing, organisation and structure - and by structure I also mean financial structure — so that the corporate entity would be sufficiently strong to undertake, as the Bill says, successful exporting. If they are serious, properly structured and properly financed we will be happy to give them a licence.
The renewability of the licence is something to which I gave much thought. In the end I decided not to build it into legislation for the main reason, first of all, that I wanted the legislation to work. I did not want to start out by frightening off people by talking about how a licence could be revoked. Deputy Keating or perhaps Deputy Bruton spoke of the difficulty of getting people to invest. I want people to invest in special trading houses. I did not want to frighten them by giving some indication that some frivolous reason the licence might be revoked.
Can you revoke it?
Under the legislation there is no facility to revoke the licence. We can revoke the legislation.
For eternity? That is clumsy.
If the Deputy is seriously suggesting that we should have something which says one can revoke a particular licence, what does one say to somebody? I want people to invest substantially in these. I am not sure that we should go into the market place seeking substantial investment, up front money, and then perhaps for political reasons——
Not as long as they play by the rules.
——perhaps a revocation of the licence. I felt that one would not attract serious investment if the revocation clause was in the Bill.
You have to have something.
We will be very cautious about this scheme particularly with regard to the number of licences. If there is any indication of people abusing the scheme it will be looked at and suitable amendments will be considered. This is only the start of building these companies. The application fee is a good idea and one which I will suggest to CTT. CTT already charge for documentation——
Can they charge if it is not provided for here?
CTT are already charging for certain documentation——
It should be self-financing.
——and they are already charging for reports. I will have to look into this from a legal point of view. I agree with the suggestion that there should be an application fee. I will certainly look at the notion of trying to get CTT to charge something which will cover their costs. In the context of legal advice, my understanding is that it would not have to be in this Bill for CTT to charge a cost to cover the processing of the application. If I get legal advice to the contrary, I will look at the Bill again at an appropriate time.
In relation to the Circuit Court, the Attorney General tells me that this is necessary in order that the Bill will not be challenged in the courts for failure to provide adequate redress to an applicant. I take the Deputy's point that adequate redress could be provided in another way. The Attorney General's office say we should have something here which will prevent the Bill being challenged because there is not adequate redress available to an applicant. Consideration was given to doing it within the system, that is making the original application through CTT, with an appeal to the Minister but the difficulty with that structure is that the Minister has responsibility for CTT and one is still playing in the same pool. An outside applicant would not feel comfortable sending an appeal to the Minister in charge of a State body having had that State body, on which the Minister originally relied for his decision, make a decision in the first instance.
Are there precedents for that?
I do not have precedents before me this evening for that. The Attorney General's advice is that there has to be adequate redress anywhere there is a licensing system or where an applicant might feel aggrieved. We ruled out an appeal to the Minister on the basis that it would be too much in house as it were. An appeal to the Circuit Court made more sense. Anybody can decide to go to court in any case under existing legislation. There is no question of preventing people from going to court. I hope the Circuit Court procedure will be speedy, but the main thing about it is that it is independent.
It may be more independent than you think.
That is the system we run, that the courts are independent. To leave an appeal procedure within the system between the Minister and CTT would be asking the people who turned it down to be the judges again. Our approach is sensible.
There is a slight contradiction in some of the approach to the Bill. On the one hand Deputies want to build in a lot of detail which covers every angle so that people cannot abuse the system and on the other hand when they find something that ties somebody down there is nervousness about it being there at all. Because the Bill is so short and because it does not have chapter and verse on all the questions raised, that might be a reason for having an outside body such as the Circuit Court involved in appeals. Anywhere there are licences there can be charges of a political content in the decisions. It is very important that Ministers of this Administration and of future Administrations are totally protected from those charges. An appeal to somebody outside the political system is probably far more sensible.
I suggested a couple of other things.
Deputy McCoy was offering.
Subsidiaries.
My understanding is that we award this to a corporate entity. The corporate entity has a definition in company legislation. If it has subsidiaries and choses to use the licence through its subsidiaries, we would have difficulty. The licence will belong to the corporate entity. If the corporate entity has offshoots those offshoots will have access to it.
They will be light years ahead of you.
The corporate entity or the holding company will be the owner of the licence. They might decide to set up a separate department or a separate subsidiary——
Or to liquidate.
——or to liquidate, but we should remember that here a profit motive is being put into a service company. If people make money in these companies they will not be liquidated. They will get the tax benefit. If they do not make money they will be liquidated anyway and there is nothing we can do about it. A profit motive has been built in here. I am interested in the prospect of subsidiaries. I will look closely at it. It is very much a legal matter because the definition of a subsidiary in accountancy and legal terms is quite complex.
My understanding is that we give the licence to a corporate entity and that that corporate entity is the owner of it. If they happen to have subsidiaries so be it.
I will bring in Deputy McCoy.
When the Minister speaks about serious investment in trading houses he is overstating the mark. The requirements for a trading house are purely and simply a telephone, a telex and the skill and the knowledge to sell. I do not see any serious investment in that and I do not see how it can be a criteria for giving such a licence. On section 2 (3) the Minister says he will require information in relation to applications to be furnished to him. Would the Minister require from such applicants that they specify to him which goods they are prepared to engage in for export? How would the Minister consider those who would be engaged in the export of food products in competition with a semi-State company like An Bord Bainne?
I do not accept that we should not look for serious investment in those companies.
The Minister will not get it. There is no need for it.
I am out looking for it but there is a need for it. Many Deputies have referred to the fact that we have put a lot of money into fixed assets down through the years. Virtually everybody in this House has talked about the need to invest in marketing. They talk about the fact that it could cost £10 million to launch a brand on the UK market and that it would cost millions to launch a brand on the German market. If somebody seriously wants to market Irish goods they will have to spend money to do it. It could cost upwards of £10 million. It is not a question of making a telephone call to place goods; it is a question of trying to launch brands and penetrate markets. Any of the big companies who have successfully penetrated markets abroad will tell you that it was a multimillion pound business. The section is worded as it is to try to attract people with substantial money behind them to a limited number of companies so that they can properly attack the marketplace.
Marketing is a very expensive business. It does not get capital allowances like machinery and the write-off which industrial investment gets. There is a school of thought which says that marketing expenditure is as important as industrial investment in the fixed assets sense and therefore, that kind of expenditure should also be kindly looked upon.
I know what the Deputy is thinking of and that is what I want to avoid. He is thinking of the person with the Financial Times and a cup of coffee who is selling over the telephone and making a profit on the State in between. That is the kind of back-alley operation I do not want to permit under this legislation. This is why I have deliberately suggested that we have these conditions and a licensing system so that we can license people who appear to be marketing seriously.
With regard to the Deputy's second question, obviously we will inquire what kind of goods they have in mind. I imagine that is part of the information we will be seeking. There will be no requirement that a special trading house confine their activities to particular products or markets. The scheme allows a fully commercial approach to be adopted. The special trading houses will be free to select the areas of activity which are best suited to their own expertise. I expect that commercial reality coupled with market knowledge and market skill will determine the products and markets that are chosen. It is likely that companies will grow in confidence as the months and years go on and I hope we all learn from their experience.
This Bill is incorrectly titled. The Minister is talking about a marketing company and not a trading company. The definition of a trading company is a company that trades in goods that are established in the market-place by way of brand name or whatever. The Minister is asking companies to set up, go out and do the market research and come back and have no involvement in manufacturing.
I understand what the Deputy is saying but I have to make myself very clear in relation to this. I am particularly looking for people who will have some investment in these companies and who will go out and find the market-place. I do not want the kind of person who as you quite rightly described will just get on a telephone and make a sale for a product that is already well known. I do not envisage someone sitting down and ringing America and asking someone there if he would like to buy Kerrygold or Waterford Glass. I envisage people finding products among Irish manufacturers and then trying to penetrate markets with those products. It is all about marketing.
With respect to the Minister, there is no way one will sell products abroad that are not well known. He admitted that it could cost £20 million or £30 million to break into markets. One cannot break into other markets with Irish products which have no international image and no brand and which cannot be sold here. That cannot be done.
I agree.
I am glad the Minister agrees.
We are not that far apart in relation to this. The purpose of trading houses is to go and find the markets. The Deputy is suggesting that a trading house cannot sell a product unless it is branded and already well known in the market-place. If that was the case trading houses would not be needed because the manufacturing companies could sell goods that are already well known. I want these trading houses to make goods well known and take goods which are hardly known at all now and go out and sell them.
How does the Minister suggest that that can be done?
A properly run trading company with good money behind them, a good marketing plan, a good structure, a good organisation and a licence will be able to go out and penetrate the markets professionally. All they have to do is to market the products and I see no reason why trading houses cannot do that.
You may do that with commodities but there is no way you can go into international markets which are totally tied up in countries with branded and shelved goods and hope to introduce into chains of supermarkets Irish goods from which shopkeepers know they will not get an immediate shelf return. This is absolute poppycock and it will not work.
Is the Deputy saying that we cannot export Irish goods abroad?
I am not saying that at all, but that you cannot do it in trading houses where any input from the manufacturer is precluded.
It is quite the contrary, Deputy. The trading houses are a market-led organisation who will come back to the manufacturers and buy from them. No trading house is going to buy from a manufacturer who does not have a good product. The manufacturer will be involved totally because he will not be able to sell his product either directly or through a trading house unless it is good.
With respect, the Minister said a while ago that they could not have any involvement.
As the debate developed it has emerged that very little thought has gone into this legislation, that it is little more than an election slogan that has been cobbled together into legislation. While I would not be as emotive as Deputy McCoy, this will at best only displace existing export marketing activities and would be much better operated on a commission basis using the manufacturers' goods, their logos getting a 5 per cent cut and using the skills of the manufacturers. Nobody is going to buy the goods and resell them. Nobody is going to take those risks and succeed.
The Minister in response to my questions told me that someone who is given a licence to operate one of these trading houses can have it forever and that there are no legal facilities to withdraw the licences. This is incredible. He said the reason for this is that it might scare off investment. Surely we have many schemes, such as the business expansion scheme, which operate on the basis that it is critical that you must not scare off investment. There was a debate as to whether the licences should be for three years or five years and whether the equity should be locked into small recipient companies. If there is no time limit on these licences there will be no control over any company who might trade fraudulently and who might be in breach of several different regulations, who might be behind in their tax affairs, who might sell goods under different labels of origin than they should, and who might get up to all sorts of nefarious practices. There is no control in this legislation to combat this.
The Minister puts his hands in the air and asks us to accept a Bill with two sections in which there is no control whatsoever. I would not mind if there was some facility for penalties or to check people but this is a blank cheque. It is a carte blanche. Once people have a licence they can turn around and do as they please without fear of what the Department might do because neither the Department nor CTT, as admitted by the Minister and as evident by what is in this Bill have powers to deal with any problems that might arise. The Minister confessed that this is quite appalling. I ask him to withdraw this Bill or to come back on Report Stage with a provision that any licence would operate only for a period of three, four or five years. I am not saying any less than three years because I do not want to scare off investors. If the Minister feels that five years is fair, so be it.
The Minister should also include in the Bill a provision that if, in the view of the Minister who granted the licence, again by way of a ministerial order to which I will refer in a moment, the company have breached certain regulations, that that licence could be taken from them forthwith. That stick should be held over trading houses so that there would be some format and code of conduct under which they would operate. The Minister does not know who is going to get these licences or who is going to end up running the trading houses.
As the applications come in we will assess them.
It is easy to say that but when this legislation is passed and the Minister has no control over the checks or balances in the operations of trading houses it will be too late. Once a licence has been issued that is it.
I want to refer to the main substance of a Bill that is rapidly falling apart. Section 2 (5) of the Bill deals with the basis on which a licence should be granted. It states: "... the structure, organisation and marketing ability to undertake successfully the sale of export goods". What does that mean? I could bring this section to experts in CTT, experts in the UK or private expert consultants in Ireland and they would all have a different interpretation of it. If, for instance, Deputy Higgins goes in and applies for a licence and is refused one on that criteria, he can produce experts in the Circuit Court——
What is wrong with that?
It is so loose it is unbelievable. It would be better if CTT or the Minister had some semblance of control over what it is sought to do here.
It will be fully controlled.
Guidelines should be laid down by ministerial order which are changeable fairly rapidly and flexible at the Minister's wish and which can give him more time to consider applications. What is emerging from this debate is that more research will have to go into this. From a phone call I had from CTT——
The country has not got that kind of time.
There is an old saying — less haste and more speed. One particular gentleman in CTT was able to inform me today that they have had little or no consultation as regards their input, who gets a licence and who does not. That has not been finally established as far we are concerned.
We are working with CTT.
I am not disputing that, the Minister is paying them. I conclude on three points. It is impossible to ask the House at this hour of the night in a three hour debate to approve a Bill giving tax concessions and major licences for these special trading houses without any powers to revoking them whatsoever no matter what they do or whether they break any law. If they get a licence it is for eternity. There is no time check every three years or five years. Because the Bill was circulated only in the past few days and because it is being rushed through before the summer recess, I specifically ask the Minister to look for more detailed criteria for issuing and withdrawing licences by way of ministerial order.
There are a couple of points——
I should like to get rid of those few points quickly. I should like to be clear about this because, from the tone of the Deputy's comments, it is important I do not mislead him in any way. On the question of revoking licences, under existing legislation they cannot be revoked. The Deputy is correct about that. The Revenue Commissioners grant the tax concessions, as they do to all companies and all individuals, on an annual basis. If the Revenue Commissioners decide in a particular year not to give the tax concession because they are unhappy about the definition of manufacturing in that year——
Or because their tax affairs are out of date?
Exactly, or something like that. If the Revenue Commissioners decided not to give the relief then they would not give the relief; for example, if the nature of the trade changed then the tax relief would obviously be withdrawn and without the tax relief the licence is meaningless. I am satisfied that there is a system here which will prevent tax abuse and that that is built into the ordinary revenue system. While the licences will not be revoked, the tax concession may be withdrawn by the Revenue if they are not satisfied on an annual basis. Regarding CTT, I should like to put on the record that CTT fully support this scheme and have been advised of their role regarding it. I discussed it with the chief executive on a number of occasions. There is no question of CTT not being enthusiastic about this scheme. I have every confidence in them that they will carry it through. In talking earlier about subsidiary companies, I should like to make it clear that any limited company can get a licence whether it is a subsidiary or a holding company.
But it is the corporate entity.
The corporate entity will get the licence. If they have other subsidiaries, then obviously the spotlight will be on the holder of the licence.
That is not defined in the Bill.
I may have given the impression that only a holding company gets the licence. A company can apply for a licence. The word "company" is there. A company in the ordinary meaning of the word will get the licence.
At the outset, I should like to say we have some reservations about this Bill. There might be people who would be interested in knowing that we have no intention of calling a vote. I put that on the record as it might allow certain people who have a slight trepidation about it to pursue other activities.
I hope the Deputy's nerve is always as healthy.
I will let silence be my charity in the circumstances. If I were the Deputy I would be inclined to ask that that be struck from the record lest it be hung around his neck.
I agree with Deputy Yates that it is unfortunate we are taking all Stages tonight because as the Minister has rightly said there are a number of points to be considered. We talked about definitions earlier and some amendment which I had put down which he would have liked to consider even through the form of words might not have been exact. We have been saying for the past few weeks that it is not ideal to take all stages of a Bill in one lump. It was Deputy Yates and the Minister who agreed the Order of Business. We did not agree it.
In future I would think it would be a healthier procedure to take Second Stage, Committee Stage and Report Stage separately so that points made on Committee Stage can be given reasonable consideration. In due course the Minister can come in here and say, "I have thought about it" and the answer is "no" or the answer is "yes". It is not acceptable that an amendment is rejected, not because it does not commend itself in essence to the Minister but because there is raised somewhere a question mark about the precise form of words in the amendment. I am not a draftsman but one does the best one can. In my view the time between Committee and Report Stage is for the purpose of putting proper words on the amendment. That is not being facilitated not by us but by a ludicrous approach to the ordering of Business. This is another example I intend to quote tomorrow morning when I get an opportunity.
I gather that I should refer to the amendments on section 2 in total. I will not be unduly tardy about this. I do not accept that the Minister's reply to the amendment to subsection (4), about which I had some reservations, was appropriate. I still believe there is a problem for people who are genuinely bona fide but who may for one reason or another be asked to go through too many hoops for whatever purpose. I appeal to the Minister to consider it. Subsection (5) states:
The Minister shall not grant a licence in respect of a Special Trading House unless he is satisfied that the applicant for the licence has the structure, organisation and marketing ability to undertake successfully the sale of export goods.
If I were an applicant I would ask what is meant by a structure, an organisation and marketing ability necessary to undertake the sale of the goods. I would ring the Department and ask if they had a blueprint or a set of criteria which could guide me. Perhaps such exists at present but we should be more explicit. I concur with the Minister in what he is trying to do which is to create a successful Bill as fast as possible. If the definitions of structure, organisation and marketing ability are not just woolly but do not exist, then I certainly would not risk putting my money on an investment application which had no frame of reference against which to make a judgment. I am suggesting that the Minister accept the amendment which is to add the following words:
and the Minister shall provide, to any applicant who so requests, a clear statement of the criteria in accordance with which the structure, organisation and marketing ability shall be judged.
That need not be part of the legal data associated with the Bill. It could simply be a general guideline as to the kind of ballpark profile we are talking about. For example, the Minister said the word "structure" would include a reference to financial standing or status. That seems to be reasonable. My understanding of the word "structure" would have much more to do with the organisational chart of the company and how it was structured and not to do with the financial capacity of the company. This would probably be more appropriate in relation to subsection (3) where he talked about other types of information. I accept that "structure" could include a reference to a bank, to a financial profile of the company, but it is a word which is nowhere defined in the Bill. Organisation might very well refer to the layout of the company, its organisation chart, its business plan or to whatever proposals it had. Marketing ability is a totally judgmental concept. I can only assume that it would be based on experience or on a presentation accompanying the application to the Minister. Anyone who decides to make a judgment on marketing ability, unless it is based on an application sent in by somebody with a proven track record in the area, is making a very questionable, nebulous area of judgment.
Marketing ability is totally judgmental and totally nebulous. I would be concerned about that unless it is somehow defined. I am not asking that it be defined in the Bill. I simply ask that an applicant has a right to say "I want to know what the State is requiring of me". That is not unreasonable. Fundamentally, what we in this party are trying to do is to roll back much of the nonsensical regulation that is clouded in woolly language and lost in the dim and distant past and which can bind and circumscribe people who want to get on with the business of living and of developing their potential. Here is another fabulous, in the literal sense of the word, set of concepts against which no citizen can have a right of appeal, except to a court and the court can have no right of appeal except to law, and the law is as set out here. Those three words are too loose and at the very least a background paper or statement against which somebody can make a requisite judgment. If we had more time, which we do not have or if the Order of Business was different, we would be proposing precise definitions of all the key terms which should be part of any reasonable Bill. I am not asking for that. I ask that we get a statement. That is not an unreasonable request and I hope the Minister will accede to it.
If the Minister is agreeable I want a brief amendment to subsection (7) at line 1. Essentially the section proposes that whenever the Minister refuses to grant a licence in respect of a special trading house the applicant for the licence may, within 21 days after the service of the notice appeal. I wonder where this period of 21 days came from. I began to think what would happen if a group of people got together and formulated an application. In practice people work to a fairly business-like system but 21 days seems to be unreasonably short to have to consider the rejection of the application, perhaps receive professional advice on it, hold one or more corporate or board meetings and frame an appeal. I do not see why the period should not be extended to twice that length of time, which is approximately six weeks and which is not unreasonable or illogical. I ask that people be given a reasonable time, bearing in mind that the whole purpose of the appeal will be to submit a considered response to the detailed reasons for the rejection of the application. That will require some time. It will also require time for an entrepreneur or potential entrepreneur to decide whether to risk the costs involved in a court appeal. The provision of 21 days seems a bit inflexible.
I would like the Minister to take on board these three amendments which would make the Bill more intelligible to the applicant, more sensitive and constructively inclined towards the achievement of the Minister's objectives and more in accord with the spirit of what the Bill in total is trying to achieve. I would be grateful if the Minister would comment on thses points.
I, like Deputy Keating, would like to make a number of suggestions in relation to procedures and practices. I am not opposing any section of this Bill on behalf of my party. We are making suggestions on procedures and practices in the absence of making any legislative exclusions. As Deputy Keating pointed out, we are doing this because of the preclusion, with the connivance of the principal Opposition party who have abandoned their oppositional role, of the Progressive Democrats and the Labour Party from participating as they might like to with regard to the legislative process. I find I have to exercise my patience and charity when I hear lectures on the length of time we should take or on the limited dissertations we are allowed on legislation like this.
Only in response to your lectures to me.
I am interested in the reference to licence in the context of the position of people who make application for a licence for closely related products. In the determination of the application what degree of exclusivity will apply in relation to range? I have sympathy for what the Minister is trying to do here but the rather porous nature of it is reflected by his telling the House that he is trying to encourage those who have identified products which might be sold abroad — this is the question of the development of markets for products that are manufactured in Ireland — and at the same time, telling us that he is working back from the market-place. He will understand when I say that I have some sympathy for him because on the one hand we are trying to sell products that are manufactured here and on the other hand we are trying to identify products that are needed on the market place. Of course there are perils involved on both sides because there is no incentive to purchase products for which there is no identified market niche and, conversely, if you have market niche identification and you have no product supply line, there is that gap in the middle. The missing link, and it is not the Minister's function to agree to satisfy us totally on this this evening, is the absence of an export policy. If you had identified niches you would be able to relate your productive strategy towards that and you would be able to draw these two ends of the thing together. It would facilitate the Minister very much more. I suggest it would enable you to have a clearer policy with regard to issuing licences because if you get a licence into your Department from the market-place you are not only in danger of having to make a decision as between that application and subsequent ones which might be better, perhaps better in the exploitation of that particular market niche, but you are also more open because it will require a great deal of procedures in your Department to identify and address the question of the large multinational. For example, if the multinational with an enormous marketing budget has located products in some of its subsidiaries and has a product which has reached a particular point of research and development but has not established a market-place, they could make an application to the Minister for the 10 per cent corporation tax incentive. The Irish taxpayers would effectively bear the burden of a number of quite nebulous products. We may be an adjunct to the marketing budget of some of these companies unless this question of subsidiaries, even traced down to commodities, is handled. It is a real danger. I am not saying that it should place impediments in your way, I emphasise the point to be of assistance as you may find you are being taken to the races.
The question in relation to the revision of company law cannot be solved this evening, yet the Minister says he will issue the licence to the person who is over the company so far as that can be identified, to an individual. He has inherited all the defects in relation to the problems of doing that in the existing structure of company law. The greatest abuses that have taken place have been in relation to liquidation and distinguishing personal liability from corporate liability. That is lurking in the background.
In regard to transfer pricing, I am glad the Minister is sensitive to that because we are wide open to abuse on it in relation to commodities. We will not go over the old territory of the question of definition, but what is the position of people who purchase commodities for trading on? Deputy Yates is upset about the necessity of my moving into commerce, but if I like to use parliamentary language——
It was selling soap last night. If an individual establishes a company and purchases commodities which will be sold, that is trading. It is a further adjunct to the general problem about transfer pricing.
I do not agree with the Minister on the question of licensing and revocation. One position of caution in relation to licences is the Intoxicating Liquor Acts. They are very interesting as an extreme example. The circumstances in which a person could lose the licence for a public house are extraordinary. There are several layers in this. Having lost your licence you would try to transfer it in advance and so forth. However, that licensing system was there as a very far out sanction. You could examine different legislation and discover different degrees of sanction. Let me give one that was offered in prospective legislation in relation to revoking a broadcasting licence when the criteria had not been met. That was very difficult because when you had people on the air how did you get them off? They would have established their listenership so they would put enormous pressure on you and so on. I will not be provoked into saying that people would ignore that one. However, there are precedents, prospective and historic, in relation to the use of revocation procedures.
I worry about a point raised by Deputy Keating in relation to the absence of revocation procedures. The licence having been granted, it follows from my point about a number of licences not being granted in areas that are identifiably similar, that you will have not only an exclusive and irrevocable asset that you can state as an asset, but you will have a strong possibility of the subsidiary selling to another subsidiary using the licence that had been granted as a stated asset. The asset could in turn be used on the basis of share capital and investment. You could find people investing on a very shaky foundation in relation to the circumstances in which the licence had been issued. My interest in the stock market goes beyond that. I can see possibilities there. I suggest that the Minister assure the House that not only will there be an explanatory memorandum available to people who want to apply, but that these are issues which are being adverted to. I wish we could do this more tightly in legislative terms.
I support the Minister's point about an appeal to the Circuit Court but this is somewhat symbolic because the Bill in section 2(3) and in several other sections specifies the ability of his Department to keep requesting further information so you could wear down the applicants. I am sure it is in there and let the Minister use it against all the pirates I have described. However, before you get to the Circuit Court at all you would appear to have satisfied every request for such information as the Department asked. If you lift that log you then have 21 days to resurrect yourself to go to the Circuit Court, and may you make it through that. Perhaps those sections are there for areas of caution but they stand further back than the Circuit Court procedure.
Section 2 (5) is specific. I worry about language and it is the balance of terms that I am interested in because I do not want to repeat Deputy Keating's point in relation to what is meant by marketing ability. I am worried about the balance between the three requirements, the structure, the organisation and the marketing ability. I can conceive of many people who have a contribution to make in relation to marketing ideas but who have not the structure. The question of the financial structure has been mentioned by the Minister, and this would be one of the definitions of the structure. I worry that such a person would be precluded in a sense unless he can find somebody who can meet that criterion.
Then we move to the question of organisation and people starting up for the first time and their ability in relation to people who are trying out one product after another. The trading organisations work in the commercial world by making a number of market probes with products. One of the most difficult commercial decisions is the decision to pull back. A great example of that is the product developed in a company like Guinness who made a number of attempts to launch products on the market and pulled back on some of them while others were markedly successful, one of them in almost every US market at present. When the Minister talks about 30 or 50 that he envisages does he mean that really very few of those will be essentially new people in any of the three criteria? How would you balance them? Is this not saying that one would have to think of putting together such a corporate entity? We keep coming back to the abuses and how open we are to abuses by very large international trading companies. What is to stop them saying, "You in a month of Sundays would not qualify for a licence; we would, but if you give us your access to the market and if you put the personnel who are now assisting you in with our application we will put the package together and take the tax spread"? So many companies in Ireland are much better at looking at the speculative advantages that they are about producing, trading, selling or paying their taxes, minimal as they are.
These are specific questions in relation to the groundwork of the legislation. That is all I have to say on section 2 and I have put it all together to assist the Minister.
I thank the three Deputies for their contributions. I have some sympathy with a great deal in what they said in a number of areas. My only regret is that we do not very often seem to find the time between all of us to give everything the attention it deserves.
Let me deal with the points as best as I can in those confines. Deputy Keating rightly asked about the amendments, particularly the three amendments in his name. In regard to the third one about the 21 days and 42 days, I have no hangup about the number of days and would be reasonably well disposed, if he is agreeable, to make it 28 days. If we can agree on that I can do it straight away because it will not present me with a difficulty at Attorney General level or necessitate holding over the Bill until the autumn. That is my petrification, as it were, about agreeing to other words. While I have sympathy with some of the words, in order to keep the export policy that I am pursuing going, I need this legislation for the summer so that I can get these companies up and running, financed and into the marketplace by the time the Dáil comes back. Probably that is ambitious but I prefer not to wait until autumn to do that. If the Deputy is happy with 28 days I am prepared to put an amendment in my name to the Chair that in subsection (7), line 1, we delete "21 days" and substitute "28 days". Is that procedurally in order?
It is an improvement and I have no desire to cause any difficulty on it. Is the reason the Minister does not want to accept the 42 days that it might cause some problems with the Attorney General? Is that correct?
No. I can accept that 21 days may be a bit short. A month seems to be more reasonable.
Board meetings are often held once a month.
We felt a month was right and after that we would get into unnecessary delays.
I do not see what the problem is about——
A problem arises when we discuss three amendments together. We are not discussing amendment No. 3. Strictly speaking, I should dispose of amendments Nos. 1 and 2 before I move to amendment No. 3. Will we take it that amendments Nos. 1 and 2 are not being pressed?
I would like the Minister to comment on them. You can take it, as I indicated earlier, that I am not pressing the amendments beyond the point of vehement argument.
The Deputy can return to the subject matter when discussing the section. You said you are not pressing the amendment.
That is correct.
I move amendment No. 3:
In page 3, subsection (7), line 1, to delete "21 days" and substitute "42 days".
I move amendment No. 1 to amendment No. 3.
In page 3, subsection (7), line 1, to delete "21 days" and substitute "28 days".
I am happy to accept what the Minister says.
In amendment No. 2 put down by Deputy Keating he spoke about the question of marketing ability and the need to explain to people in advance what type of criteria will be used. I have the draft of an explanatory leaflet which we will give to anybody who inquires about trading houses. It lays out in full the criteria which we will be using. It asks, for example, for memo and articles of association, financial structure, management expertise, marketing expertise, proposals for product identification, marketing plan, projected main markets and projections for the first two or three years of business. They are some of the items which we will be looking for.
The explanatory memorandum covers the structure, the type of companies that will qualify, the licensing procedures, the definitions, the capitalisation, business and marketing plan, qualifications and expertise. It also gives details needed to process the application. I am satisfied it is not necessary to encapsulate in legislation the fact that this document will be given in advance to anybody who applies for information so that they will have plenty of time to prepare their applications and they will be under no illusion as to the quality and quantity of information which we need to facilitate the processing of the application.
Is the Minister saying that de facto there will be available a document which basically deals with definitions of those three areas——
Absolutely.
——and that it will be available to any applicant?
Yes.
In that case I do not think it is necessary to amend the section. The one thing about including it in legislation is that it will be fixed to some extent. I could see the situation arising where the practice of reprinting or updating it could fall by the wayside. It is a little more arbitrary than I would wish but at least if it is in existence and is part of the package I will not oppose it. The people will have a chance to know by what standards their organisational structure and marketing abilities are being judged.
I appreciate the Deputy's approach. I wish to repeat that this explanatory document will be made available to any person or company who inquires about it and they will be fully aware of the criteria which will be used in assessing their application.
Deputy Yates asked me two questions which I omitted to deal with. He was concerned in particular about the question of displacement which was the main point in his Second Stage speech. I gave much thought to this question and it concerned me at the start of my examination of this proposal. I am happy it will not happen because the 10 per cent tax relief applies at present to manufacturing companies. Assuming they have good markets, are selling their products abroad, are getting the 10 per cent tax relief and they are receiving money from the business expansion scheme, there is no incentive for them to deal through a trading house. They would have to pay the trading house, because obviously they must make a profit, and also have to apply for a licence. To have to go to all that trouble for no financial gain would seem to make no sense. The block of exports of a manufacturing company will not be interfered with by a trading house because the manufacturing company is already getting the benefit and there is no incentive to go to a trading house. Therefore, a trading house would be unlikely to displace it.
If by displacing one means that a trading house cuts in on a market and directs the exports to a different manufacturer, one can take two views: it is either displacement or competition. To that extent one could say there is displacement with every company that receives IDA grant aids. I am not talking about a marketplace that is fixed, where manufacturers get X per cent and trading houses get X per cent; I am talking about a market that is growing. There are new and exciting markets and they can be tapped by trading houses. I am reasonably happy that there will not be any displacement.
In considering the applications, one area which we will consider very carefully is the question of displacement in so far as we can judge it. We are in favour of new exports and incremental exports. Assuming the marketing plan, which is assessed by CTT and recommended by them, applies to new areas and does not muscle in on existing manufacturers, then a licence will be given in the ordinary way. The position cannot be black and white. You cannot guarantee that a particular product that is being sold by a manufacturer will not be sold by a trading house next year but to worry unduly about that is to question the whole nature of competition. There is no incentive for a manufacturing company to deal with a trading house. If it already has its markets and is doing a good job it will hang on to those markets. A trading house will have to go elsewhere and find new products and new markets.
Deputy Yates wondered why we could not just have agencies that would sell on commission. I thought about that but I wanted to set up a separate risk unit with different people taking responsibility. The trouble with selling on commission is that the manufacturer still takes the risk of finding new markets. An agent can find new markets and feed them back to the manufacturer but the buck stops with the manufacturing company and the goods still belong to them. There would be no risk in any real sense taken by the agent. If he did not sell he did not get his commission and did not worry about it. The risk of producing is still taken by the manufacturer and that is why I rejected the notion of selling on commission and decided on trading houses. In that way the trading house must buy the product from the manufacturer and he will be happy because he has got a sale. Whether the trading house then makes a sale onwards is entirely a matter for it. It sets up a new risk area; the profit motive is there and anybody owning and running a trading house would be very determined to make some profit from it.
Frankly, I do not think the commission rules would work in that the risk would remain with the manufacturer. I want to take some of the risk from manufacturers so that they can sell in the future to a trading house and do what they are best at. By definition, manufacturers are production led people. There is an argument which says that if they are not very comfortable with foreign marketing in particular we should not force them into that area. There is a view, which I have a lot of sympathy for which says that foreign marketing should be undertaken by specialists in trading houses and let the manufacturer continue with the manufacturing and sell to the trading house. I am not sold on that completely but it is a structure they might develop. It is better than leaving the risk with the manufacturer which would be the case in the commission on sales. I was worried about those points but having looked at them carefully I can see they would not achieve what I want to achieve. I will reply to the points raised by Deputy Higgins when he is in the Chamber, if I get an opportunity.
In his amendment Deputy Keating asks that information be made available to the applicant and the Minister has said that this information is available in the form of an explanatory memorandum. He outlined its terms and from what he said I am satisfied that the content is what it would be. However, will the Minister tell the House the legal status of that document? If an applicant who is refused a licence and who brings an expert consultant in the export field to court to say that as far as he is concerned the applicant has an adequate structure in his marketing outlet, adequate organisation and ability will he get a licence under appeal? I asked that question on three occasions but the Minister has not answered it.
What legal status is there for detailed regulations? For example, new concessions were given in the Finance Bill last week to the tourist industry in that they were made eligible under the business expansion scheme but there was a specific provision to the effect that this was a three-year development plan approved by Bord Fáilte. Why is it that the Minister of State cannot say, as was detailed in the Finance Bill, that a format outlined to the satisfaction of CTT must be made available as a criteria for the licence? If an appeal goes to the Circuit Court the legislation will not stand up to any type of scrutiny. The Minister's officials can produce an explanatory memorandum outlining what is reasonable to satisfy the criteria of section 2 (5) of the Bill but the judge may take a totally different interpretation because the memoranda are so open-ended and are not accompanied by any guidelines.
I would have thought it would have been proper to amend subsection (5) by adding something to the effect, to the satisfaction of guidelines to be published by CTT or the Department or regulations made by order of the Minister. That is the format used by other Departments when introducing incentive-based systems. I understand why the Minister is using the Circuit Court appeal system and I support him in that.
The Minister made a brief reply to points about displacement and commission. Time will tell who is right in regard to them. Will the Minister outline the legal provisions in the Bill to stop anybody operating under the guise of a trading house from approaching a supplier and saying: "I will buy your goods as a trading house to re-export them. I cannot afford the cost of the working capital to buy this stock and I will have to have a credit period of 100 days on the assumption that I, the trading house, will have resold those goods within that 100 day period"? That is de facto a commission basis. What provisions are there in the legislation to preclude manufacturers and trading houses from entering into contracts of sale for resale that would give them credit terms which will in effect be phoney and will put trading houses on the status of operating on a commission basis?
The difficulty with the Minister's trading house proposal is not that there will be manufacturers queueing up to utilise the services of them. Of course there will. Anybody in the manufacturing business wishing to export will be only too delighted to get some whiz-kid of a trading house to take his products off his hands without the worry of whether they sell on the export market. The problem will be, given the failure of a national trading corporation in the past that the trading houses will function properly and make a profit. In telling us the legal status of the explanatory memorandum the Minister should explain why it does not conform to the practice in legislation passed last week? Why do we not have the format laid down in the Finance Bill? What restrictions are there concerning the terms that trading house and manufacturer may enter into as regards credit periods?
Taking the example given by the Deputy, the best way to illustrate the position, in my view it would not fit the definition because the Finance Act, 1980, referred to in the legislation, deals with the selling of goods. Goods would have to be sold by the manufacturer to the trading house before they would comply with the legislation.
They can be sold on credit terms.
Credit terms are a commercial arrangement but the title to the goods would have to pass before there is a commercial transaction. That is why I did not want to go for the commission basis. That separation means that we set up a separate risk unit so that a manufacturer can relax having sold the goods and get on with the business of producing more goods.
It could be a paper transfer. The Minister has not answered my question.
The Finance Act, 1980, states that a sale has to take place. A trading house cannot take goods on a commission basis. It has to buy the goods. If we are back to definitions of what is and is not a sale, we are in for a long debate.
We have been through all the definitions tonight. I do not wish to return to them but they all relate to the 1980 Act and the Finance Bill, 1987. They deal with goods that are bought by the trading house and resold on the export market. Yes, I can get a piece of paper as a trading house and say I bought the goods from the manufacturer but I can have a credit term of 100 days to pay.
In that event, the trading house is owed money.
No, the goods revert back.
They do not unless there is a retention of title clause in the contract which means that the title does not pass and it is not a genuine trading transaction.
It would be normal in any contract of sale.
In that event it is not a sale.
Are credit terms prohibited for the purchases by trading houses from manufacturers?
Of course not.
That answers my question.
It does not. You cannot set up a trading house and say everybody has to pay cash. Commerce does not work like that. It works on credit. The situation is that a sale must take place. How a sale is paid for is an entirely different discussion and does not in any way interfere with the trading house structure I am trying to establish. When the sale takes place title passes and the trading house can operate in the ordinary way.
The Deputy asked me about the legal basis for this document. There is no specific section in this Bill which refers to this document. The Deputy is quite right about that. What I am saying for the record of the House is that this explanatory document is available. I will put it in the Library of the House thereby ensuring it is fully available for inspection. It will be in the Library as soon as it is finally tidied up. It would be a reasonable view to take of the Bill that before you ask for information common courtesy dictates that you indicate roughly those areas in which you expect people to give you that information. You cannot just ask for information without saying what information you are asking for. By definition we have to ask them for specific information because that is in the Bill. We will ask them for information. That will be expanded to explain what we mean by the information we are seeking. I am happy that that is covered. You cannot say in legislation that you must get information from somebody without listing the information you need. What I accept is not in the Bill is that further explanation of that information and that is being made available by memo.
Deputy Higgins raised a number of points on the Second Stage last night and I have not had an opportunity of responding to him. I had a lot of sympathy with his comments in regard to the banking system in that if they are going to help us with the export drive we are trying to get going they are going to have to take a lot more risk. I said that publicly many times. Deputy Higgins asked how do we stop an application getting into a market that is already flooded by other companies. The only way we can do that is by competition. I am not trying to take competition out of the marketplace. These are private sector companies who want to make a profit and we are giving them a tax incentive to go and make that profit so, by definition, they have to compete with each other. I cannot take that competition away from them but there is a clause in the Bill which says that we will have to be happy that they are likely to trade successfully. If an application came in and there was already a trading house operating very successfully in the particular product area concerned, we would be likely to take the view that the second application to trade in exactly the same area at exactly the same time might not be successful.
You could probably take that view and, therefore, because it is not likely to be successful you could decline it or indicate to the applicants that there might be a better area in which they should concentrate their attack. I cannot take the competitive element out of it but we will be trying to steer the companies into being parallel both in products and in markets because we will have access to all the applications. In fairness the IDA and CTT already do that. The IDA seek to steer people into parallel areas, they seek to prevent or slow down on grant assistance where there is over capacity in a particular area. We will try to do all that. We will make every effort to get parallel companies.
Deputy Higgins was also concerned about the company law aspect. The Bill mentions the Finance Act. The Finance Act says a trading house is a company which .... So it is a company. It is a company under the meaning of the 1963 Act and now the 1987 Companies (No. 2) Bill. These trading companies will come under the new 1987 Companies (No. 2) Bill which makes a substantial step forward in the tightening up of company legislation. I am hoping they will be strongly policed in that regard. The Revenue Commissioners will be keeping a very close eye on these companies anyway from a tax point of view because they will have to assess their taxation on an annual basis.
Deputy Higgins talked about subsidiaries, as did Deputy Yates. I am concerned about that. It is coming out of this debate that there is a subsidiary situation. We will have a very close look at that situation to see whether we can do anything to prevent people trying to abuse the subsidiary structure. We will take it company by company and try to prevent abuse by passing it down the line. Transfer pricing is something to which one is always open but again we will be looking for genuine trading houses making genuine purchases and genuine sales. If there is any indication that there is any other kind of abuse going on I will have no problem amending the legislation or bringing to the notice of the Revenue Commissioners what is going on.
Deputy Higgins and Deputy Yates were concerned about the problem of revocation. The tax relief situation means that the Revenue Commissioners will be operating with this respect on an annual basis. Without the tax relief the licence means nothing so in a way there is a form of revocation although not the type that Deputy Higgins would perhaps wish. I deliberately did not put it in because I did not want this thing to be stillborn and I honestly felt the business expansion scheme was stillborn. It was covered in red tape and regulations and bureaucracy and systems and structures and at the end of the day most people just did not bother with it. It has to be amended before it took off in any real way. I did not want people to read all these heavy regulations, throw their hands in the air and say: "that is one thing we are not getting into because by the time we satisfy everybody we will have no trading house". I did not put in that revocation clause because I did not want to start off in a negative way but I am happy that we can police these companies without that particular clause.
We have dealt, satisfactorily I think, with my second proposed amendment. I accept what the Minister says in the spirit of section 2, amendment 3. I would like to come back to the question of revocation and the whole area of the licence and so on. I have a fundamental problem and I think the Minister will accept the integrity of the point. It seems to me to be both unrealistic and unprecedented to give with no end date a licence which is an asset the company has, saleable on the open market, and the only alleged revocation clause is that the tax relief by the Revenue Commissioners might be withdrawn or withheld. I do not think the latter would hold up because, if people have a licence, they have a licence and they could very well go to the courts on the basis that they are being discriminated against in some fashion. There would have to be some basis for withholding the tax relief as a way of revoking. There would have to be a purpose or a reason why the Revenue Commissioners would do that and those reasons are not set out anywhere. It seems to me that where a licence exists, the licence is in place as long as the recipient conforms to some set standards of performance. The trouble is that that is not said anywhere here and it seems to me that once a person has a licence they effectively have the right to throw out the window all those criteria which actually got them the licence. All the material the Minister will be asking for painstakingly they can, the day after, tear up. They have the licence and I do not think there is anything the Minister can do about taking it back from them. If the Revenue Commissioners decide to challenge that and say they will not give the tax relief they might very well be able to take the Minister to court. It is fundamentally wrong to have a situation where a person has a licence and has it for ever at virtually no charge and does not even have to conform or be seen to conform to the basic requirements for which this whole Act was set up. That is a fundamental problem with this section and I think it should be addressed before we close. I am not asking for a long reply on section 2. I am simply saying that that is a problem which should be dealt with.
I understand the Deputy sees this as a problem but I would like to review this legislation after a couple of months when we can see how it is running. I am very anxious to see how this is working because if it is working properly and there is no abuse I can identify we will be happy, but if there is abuse there will be no difficulty in bringing in an amendment to the legislation and we could step on particular companies very quickly——
What is abuse?
——if we find companies which are not behaving themselves in terms of carrying the licence in the spirit we intended. As I said earlier, the Revenue Commissioners have an annual bite at the tax relief——
It does not hang together.
The Revenue Commissioners can withdraw the tax relief, and without the tax relief, the licence means nothing.
They must have a reason as well——
As it is now 12 midnight I am required to put the following question in accordance with the resolution of the House of 23 June: "That the Bill is hereby agreed to in Committee, is reported to the House with amendment, and Fourth Stage is hereby completed, and the Bill is hereby passed."