Dáil Éireann debate -
Thursday, 1 Nov 1990

Vol. 402 No. 4

Ceisteanna — Questions. Oral Answers. - Section 84 Loans.

Pat Rabbitte

Question:

6 Mr. Rabbitte asked the Minister for Finance the procedures which are in place in his Department or the Office of the Revenue Commissioners to ensure that money borrowed under favourable section 84 tax terms is used for the purpose for which it was approved; if his attention has been drawn to claims made that money borrowed by a company (details supplied) for development of the beef industry in Ireland was actually used to finance the purchase of shares in British companies; if these allegations have been investigated; and if he will make a statement on the matter.

Mr. A. Reynolds

The responsibility for the administration of the tax system is a matter for the Revenue Commissioners. For reasons of confidentiality the Revenue Commissioners are precluded from commenting on the tax position of a particular company.

To qualify for tax treatment under section 84 of the Corporation Tax Act, 1976, a borrower must be carrying on a specified trade and the loan must be used wholly and exclusively for the purposes of that trade. Under the self-assessment system both the borrower and the bank would be required to make a return of profit computed in accordance with the tax legislation. In deciding how to treat borrowings for the purposes of that return both parties must have regard to the provisions of section 84. Confirmation that the requirements of section 84 have been met can be made only following an examination of the records of the borrowing company, which is a matter for the Revenue Commissioner also. Such an examination forms part of the audit programme currently being introduced under the self-assessment system.

Mr. Rabbitte

In the context of the company submitted — the Goodman Group — can the Minister tell the House what was the order of the package of section 84 loans approved in respect of the beef development plan; how much of it was drawn down? Is he saying that the Government have conducted no investigation into the manifest fact that any amount drawn down was in contravention of the purpose for which it was approved?

Mr. A. Reynolds

The Deputy is raising a separate question. Consequently I do not have information available to me on the amount of section 84 loans granted or how much was drawn down.

In relation to the other part of the question on what procedures are in place, I refer the Deputy to my answer that the Revenue Commissioners have total responsibility in this area. Is the Deputy expressing some reservations as to the ability of the Revenue Commissioners to deal with this aspect of his question? I have no such reservations, good, bad or indifferent.

Mr. Rabbitte

I am asking if any investigation has been conducted by the Government into the allegations concerning a substantial amount of a package of section 84 loans drawn down improperly. I refer the Minister to the remarks of the Minister for Industry and Commerce in the House where he seemed to counsel that the banks involved would now initiate the necessary legal action.

Mr. A. Reynolds

The Deputy is referring to legal action in respect of a matter that is not concerned in this question. I am dealing with the question the Deputy put down. Maybe I should inform the Deputy as to the procedures for dealing with the audit of companies' accounts. Companies make their own self-assessment first in relation to their business in accordance with the time schedule and everything laid down. Secondly, the banks who are participating in section 84's, and who get tax relief on the interest portion of section 84's, also make their own returns to the Revenue Commissioners. In the course of time those audits will be carried out by the Revenue Commissioners in relation to the banks on the one hand and in relation to the company concerned and, indeed, any other companies. I have little doubt but that the Revenue Commissioners are well aware of the questions raised in the public arena by Deputy Rabbitte, and the media, and undoubtedly will pay special attention to them when the respective returns come in to them for examination.

Mr. Noonan

(Limerick East): Am I not right in my understanding of section 84 lending that a tax deduction due to a company for the purchase of, say, plant and machinery is transferred to a bank and that that puts the bank in a position, because it has lower tax liability, to lend money at a lower interest rate?

Mr. A. Reynolds

Correct.

Mr. Noonan

(Limerick East): Does it not follow from that, if the thrust of Deputy Rabbitte's question is correct, that while it may arise that a bank will not get its tax credit arising from lending done at low interest rates to a specific company, no liability could accrue to the Exchequer?

Mr. A. Reynolds

It is not for me to prejudge what decisions the Revenue Commissioners will make in relation to the aspects raised by Deputy Noonan or Deputy Rabbitte. It can occur as part of section 84 in relation to the passing on of capital allowances from an individual company into the bank to lower their tax liability. On the other hand, it can also apply in areas where companies raise money for working capital purposes, for instance, at certain rates where differentials in rates apply. It would be a normal write-off for a company on the trading side if this is adjudicated by the Revenue Commissioners to be part of a trade. They will give them credit for that. On the other hand, from a bank's point of view they can give out the money at a lower interest rate because they have the advantage of capital allowances or other interest rate instruments on that side. You are dealing with two separate sets of accounts. If the Revenue Commissioners find they are not complying with section 84 of the Act an assessment will be raised against either the company or the bank concerned.

Mr. Rabbitte

Is the Minister saying in the context of it being alleged that some £50 million was drawn down improperly, that as Minister for Finance he has taken no steps to cause that flagrant abuse and flouting of the law to be investigated as of today? Is that what the Minister is trying to convey to the House?

Mr. A. Reynolds

The Deputy is clearly trying to put connotations on what the Minister for Finance is saying. What surprises me is that the Deputy keeps asking what is the amount and then refers to the £50 million alleged. Why does he not put down a question and ask for the details of it? Then we could talk about those aspects. In relation to any other allegations made, the Revenue Commissioners have full and absolute statutory authority to carry out investigations into every aspect of everyone's business if they are not satisfied with it. Is the Deputy suggesting the Revenue Commissioners are not going to do so in this situation? I am in full and absolute concurrence with the Revenue Commissioners on how they carry out their duties. If Deputy Rabbitte has any evidence to suggest the contrary I ask him to put it before me or the House.

An Ceann Comhairle

A number of Deputies are offering and I must dissuade them from the notion that we can debate this matter now. I will call the three Deputies who are standing and they will, of necessity, be very brief.

Mr. Taylor

In the case of a company who have two aspects to their business and get a facility under section 84 in connection with one side of their business, is it an offence for the company to use that money for the purpose of the other side of their business?

Mr. A. Reynolds

The Deputy is well aware of how taxation matters here are dealt with. The statutory responsibility is entrusted to the Revenue Commissioners under various Acts of this House to administer the tax laws and make their determinations and their decisions, and no Minister for Finance can issue any directive to the Revenue Commissioners. Every Deputy is, I am sure, only too well aware of that.

Mr. Taylor

Is it an offence or is it not?

Mr. A. Reynolds

To pursue this line of questioning is a waste of time. It is hypocrisy of the highest order. Everybody knows that no Minister for Finance in whatever Government he may serve has any right under the legislation passed by subsequent Governments in this House to issue any directive. What are we talking about?

Mr. Taylor

Is it an offence or is it not?

Mr. A. Reynolds

It is not for me to make it; it is for the Revenue Commissioners. Does the Deputy know the legislation enacted here or not?

Mr. Garland

In view of the scandalous abuse of section 84 loans will the Minister give serious consideration to amending it or abolishing it altogether in next year's Finance Bill.

Mr. A. Reynolds

The Deputy must be unaware of the changes I have already instituted in relation to section 84 loans in this year's Finance Bill. They are being curtailed, reduced in scope in that area and in the area raised by Deputy Noonan. Accelerated capital allowances are being scaled down to 25 per cent this year and abolished in total next year. I have taken action in this year's Finance Act on many of the areas of possible abuse that have been mentioned.

Mr. Noonan

(Limerick East): I would like the Minister to confirm that if section 84 loans have been abused in the manner suggested by other Deputies, it is the lending bank that has the probable liability and not the Exchequer when the Revenue Commissioners find section 84 has been abused.

Mr. A. Reynolds

That is absolutely correct. They will adjust their computed tax in the following year. The Exchequer will not lose, the banks will lose.

Mr. Rabbitte

Is it not true that the tax facility we are talking about is basically a tax relief to industry at the taxpayer's expense? Having regard to the scale of what has been alleged here, is the Minister for Finance telling me that as of this date in November no investigation has been set up within the Government at any level.

An Ceann Comhairle

I am afraid we are having repetition. These questions were asked earlier.

Mr. Rabbitte

I am not getting an answer.

Mr. A. Reynolds

The Deputy is guilty of hypocrisy and repetition. He knows well what the position is. Let me add, in case he thinks I am holding back any information from him, that the question of trade and what it is used for is determined by the Revenue Commissioners. As Deputy Noonan rightly says, it is the bank who get the relief passed on to them by the company who suffer, and the Exchequer do not lose. Therefore, let the Deputy please accept that the Revenue Commissioners are quite capable of dealing with anything.