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Dáil Éireann debate -
Tuesday, 5 Mar 1991

Vol. 405 No. 9

Written Answers. - Tax Forgone.

Proinsias De Rossa

Question:

59 Proinsias De Rossa asked the Minister for Finance the amount of tax forgone in the years 1988-89 and 1989-90 arising from (1) export sales relief, (2) Shannon relief, (3) the 10 per cent manufacturing tax rate, (4) section 84 lending, (5) accelerated capital allowances on tax based lending, (6) the reduced rate of corporation tax for small firms and (7) the business expansion scheme.

In accordance with estimates prepared by the Revenue Commissioners, the following table sets out the information requested in so far as it is available for the years 1988-89 and 1989-90:

Estimated cost to the Exchequer

Allowance or relief

1988-89

1989-90

£m

£m

1. Export sales relief

770.0

Not available

2. “Shannon” relief

110.0

Not available

3. Manufacturing profits — reduced rate of tax*

147.1

143.2

4. “Section 84” loans

112.0

120.0

(1988)

(1989)

5. Accelerated capital allowances (tax based lending)

53.0

Not available

6. Reduced rate of corporation tax for small companies*

10.0

11.0

(1988)

(1989)

7. Business Expansion Scheme

13.5

41.3

*These estimates are very tentative and are subject to a wide margin of error.
Notes on Table
(1) and (2)Export sales relief and “Shannon” relief
The figures for each year include the tax relief relevant to accounting periods which ended in that year and to earlier accounting periods which ended in so far as such relief was allowed in that year.
(3)Manufacturing profits
These figures represents the estimated loss to the Exchequer arising from the charging of manufacturing and other qualifying profits at reduced rates of corporation tax instead of at normal rates.
(4)“Section 84” loans
These figures include preference share financing which is a minor element in the total. The figures are gross figures, and do not take account of the yield from the levy on section 84 loan interest which was introduced in 1986. This levy yielded £14.4 million in 1987, £18.5 million in 1988 and £24.9 million in 1989.
(5)Capital allowances
The cost figure included for each year is estimated by reference to accounting periods ending in the year to 5 April immediately preceding each of the years in question, e.g. year ended 5 April 1988 relates to the column headed 1988-89.
(6)Reduced rate of corporation tax for small companies
The reduced rate of tax was terminated as respects profits and interest arising after 1 April 1989.
(7)Business Expansion Scheme
The relief for investment in corporate trades, known as the business expansion scheme, is an income tax relief available to individuals on investments in qualifying companies.
In regard to the estimates above relating to the cost to the Exchequer of export sales relief, Shannon relief and the reduced rate of tax for manufacturing profits, no account is taken of the fact that without these incentives, many enterprises might not have been set up here. To the extent that profits earned by such enterprises would not have been available for Irish tax purposes, part of each cost figure shown might be regarded as notional.
The cost estimates relating to export sales relief and Shannon relief are based on the assumption that the profits involved would have been charged at the standard rate of corporation tax — which was 50 per cent for almost all of the profits in question — were it not for the reliefs. When these reliefs ended on 5 April 1990, the profits became chargeable at the 10 per cent rate where they qualified under the appropriate provisions.

Proinsias De Rossa

Question:

60 Proinsias De Rossa asked the Minister for Finance (a) the amount of tax foregone by companies paying employees dividends on preference shares, which are paid out of reserves consisting of profits exempted from taxation because of export sales relief and (b) whether the Revenue Commissioners operate a rule that a maximum of 30 per cent of employee remunerations can be paid in such a way; and if he will outline the basis for this rule.

The exemption from taxation referred to arises from the relief from corporation tax which applied up to 5 April 1990 and which was designed to encourage exports. The benefit of the relief accrues to all shareholders in a qualifying company and not just to employees. While the relief has been discontinued, shareholders may continue to benefit from tax-free dividends arising from the distribution from the pool of export profits existing as of 5 April 1990.

I have been advised by the Revenue Commissioners that statistics are not available in relation to the operation of the scheme in respect of particular categories of shareholders such as employees.

The Revenue Commissioners do not operate any rule about maximum employee remunerations on the lines suggested by the Deputy. There is no legislative basis for such a rule.

The Deputy may have in mind the safeguards in section 54 of the 1974 Finance Act to ensure that companies do not attempt to minimise the tax liability of senior management or other employees by paying them in shares which would attract a tax-free dividend rather than a taxable salary. The section provides that where a person receives no emoluments from a tax-relieved company for services rendered by him to that company, or receives emoluments in respect of such services which, in the opinion of the commissioners are not adequate as consideration for the services rendered, and that person receives tax-relieved dividends from that company, the commissioners may deem part of all of the dividends to be emoluments of that person, which are taxable in the ordinary way. Decisions in relation to this section are made by the Revenue Commissioners based on the facts of each individual case; no "rule of thumb" of the kind described by the Deputy is operated.
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