I move Financial Resolution No. 3:
(1) THAT, in this Resolution—
"auditor", in relation to a company or its qualifying subsidiary, means the person or persons appointed as auditor of the company or its qualifying subsidiary, as appropriate, for all the purposes of the Companies Acts, 1963 to 1990;
"eligible shares" has the meaning assigned to it by section 12 of the Finance Act, 1984 (No. 9 of 1984);
"prospectus", in relation to a company, means any prospectus, notice, circular or advertisement, offering to the public for subscription or purchase any eligible shares (within the meaning of section 12 (2) of the Finance Act, 1984) of the company, and in this definition "the public" includes any section of the public, whether selected as members of the company or as clients of the person issuing the prospectus or in any other manner;
"qualifying subsidiary", in relation to a company, has the same meaning as it has for the purposes of section 15 of the Finance Act, 1984;
"qualifying trading operations" has the meaning assigned to it by section 16 of the Finance Act, 1984 (as amended by the Finance Act, 1995 (No. 8 of 1995));
"the specified period" means the period beginning on the 1st day of January, 1995, and ending on the 23rd day of January, 1996.
(2) THAT Chapter III of Part I of the Finance Act, 1984, be amended— (a) in section 12—
(i) as respects a subscription for eligible shares issued on or after the 2nd day of June, 1995, by the substitution in paragraph (iii) (inserted by the Finance Act, 1995) of the proviso to paragraph (c) of subsection (1), of "subsection (2C)" for "subsection (3C)",
(ii) by the substitution in subsection (11) (inserted by the Finance Act, 1993 (No. 13 of 1993)) of the "5th day of April, 1999" for "the 5th day of April, 1996", and
(iii) by the deletion of the proviso to subsection (11),
and
(b) in section 13, by the substitution, in subsections (2A) and (2B), of the following proviso for the provisos (inserted by the Finance Act, 1995) to those subsections:
"Provided that this subsection shall not apply or have effect for any year of assessment subsequent to the year 1998-99.".
(3) THAT, as respects eligible shares issued on or after the 23rd day of January, 1996, Chapter III of Part I of the Finance Act, 1984, be further amended in section 13A (inserted by the Finance Act, 1989 (No. 10 of 1989))—
(a) in subsection (1), by the substitution of "the issue of eligible shares on or after the 23rd day of January, 1996 (hereafter in this section referred to as the `relevant issue')" for "the issue of eligible shares (hereafter in this section referred to as the `relevant issue') on any day falling on or after the 6th day of May, 1993,", and
(b) by the substitution of the following subsections for subsections (1A) and (1B) (inserted by the Finance Act, 1991 (No. 13 of 1991)):
"(1A) Where a company raises any amount through a relevant issue and that company is associated (within the meaning of this section) with one or more other companies then, as respects that company, relief shall not be given in respect of the amount so raised over the amount determined by the formula—
£1,000,000 - B
where—
B is an amount equal to so much, as does not exceed £1,000,000, of the aggregate of all amounts raised through the issue of eligible shares at any time before or on the date of the relevant issue by all of the companies (including that company) which are associated within the meaning of this section.
(1B) In this section a company is associated with another company where it could reasonably be considered that—
(a) (i) both companies act in pursuit of a common purpose, or
(ii) any person or any group of persons or groups of persons having a reasonable commonality of identity have or had the means or power, either directly or indirectly, to determine the trading operations carried on or to be carried on by both companies, or
(b) both companies are under the control of any person or group of persons or groups of persons having a reasonable commonality of identity.".
(4) THAT, subject to paragraph (5) of this Resolution, Chapter III of Part I of the Finance Act, 1984, be further amended by the insertion of the following section after section 13A:
"13B.—(1) Subject to the following provisions of this section, where on or after the 23rd day of January, 1996, a company raises any amount through the issue of eligible shares (hereafter in this section referred to as the `relevant issue') for the purpose of qualifying trading operations other than such operations as are referred to in subparagraph (iiib) (inserted by the Finance Act, 1990 (No. 10 of 1990)) of paragraph (a) of subsection (2) of section 16, relief shall not be given in respect of the excess of the amount over the amount determined by the formula set out in the Table to this subsection unless the company produces to the Revenue Commissioners a relevant certificate or a combined certificate within the meaning of this section:
Provided that where the said company is associated with one or more other companies within the meaning of section 13A of the Finance Act, 1984 (as amended by Resolution No. 3 of the 23rd day of January, 1996, by virtue of the Provisional Collection of Taxes Act, 1927 (No. 7 of 1927)), then A in the formula set out in the Table to this subsection shall include the aggregate of the amounts raised through the issue of eligible shares at any time before or on the date of the relevant issue by all the companies so associated (including the said company).
TABLE
£250,000 - A
where A is—
(a) £250,000, or
(b) an amount equal to the aggregate of all amounts raised by the company through the issue of eligible shares before or on the date of the relevant issue,
whichever is the lesser amount.
(2) (a) In this section `relevant certificate' means a certificate from an authority (being the authority which, if the company were to carry on relevant trading operations within the meaning of section 16A, would have issued the certificate referred to in that section) given to a company in relation to a relevant issue, certifying, on the basis of a business plan of the company and any other information which the company supplies to the authority or which the authority may reasonably request the company to furnish to it, that, having regard to the amount of money raised by the relevant issue, the authority is satisfied that—
(i) the purpose or purposes specified in section 12 (1) (c) (i) for which the money raised is intended to be used has or have the potential to create a reasonable level of additional sustainable employment in the company, or
(ii) the money raised is necessary to secure the survival of the company and maintain a reasonable level of sustainable employment.
(b) In considering whether to give a relevant certificate to a company, an authority shall have regard only to such guidelines for that purpose as may, from time to time, be agreed—
(i) with the consent of the Minister for Finance, between the certifying agency and the Minister for Arts, Culture and the Gaeltacht or the Minister for Enterprise and Employment or the Minister for Tourism and Trade (as may be appropriate in the circumstances), or
(ii) between the certifying Minister and the Minister for Finance,
and those guidelines may, without prejudice to the generality of the foregoing, include provision—
(I) for the submission to the authority by the company concerned, in relation to its business plan, of an annual progress report, in a form to be specified by the authority,
(II) to ensure that money raised through a relevant issue is used by a company or its qualifying subsidiary only for one or more of the purposes specified in section 12 (1) (c) (i) and for no other purposes,
(III) that the issue of the certificate does not represent any form of approval by the authority of the commercial viability of the qualifying trading operations carried on or to be carried on by the company concerned, and
(IV) for the regarding as null and void, from its date of issue, of a relevant certificate where the company concerned fails to comply with its business plan or any modification thereof which may be agreed between it and the authority.
(3) In this section `combined certificate' means a certificate given by an authority to a company which comprises—
(a) (i) a certificate referred to in paragraph (ii) (inserted by the Finance Act, 1993) of the proviso to paragraph (c) of subsection (1) of section 12, or
(ii) (I) a certificate referred to in paragraph (iii) (as amended by Resolution No. 3 of the 23rd day of January, 1996, by virtue of the Provisional Collection of Taxes Act, 1927) of the proviso to paragraph (c) of subsection (1) of section 12, and
(II) an approval of a development and marketing plan as is mentioned in paragraph (a) of subsection (3B) of section 15,
or
(iii) an approval of a development and marketing plan as is mentioned in paragraph (a) of subsection (3A) of section 15,
and
(b) a relevant certificate.
(4) An authority shall not issue a combined certificate unless and until all necessary conditions for the issue of—
(a) in the first instance, as may be appropriate—
(i) the certificate or approval mentioned in subparagraph (i) or (iii), respectively, of paragraph (a) of subsection (3), or
(ii) the certificate and approval mentioned in subparagraph (ii) of paragraph (a) of subsection (3), and
(b) thereafter, and only thereafter, the relevant certificate,
have been satisfied.".
(5) THAT—
(a) as respects eligible shares issued on or after the 23rd day of January, 1996, but on or before the 30th day of August, 1996, paragraph (4) of this Resolution shall not apply to a company to which this paragraph applies, (b) the provisions of Chapter III of Part I of the Finance Act, 1984, which are in force immediately before this Resolution has effect shall apply to a company to which this paragraph applies,
(c) subject to the conditions set out in subparagraph (d) of this paragraph, this paragraph applies to a company which, or whose qualifying subsidiary, either carries on or intends to carry on one or more of the qualifying trading operations mentioned in subparagraph (i) (as amended by the Finance Act, 1990), (ii) (inserted by the Finance Act, 1990), (iid) (inserted by the Finance Act, 1995), (iie) (inserted by the Finance Act, 1995), (iiia) (inserted by the Finance Act, 1988), (iiic) (inserted by the Finance Act, 1990), (iiid) (inserted by the Finance Act, 1994 (No. 13 of 1994)), (iv) or (v) of paragraph (a) (inserted by the Finance Act, 1987 (No. 10 of 1987)) of subsection (2) of section 16 of the Finance Act, 1984,
(d) the following are the conditions referred to in subparagraph (c) of this paragraph, that is to say:
(i) in the case of a company which, or whose qualifying subsidiary, either carries on or intends to carry on a qualifying trading operation as is mentioned in subparagraph (i), (ii), (iiia) or (iiid) of paragraph (a) of subsection (2) of section 16 of the Finance Act, 1984, that—
(I) in the specified period the company or its qualifying subsidiary, as the case may be, had entered into a binding contract in writing—
(A) to purchase or lease land or a building,
(B) to purchase or lease plant or machinery, or
(C) for the construction or refurbishment of a building,
to be used in the carrying on of its qualifying trading operation, and
(II) the company proves to the satisfaction of the Revenue Commissioners that—
(A) on or before the 23rd day of January, 1996, it had an intention to raise money under the provisions of Chapter III of Part I of the Finance Act, 1984, and
(B) the contract which it or its qualifying subsidiary, as the case may be, had entered into was integral to, or consistent with, the purpose for which it had intended to raise money as aforesaid and that the consideration of the said contract is equal to 25 per cent. or more of the money which it is intended to raise under the provisions of the said Chapter III:
Provided that, in determining whether they are satisfied that the company has complied with the requirements specified in subclause (II) of clause (i) of this paragraph, the Revenue Commissioners shall have regard to either or both of the following—
(AA) an application in writing made by the company to the Revenue Commissioners in the specified period for the opinion of the Revenue Commissioners as to whether the company would be a qualifying company for the purposes of Chapter III of Part I of the Finance Act, 1984, and
(BB) the publication in the specified period of a prospectus by, or on behalf of, the company;
(ii) in the case of a company which, or whose qualifying subsidiary, either carries on or intends to carry on a qualifying trading operation as is mentioned in subparagraph (iid), (iiic) or (v) of paragraph (a) of subsection (2) of section 16 of the Finance Act, 1984, that on or before the 23rd day of January, 1996, it had an intention to raise money under the provisions of Chapter III of Part I of the Finance Act, 1984:
Provided that, in determining whether they are so satisfied, the Revenue Commissioners shall have regard to either or both of the following—
(a) an application in writing made by the company to the Revenue Commissioners in the specified period for the opinion of the Revenue Commissioners as to whether the company would be a qualifying company for the purposes of Chapter III of Part I of the Finance Act, 1984, and
(b) the publication in the specified period of a prospectus by, or on behalf of, the company;
(iii) in the case of a company which, or whose qualifying subsidiary, either carries on or intends to carry on a qualifying trading operation as is mentioned in subparagraph (iie) of paragraph (a) of subsection (2) of section 16 of the Finance Act, 1984, that—
(I) on or before the 23rd day of January, 1996, the company or its qualifying subsidiary, as the case may be, had submitted to, and had approved of by, the Minister for Agriculture, Food and Forestry a three-year development and marketing plan as is mentioned in paragraph (a) of subsection (3B) (inserted by the Finance Act, 1995) of section 15 of the Finance Act, 1984, in respect of its qualifying trading operation,
(II) in the specified period the company or its qualifying subsidiary, as the case may be, had entered into a binding contract in writing—
(A) to purchase or lease greenhouses,
(B) to purchase or lease plant or machinery, or
(C) for the construction or refurbishment of greenhouses,
to be used in the carrying on of its qualifying trading operation, and
(III) the company proves to the satisfaction of the Revenue Commissioners that the contract which it, or its qualifying subsidiary, as the case may be, had entered into was integral to, or consistent with, the three-year development and marketing plan approved of by the Minister for Agriculture, Food and Forestry and that the consideration of the said contract is equal to 25 per cent. or more of the money which it is intended to raise under the provisions of Chapter III of Part I of the Finance Act, 1984, and
(iv) in the case of a company which, or whose qualifying subsidiary, either carries on or intends to carry on a qualifying trading operation as is mentioned in subparagraph (iv) of paragraph (a) of subsection (2) of section 16 of the Finance Act, 1984 that—
(I) on or before the 23rd day of January, 1996, the company or its qualifying subsidiary, as the case may be, had submitted to, and had approved of by, Bord Fáilte Éireann a three-year development and marketing plan as is mentioned in paragraph (a) of subsection (3A) (inserted by the Finance Act, 1987) of section 15 of the Finance Act, 1984, in respect of its qualifying trading operation,
(II) in the specified period the company or its qualifying subsidiary, as the case may be, had entered into a binding contract in writing—
(A) to purchase or lease land or a building,
(B) to purchase or lease plant or machinery, or
(C) for the construction or refurbishment of a building,
to be used in the carrying on of its qualifying trading operation, and
(III) the company proves to the satisfaction of the Revenue Commissioners that the contract which it, or its qualifying subsidiary, as the case may be, had entered into was integral to, or consistent with, the three-year development and marketing plan approved of by Bord Fáilte Éireann and that the consideration of the said contract is equal to 25 per cent. or more of the money which it is intended to raise under the provisions of Chapter III of Part I of the Finance Act, 1984.
(e) For the purposes of subparagraph (d) of this paragraph—
(i) the date on which a contract was entered into by a company or, as the case may be, its qualifying subsidiary, and
(ii) the date on which a prospectus was published by, or on behalf of, a company,
shall be confirmed in a certificate by the auditor of the company, or its qualifying subsidiary, as appropriate.
(6) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1927.
This resolution implements changes in the business expansion scheme which were announced in the budget and are set out in greater detail in the Principal Features thereof. The changes which will apply in respect of eligible shares issued on or after today are as follows. First, the scheme which was due to expire on 5 April 1996 is being extended for another three years, with the existing limits of £1 million per company and £25,000 per investor being retained.
Second, a statutory certification scheme which will be operated by the development agencies for all BES projects which raise a cumulative amount of more than £250,000 is being introduced. The purpose of this procedure is to ensure that a reasonable level of employment is created or safeguarded in those projects. Experience has shown projects that raise smaller amounts give the best return in terms of employment. The certification process is being put in place in regard to the larger funds because it has been shown that the employment intensity of investments by the larger funds is very much lower than the employment intensity of investments in smaller projects.
Third, a number of measures are being introduced to counter abuses of the business expansion scheme which have developed since it was last reviewed in 1991. Those abuses include company splitting to circumvent the £1 million limit and the use of "hiving down" and "facility sharing" devices with little or no net new activity or employment. While this resolution will deal specifically with company splitting, it will deal only generally with "hiving down" and "facility sharing". Measures to counter these latter abuses will be incorporated in the certification process which will be subject to ministerial guidelines.
The new certification process will not apply to what are known as "pipeline cases"— cases in the pipeline — which can prove to the Revenue Commissioners that they had inter alia, before today, already entered into contractual commitments to spend 25 per cent or more of the business expansion scheme money they intended to raise under the scheme on buildings, plant and machinery. Of course, these “pipeline cases” will have to comply with all existing rules. However, the special “pipeline” provisions do not cover cases affected by the new company splitting rules, as to permit transitional arrangements in these cases would defeat the basic objective, which is to put a stop to such schemes from today.
It is important to point out that the review of the business expansion scheme which has led to the measures I have outlined in general terms has been quite detailed and far-reaching. At the outset the business expansion scheme, in the introduction of which I was involved, was intended to be of assistance to encourage two objectives: (1) making available medium to long-term capital to small manufacturing businesses at low cost and (2) to encourage greater diversification and shareholding, in particular "outside shareholding" in small manufacturing businesses.
It is fair to say that the scheme has achieved its first objective. The business expansion scheme is providing competitive, low cost finance to small businesses, obviously not as competitive as it would be if interest rates were not as low as they are, but still very competitive.
It is probably the case that it did not achieve its other objective I had hoped it would achieve when the scheme was introduced over ten years ago, to bring outside shareholders into companies on a long-term basis. In practice what happened in the way the scheme has been structured is that, after the expiry of the five year period, a business expansion scheme investor ceases to have any involvement in the company, is repaid, and that is the end of the matter. It is a pity but that is the way it has developed. At this stage it would be impossible to achieve that objective without radically changing the nature of the scheme.
However, the scheme has achieved its first objective, which is to make available low cost finance to manufacturing companies from sources from which finance would not otherwise be available to them. Of course, there are questions that might be posed about the operation of our banking system: why it has not been providing this type of finance for those types of companies? Essentially, those are questions which ought to be addressed to the banks themselves. Why has it been necessary for a special tax incentive to be devised to bring that type of five year finance into companies where there is risk-taking on the part of the investor in common with the receiving company? Why has that type of risk finance not been made available by other institutions? It has not and never has been made available here. As a result, the business expansion scheme is fulfilling a need that is not otherwise being fulfilled. That is why I am glad the Government is renewing it.
I am also very glad the scheme is being focused, through the certification scheme, on genuine employment creation. The original intention of the scheme was seriously diverted from its purpose in the late 1980s when it was extended from manufacturing to include apartments, hotels and other fixed assets, property-type investments. That was not a good use of the scheme because the risk element was not present. It is possible to raise finance quite easily for buildings — the building is there and can be used as collateral for the loan, so there is not a risk involved.
There is a limited amount only of business expansion scheme-type money around because there is a limited number of taxpayers with a tax liability of the size that would allow them to become involved in the scheme. If that type of money is invested in building apartments or houses it will not be available for manufacturing or some other genuinely employment-creating risk content business. Broadly speaking, there is a fixed amount only of this type of money available. In the Government's view, therefore, it is a question of where one wants to direct it as a matter of priority. Obviously, it would be great if we had additional funds for everything but we do not and it is a matter of establishing priorities in its allocation. The correct priority is the one contained in this Financial Resolution, which is on manufacturing, accompanied by a certification process, to ensure — through the agencies — that a genuine employment creation purpose exists.