Written Answers. - Private Company Investment.
Séamus Hughes
Question:
84
Mr. Hughes
asked the
Minister for Finance
if he will seek ways to encourage business angels and other private investors to invest directly in private companies in view of the fact that BES and venture capital funds are not freely available and particularly to structure the capital gains tax regime to balance the reward for risk as against alternative low tax investments currently available to such investors in order to encourage participation in private share ownership.
[3060/97]
The BES currently applies to qualifying companies operating in a range of economic sectors where the level of risk is high and the required pay-off to the State for tax assisted investment is jobs return. Given the cost of the relief, and the need to target it, I have no plans to widen the scope at present.
The capital gains tax code already contains provisions which encourage participation in private share ownership. Section 27 of the 1993 Finance Act grants deferral of capital gains tax liability arising on the disposal of shares in a company where,inter alia, the disponer has been an employee or director of the company and the consideration obtained from the disposal is reinvested in a private trading company in which the disponer becomes involved both as a shareholder and employee or director.
In addition, section 66 of the 1994 Finance Act provides for a reduced rate of capital gains tax for disposals of shares in certain small private companies. This encourages investment in such companies. Furthermore, the Deputy will be aware that in this year's budget, I announced that this reduced 27 per cent rate will from the 6 April next be 26 per cent.
It should also be noted that whether a 40 per cent or a reduced capital gains tax rate arises in any particular instance the availabilty of indexation will reduce the effective rate of capital gains tax. Indexation is not available in respect of deposits. Furthermore in the present climate of low interest rates the after tax return on capital gains could be significantly greater than that arising from deposits.
The Deputy will be aware of measures announced in the budget in relation to incentivising the developing companies market. These are availability of the BES; increase in the limits for SPIAs targeted specifically at DCM companies and no loss of tax deferral if reinvestment is made in a company which subsequently obtains a listing on the DCM.
These measures will encourage entrepreneurs to grow their companies so that they can obtain a DCM listing, can have access to capital and may more easily be able to realise their own investment and move on to another project.
Finally, I would point to the substantial reductions in the standard corporation tax rate in the last three budgets which will, by making more profits available for reinvestment, provide a major boost to business development and enterprise.
