Dáil Éireann debate -
Wednesday, 25 Nov 2015

Vol. 898 No. 1

Finance Bill 2015: Report Stage (Resumed)

Debate resumed on amendment No. 6:

In page 60, between lines 32 and 33, to insert the following:

“32. The Minister shall, within nine months from the passing of this Act, prepare and lay before Dáil Éireann a report on the expected impact of the Knowledge Development Box, including its expected beneficiaries, expected tax take and cost to the Exchequer.”.

- (Deputy Pearse Doherty)

Deputy Liam Twomey

As I pointed out last night, we are a small peripheral island nation at the edge of Europe for whom remaining competitive is important but can be difficult to do. That is why foreign direct investment in this country is so important. It is responsible for 100,000 jobs and huge investment. As I stated last night, one company alone not only invested €1 billion last year, but has invested €25 billion in our economy over a number of years. It is a vibrant sector of our economy.

The knowledge box is about promoting research and development in Ireland. It is about staying competitive and remaining at the cutting edge. The important thing about our knowledge development box is that it has been approved by the OECD. The OECD is acting on behalf of a number of developed nations like ours to manage the BEPS project on base erosion and profit shifting. It has approved our proposal and concluded that it is not about tax avoidance but rather is something vital and useful to our economy.

The OECD has also pointed out that no country can move on its own to sort out the issues around international tax avoidance. As all countries must move together, there is no point in us turning Ireland into a wasteland for foreign direct investment, FDI. For this reason, some of the remarks that were made in the House last night by members of the Opposition showed a poor understanding of how investment by multinationals can quickly move to other countries if we are seen to be negative towards it. I am supportive of this measure and I hope that it is successful for us.

Deputy Michael McGrath

Fianna Fáil supports the introduction of the knowledge development box, KDB. We discussed it on Committee Stage when the Minister of State, Deputy Harris, was present. I made the point that the ultimate measure of success for the KDB was whether new investment, research and development and employment creation occurred. The Minister has factored in a full-year cost of €50 million for the KDB, but if it is successful, it will lead to additional revenue because multinational activity that is not currently happening in Ireland will be transferred to this country. That is what we want to happen. This should not be a question of reclassifying under which tax heading certain profits are taxed, namely, from the 12.5% rate to the 6.25% one. Rather, it should be concerned with positioning Ireland to enhance our attractiveness as a destination for inward investment. For many multinationals, research and development is a touchstone issue. It is how they decide where to locate their investments.

Much has been stated in the House about Apple and its corporation tax arrangements, but I wish to put a fact on the record. In the past two weeks, Apple announced a further 1,000 jobs in Cork city, which will bring to 6,000 the number of people employed in Cork by Apple. This is not a brass plate operation based in the Cayman Islands or Bermuda. It is a real company that employs ordinary people and helps them to sustain their livelihoods and pay mortgages. That reality is often forgotten in this debate.

Along with other Deputies, I served on the global corporation tax sub-committee, which was chaired by Deputy Twomey. We examined in detail the legitimate issues that have been raised about profit shifting. It became obvious to me that the key issues were transfer pricing and the shifting of profits from one jurisdiction to another through royalty payments on intellectual property, with the aim of those profits ending up in places where there was no corporation tax, namely, Bermuda, the Virgin Islands, the Cayman Islands and so forth. Ireland cannot address that issue on its own. Ireland will co-operate with the base erosion and profit shifting, BEPS, process and undertake steps alongside our international partners to deal with this type of aggressive tax planning. We all want to see multinationals paying as much corporation tax as possible, but Ireland is not in a position to solve the problem in isolation. Instead, we can have an attractive offering for multinationals that are seeking to invest in Ireland or copper-fasten the existing investments and employment that many of them provide.

Minister for Finance (Deputy Michael Noonan)

This section introduces the new corporation tax relief that is known as the KDB. The amendments in the names of Deputies Pearse Doherty and Tóibín were discussed reasonably extensively yesterday. The legislation provides that profits from certain qualifying assets that were earned by a company chargeable to corporation tax in this State, to the extent that the assets relate to research and development undertaken by that company, can be effectively taxed at a rate of 6.25%. The purpose of the KDB is to encourage companies to develop intellectual property and thereby engage in substantive research and development operations that have a positive impact on the Irish economy.

The KDB is based on the OECD modified nexus rules, which were agreed as part of its BEPS project and subsequently approved by the EU code of conduct group. These rules seek to align taxing rights on substantive operations. This is consistent with Ireland's overall approach to corporation tax.

The KDB is a general measure and is targeted at firms of all sizes and origins that undertake substantive research and development. However, as was discussed on Second and Committee Stages, it is likely that, because of the operation of the OECD modified nexus formula, the KDB will be of most immediate benefit to single companies that carry out their research and development activities in Ireland. From an FDI perspective, the KDB should also operate in such a way as to encourage larger multinationals to locate more of their high-quality research and development activities in Ireland.

The essence of the OECD modified nexus formula is that, if a company performs 50% of the research and development that develops an asset in Ireland, 50% of the income arising from that asset can qualify for the 6.25%. As a result, the more research and development that is carried out by the Irish taxpayer, the greater the profits that can be availed of under the KDB.

Regarding the amendment, reports of this nature have already been prepared and published. In line with the Department of Finance's 2014 tax expenditure guidelines, an ex ante evaluation of KDB was carried out this year and published on budget day. It included an analysis of the expected economic impact of the tax incentive and the estimated Exchequer cost in terms of tax forgone. The report included consideration of the economic literature on the impact of patent boxes that have existed for some years in other jurisdictions. The conclusion was that, as the KDB had a substance requirement in line with the modified nexus approach, it would have an additional benefit for the Irish economy. It is estimated that, in the early years of the KDB, there will be an annual cost of €50 million in terms of tax forgone. The ultimate Exchequer cost will depend on the level of uptake by firms, but it is expected that, because of the design of the KDB, it should incentivise additional activity in terms of employment and investment.

To ensure that the KDB will be assessed to confirm that it delivers value for money for the Irish taxpayer, the report also includes a term of reference for an ex post evaluation. This is scheduled to take place in 2020, by which time it is expected that at least three years worth of data will have been collected by the Revenue Commissioners from the tax returns of claimant companies. This means that there will be sufficient information to carry out an effective evaluation. In the meantime, and as is usual for all corporation tax incentives, the impact and uptake of the KDB will be monitored on an ongoing basis. Given the fact that the report has already been prepared and published, I am not accepting the Deputies' amendment.

Deputy Pearse Doherty raised a question about the level of analysis that had been carried out of the dependence of the economy on corporation tax policy and the need for an analysis of corporation tax receipts. Over the course of 2014, officials from my Department engaged in a substantial project that sought to quantify the effects of Ireland's policy, including the question of how important FDI was to our economy. The eight reports that set out the results of this research were published in last year's budget and included a paper on the context and concentration of corporation tax benefits.

Deputy Boyd Barrett raised the issue of the effective rate of tax that was paid by companies. A substantial report was prepared on this topic last year. As it was discussed on Committee Stage, I will not repeat the analysis. On the issue of the payment of royalties, subsidiaries of multinationals, be they located in Ireland or elsewhere, will necessarily incur certain bona fide expenditures, including royalty payments to group companies in foreign jurisdictions. The profits charged on in Ireland reflect the functions, assets and risks located in this country by the multinational group.

The payments to the non-resident company represent the required remuneration of extremely valuable intellectual property assets funded and owned outside the State. Ireland cannot expect to receive or retain the remuneration of these assets. Nevertheless, Irish resident companies are chargeable to corporation tax at the standard 12.5% rate on the full trading profits that are generated from their economic activities here.

Deputy Murphy raised a number of questions. I have addressed the costs of the knowledge development box. They are published on the Department's website. I have not precluded a company from being able to join the research and development tax credit in the knowledge development box. They complement each other as part of the overall corporation tax offering.

As required by the OECD modified nexus rule, the definition used for qualifying expenditure in the knowledge development box is related to the knowledge development box tax credit. They are targeted at different stages of the business cycle. The research and development tax credit is intended to support firms when they are actively engaged in research and development while the knowledge development box credit is aimed at the future income generated from the results of research and development activity, which come at a later stage. Not everybody who claims the research and development tax credit will be able to use the knowledge development box because they may not have developed qualifying assets and because they may not have been able to generate profits from them. The cohort of taxpayers that will be able to avail of both is, therefore, expected to be quite limited.

On how the Government will be able to confine the knowledge development box to activity in Ireland, I remind the Deputies that this is the very essence of the OECD modified nexus approach as Ireland can give a tax benefit only to the extent that the profits are the result of substantive activity in the State. There are a number of safeguards in the legislation to ensure this is the case, such as the restriction on the use of acquired assets and the specific anti-avoidance clause in section 769M.

Deputy Richard Boyd Barrett

What really worries me in the Minister's response and the responses of others on the Government side is that there seems to be no sense that there is a problem that needs to be addressed. Deputy Twomey tries to trivialise the matter by saying we hate the multinationals. We do not hate them and are glad of any job but we do not want to blind ourselves to the problems. The problems are internationally acknowledged.

Deputy Liam Twomey

International solutions.

Deputy Richard Boyd Barrett

The problem is that the multinationals are engaging in aggressive tax avoidance to the point that they pay tax at pitifully low levels. In some individual cases, the tax rate is estimated to be 0%. The US congressional committee and bureau of statistics are saying the American multinationals, the big IT multinationals, operating in this country are paying at a rate of 2%. Do we consider that acceptable? Do we consider it acceptable that some of the wealthiest companies in the world, some of whose directors are multibillionaires whose personal wealth is greater than that of entire countries, pay virtually no tax when ordinary workers pay 30% or 40% of their income in tax? I do not believe it is acceptable. Our society and economy will pay a terrible price domestically and internationally if we do not address this. Arguably, the problem is now at the root of global economic and financial instability because there is such a concentration of money in the hands of these firms that they can literally destabilise entire economies.

Let us consider the responses I have received from the Government on the tax loopholes associated with trade charges and intellectual property, the figure for which has jumped from €6 billion to €21 billion in Ireland in five years. This jump is a clear example how the companies are operating here and of the aggressiveness of their approach. What we are not getting from the Government are clear, detailed assurances that the knowledge box will not simply facilitate the same aggressive tax avoidance. One has every reason to believe on examining it that it is designed precisely to facilitate tax avoidance by replacing the double Irish arrangement that is being phased out. It is still going on under our noses. The substantial and detailed questions are not being addressed by the Government. This leads me to believe the Government does not want to address them and that it is just so frightened of the multinationals that it will not say boo to them, although they are essentially engaged in robbing the taxpayers of this country and the world of tax revenue we need to fund our health service, infrastructure, housing and so on. I do not agree with the knowledge box and, at the very least, we need more detailed analysis. If anything, the technical paper to which the Minister referred generates more suspicion and adds to concern rather than allaying it.

Deputy Pearse Doherty

Beyond the substance of the debate on whether the knowledge development box is positive or negative, beyond the accusation that some multinational companies based here are paying corporation tax at a very low rate, beyond the fact that the European Commission is taking this issue more seriously than many Deputies on both sides of this House, and while still acknowledging the positive role many multinational companies play in this State, the amendment is about trying to ensure good analysis of what happens when the arrangement goes live. The amendment does not advocate the scrapping of the knowledge development box nor does it ask that the rate be changed. It acknowledges that work has been done on the impact. For example, we know the figure of €50 million. The amendment refers to the period of nine months after the passage of this legislation. It speaks to the impact the arrangement will have when it goes live. All this is based on a guesstimate. In spite of our having the best will in the world, we are still guessing about the position in the next year. However, we cannot be sure. The Minister informed me yesterday in responses to parliamentary questions that the top 20% of corporation taxpayers recorded a 57% increase in their corporation tax bill this year so far. Nobody in the Department or anybody else expected that. Therefore, we do not know what will happen when the knowledge development box kicks in. Will it be positive or negative or will considerable funds just be parked in it to avail of a lower rate of corporation tax? It will not result in new research and development, new initiatives and new types of products, as Deputy Michael McGrath outlined.

The amendment speaks to the need to carry out further assessment, which we should be doing as a matter of course. The reason for stipulating a period of nine months is that it allows us time, just before the next finance Bill, to determine whether there is a need to amend, tweak, scrap, or refine the knowledge development box. It would empower both sides of the House with the knowledge available at the time in order that they may carry out the necessary work on next year's finance Bill. While I acknowledge that, even at that stage, information may be patchy or sketchy owing to the possibility of our not having details covering a three-year period, we will have more information than we have at present. This needs to be kept under review. The sector is highly mobile and is worth billions of euro. When we create avenues like this, we could also be creating something we or the Minister did not set out to create, even with my reservations on the knowledge development box itself as an entity.

Deputy Liam Twomey

There are two issues being discussed here. Deputy Boyd Barrett's point covers tax avoidance. We participate fully in the BEPS project. The project and the OECD make it crystal clear that all countries must move together on this issue. There is no point in turning Ireland into a wasteland for foreign direct investment because we move unilaterally. It is just ridiculous talk. If the Deputy gets into power some time, he can do it on his own.

The other issue concerns how we use our tax code to keep our economy competitive. We are very much doing this. We have a corporation tax rate of 12.5% and it is crystal clear that it is fixed. I fully support the introduction in Northern Ireland of a 12.5% corporation tax rate. The two economies are very much interlinked. It is a good move in the longer term. Deputy Doherty got a bit tetchy when I accused him recently of abandoning social welfare recipients.

The 12.5% corporation tax rate is a good move for Northern Ireland and for Ireland. I utterly support that, but I think the Deputy has misunderstood. The knowledge development box is about bringing the type of jobs into our economy that will keep it competitive while moving forward. It is the type of work we need to get into this country in order that we will have jobs for graduates and young people.

As I said previously in the debate, 100,000 people are directly employed here by foreign multinational companies, not to mention thousands of others who are indirectly employed by them. It is a very important and vibrant sector of our economy, so we should be fully supporting it.

I am not saying that the Deputy has something against multinationals, but much of his argument is ideological and narrowly focused. I do not think he has taken into account the wider economic impact of his concept or how we should deal with this issue.

Deputy Michael Noonan

Deputy Boyd Barrett's main charge is, effectively, that putting a knowledge development box into Irish tax law is motivated by a desire to facilitate large corporations to avoid tax. It is essentially the charge the Deputy has laid here. The origins of the patent boxes and the knowledge development box in this form come from the OECD and the European Commission. In recent years, both those bodies have carried out a full frontal onslaught on the corporate sector for avoiding taxes. The design of the knowledge development box, which is to replace various patent boxes around Europe, is in accordance with the guidelines set down by the OECD and agreed by the Commission. Therefore it is contrary to Deputy Boyd Barrett's supposition that it is some kind of a device to magnify avoidance. It is the opposite and it is fully in line with the guidelines set down by the OECD.

Deputy Doherty's point concerned evaluating various things we do. In budget 2014, eight different reports were published on corporation tax in Ireland. Those very full reports are still available and I would refer Deputies to them. The Deputy will recall that we made fairly significant initiatives in that particular budget and we backed it up with data. Before we introduced the knowledge development box in the budget of October this year, we had a consultative process. We sent a consultation paper around to interested parties and that is publicly available, as are the submissions that came in. Beyond that it would not really be fruitful to do something in nine months time. I do not believe we would have sufficient data to do anything valid, but we are committed to doing it in 2020 when we would have about three years of data from the Revenue Commissioners which we could evaluate.

Acting Chairman (Deputy Olivia Mitchell)

Is the Deputy pressing the amendment?

Deputy Pearse Doherty

I am going to speak again.

Acting Chairman (Deputy Olivia Mitchell)

Okay.

Deputy Pearse Doherty

I acknowledge the Minister's point about having full data in three years time. I want to re-emphasise the point, however, that these are very large companies with huge profits. Some 140 of them have individually paid corporation tax in excess of €5 million in the last year. More than 400 of them pay corporation tax of at least €1 million per annum. There may be new companies that will come in to avail of this knowledge development box. Given the amount of tax that could potentially be forgone, let us be clear that we do not have the luxury of waiting for three years. We need to have an assessment with whatever information is available prior to next year's finance Bill. It may be, as was intended by the Government when introducing the section in this year's Finance Bill, that it will cost €50 million, but what if it does not? What if we find out that the tax forgone is ten times that amount or we are getting indications that is where it is going?

For example, we know that a couple of the multinational companies in this State pay the majority of corporation tax. Therefore, if certain activities were moved into this year without the resulting expected benefits from that to the Irish economy, then we need to tweak it. We need to do that all the time. It is not something new. The Government is introducing rushed legislation on the court case it lost concerning HGV licences and the way the tax was levied unlawfully over the recent period. That is because people are able to find loopholes in legislation and are able to take cases.

In dealing with the Irish Road Haulage Association or an individual haulier, the Government is up against a formidable foe and a very professional organisation. However, when the Government is dealing with companies that are paying taxable bills in excess of €5 million per annum, which means that their taxable profits must be in excess of €50 million per annum, they have the resources to find whatever loophole there is that might not be teased out in this Finance Bill, given the details and how this complies with other laws on the Statute Book, and that may be unexpected.

We are seeking a very modest thing. We are not saying to scrap the three-year report in which we will have the full data, because that report is expected. However, we should do what I expect the Minister's officials will be doing anyway, which is to get a sense of and a feel for how the knowledge development box is operating before next year's finance Bill. If his officials were not doing that, the Minister would be neglecting his duty. I am fully confident that the Revenue and departmental officials will be getting a feel for this to see how it is working and if it is working to the expectations the Government had at the time. The only thing this amendment does is ask the Minister to get that information, be it hard or soft data, and put it into a report in a way that can be furnished to the Opposition parties as well. In that way we can have a proper, considered view on this new development which is expected to cost a lot of money even if it works out to the Government's expectation in terms of €50 million. If we can see how it is working, then not just the Government but also the Opposition will be fully equipped and informed as to whether this needs to be tweaked, altered, amended, scrapped or strengthened in next year's finance Bill.

I will be pressing this amendment because it goes to the heart of genuine, serious debate on the Finance Bill before us. We must take our responsibilities seriously in examining the Bill and its measures. I have repeatedly told the Minister that while I have reservations about this area, one does take risks in the taxation code. The Minister must take those calculated risks and acknowledge the fact from his viewpoint - there is obviously an ideological point of view as well - that those risks have been taken on the basis of a report that has been carried out. When the Minister takes the risk he has to keep an eye on it because he is acknowledging that it is a risk. He has to see if it has worked out in the way he expected. Given the potential size of this and the way these companies are so mobile and are able to move profits, we need to have a feel for it by this time next year. I will therefore press the amendment. With hand on heart, I cannot see how the Opposition has a problem with this. The wording in the amendment is about ensuring the full House and the public are informed about how this transpires, with the information that is available at the time and recognising that information may not be the complete picture. We need, however, to get a sense of where it is going.

Amendment put:

The Dáil divided: Tá, 34; Níl, 67.

Tá

• Aylward, Bobby.
• Boyd Barrett, Richard.
• Calleary, Dara.
• Colreavy, Michael.
• Cowen, Barry.
• Crowe, Seán.
• Daly, Clare.
• Doherty, Pearse.
• Dooley, Timmy.
• Ellis, Dessie.
• Ferris, Martin.
• Fitzmaurice, Michael.
• Halligan, John.
• Healy, Seamus.
• Healy-Rae, Michael.
• Keaveney, Colm.
• Kelleher, Billy.
• Mac Lochlainn, Pádraig.
• McConalogue, Charlie.
• McGrath, Finian.
• McGrath, Michael.
• McLellan, Sandra.
• Moynihan, Michael.
• Naughten, Denis.
• Ó Cuív, Éamon.
• Ó Fearghaíl, Seán.
• O'Dea, Willie.
• O'Sullivan, Maureen.
• Pringle, Thomas.
• Ross, Shane.
• Smith, Brendan.
• Tóibín, Peadar.
• Troy, Robert.
• Wallace, Mick.

Níl

• Barry, Tom.
• Breen, Pat.
• Buttimer, Jerry.
• Byrne, Eric.
• Cannon, Ciarán.
• Carey, Joe.
• Conaghan, Michael.
• Connaughton, Paul J.
• Conway, Ciara.
• Coonan, Noel.
• Corcoran Kennedy, Marcella.
• Costello, Joe.
• Creed, Michael.
• Deasy, John.
• Deenihan, Jimmy.
• Donohoe, Paschal.
• Dowds, Robert.
• Doyle, Andrew.
• Durkan, Bernard J.
• Farrell, Alan.
• Feighan, Frank.
• Fitzpatrick, Peter.
• Flanagan, Charles.
• Harrington, Noel.
• Harris, Simon.
• Hayes, Tom.
• Heydon, Martin.
• Howlin, Brendan.
• Humphreys, Kevin.
• Keating, Derek.
• Kehoe, Paul.
• Kenny, Enda.
• Kenny, Seán.
• Kyne, Seán.
• Lawlor, Anthony.
• Lynch, Ciarán.
• Lynch, Kathleen.
• Lyons, John.
• McCarthy, Michael.
• McFadden, Gabrielle.
• McGinley, Dinny.
• McHugh, Joe.
• McLoughlin, Tony.
• Mitchell, Olivia.
• Mulherin, Michelle.
• Neville, Dan.
• O'Donnell, Kieran.
• O'Donovan, Patrick.
• O'Dowd, Fergus.
• O'Mahony, John.
• O'Reilly, Joe.
• Penrose, Willie.
• Phelan, Ann.
• Phelan, John Paul.
• Quinn, Ruairí.
• Rabbitte, Pat.
• Reilly, James.
• Ring, Michael.
• Shatter, Alan.
• Sherlock, Sean.
• Spring, Arthur.
• Stagg, Emmet.
• Stanton, David.
• Tuffy, Joanna.
• Twomey, Liam.
• Wall, Jack.
• White, Alex.

Tellers: Tá, Deputies Pádraig Mac Lochlainn and Pearse Doherty; Níl, Deputies Emmet Stagg and Paul Kehoe.

Amendment declared lost.

Acting Chairman (Deputy Olivia Mitchell)

Amendments Nos. 7 to 16, inclusive, arise out of committee proceedings. They are related and may be discussed together.

Deputy Michael Noonan

I move amendment No. 7:

In page 65, line 24, to delete “one or more” and substitute “all”.

Amendments Nos. 7 to 9, inclusive, and amendments Nos. 11 to 16, inclusive, are technical changes to improve the wording of the provision in section 34 of the Bill, as amended on Committee Stage, to ensure they operate as intended. One of the amendments I introduced on Committee Stage was to change the requirement for an individual entrepreneur to own for the purposes of the capital gains tax entrepreneur relief a specified minimum of ordinary share capital in the company or companies to which he or she is conducting qualifying business so as to reduce the shareholding requirement from 15% to 5%. I did this because the founders of many companies, in particular those in the high-tech area, must attract outside equity investment in order to grow a business. This means their original shareholding stake can often be significantly diluted. Indeed, in some instances the shareholding of the company founder can fall below 5% in the circumstances. For that reason, I propose in amendment No. 10 to further modify the minimum shareholding requirement so as to provide that the 5% shareholding requirement can be satisfied if met for a consecutive period of three years within the five year period, ending with the disposal of the shareholding effort. I commend the amendments to the House.

Deputy Michael McGrath

I support the amendments and this important new initiative which was overdue, although I would like it to go further. The reality is that much of the investment we are seeking to attract for high potential start-ups, which are operating in highly competitive international environments, is, by its nature, very mobile. This is a modest step in the right direction and does not put us on a level playing field with some other jurisdictions which are quite aggressively seeking to target entrepreneurs who have strong business ideas and a track record of growing and developing businesses and selling them on. This is a welcome step in the right direction.

Deputy Michael Noonan

I agree with the Deputy.

Amendment agreed to.

Deputy Michael Noonan

I move amendment No. 8:

In page 65, line 27, to delete “one or more” and substitute “all”.

Amendment agreed to.

Deputy Michael Noonan

I move amendment No. 9:

In page 66, between lines 9 and 10, to insert the following:

“ ‘relevant company’ means a company (including a company in a qualifying group) the disposal of shares in which forms the whole or part of the disposal of chargeable business assets;”.

Amendment agreed to.

Deputy Michael Noonan

I move amendment No. 10:

In page 66, lines 11 and 12, to delete “for a minimum period of 3 years” and substitute “for a continuous period of not less than 3 years in the 5 years”.

Amendment agreed to.

Deputy Michael Noonan

I move amendment No. 11:

In page 66, to delete lines 13 to 15.

Amendment agreed to.

Deputy Michael Noonan

I move amendment No. 12:

In page 66, line 25, to delete “target company” and substitute “relevant company”.

Amendment agreed to.

Deputy Michael Noonan

I move amendment No. 13:

In page 66, line 27, to delete “target company” and substitute “relevant company”.

Amendment agreed to.

Deputy Michael Noonan

I move amendment No. 14:

In page 66, line 34, to delete "target company" and substitute "relevant company".

Amendment agreed to.

Deputy Michael Noonan

I move amendment No. 15:

In page 66, line 36, to delete "target company" and substitute "relevant company".

Amendment agreed to.

Deputy Michael Noonan

I move amendment No. 16:

In page 67, lines 16 and 17, to delete "or an interest in a business consisting of the development or letting of land".

Amendment agreed to.

Deputy Michael Noonan

I move amendment No. 17:

In page 68, after line 35, to insert the following:

“Amendment of section 542 of Principal Act (time of disposal and acquisition)

37. Section 542 of the Principal Act is amended by inserting the following subsections after subsection (1):

“(1A) Notwithstanding subsection (1)(c), the time of the disposal of land which has been compulsorily acquired shall be the time at which the compensation amount in respect of that compulsory acquisition is received, where that amount is received on or after 1 January 2016.

(1B) Notwithstanding subsection (1)(d), the time of the deemed accrual of a chargeable gain in respect of a disposal of land which has been compulsorily acquired shall be the time at which the compensation amount in respect of that compulsory acquisition is received, where that amount is received on or after 1 January 2016.”.”.

The revised capital gains tax, CGT, relief for entrepreneurs will come into effect in respect of gains made from disposals of chargeable business assets or of a qualifying business on or after 1 January 2016. Business people will qualify for the reduced 20% rate of CGT on such disposals from that date, subject to meeting the various conditions of the relief. Business people, including farmers, are also liable to CGT on any gains made from the disposal of land under compulsory purchase orders where they may be required to sell such business assets used in their qualifying business. It is reasonable to ensure that individuals in this situation, who will have made such compulsory disposals before 1 January 2016 but who will receive compensation payments in respect of the disposal in 2016, are placed in the same position for tax purposes, in so far as qualifying for the reduced 20% rate is concerned, as individuals who make the disposal in 2016. For this reason I propose the amendment to provide that in respect of the compensation payments received on or after 1 January 2016, the date of receipt of the payment will be treated as the date on which the disposal of the land occurred. I commend the amendment to the House.

Amendment agreed to.

Deputy Michael McGrath

I move amendment No. 18:

In page 78, between lines 18 and 19, to insert the following:

“50. The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on the potential introduction of a capped Value-Added Tax compensation scheme for charities.”.

The amendment requests that within six months of the passing of the Act the Minister will prepare and lay before the House a report on the potential introduction of a capped value added tax compensation scheme for charities. This is an issue we discussed on Committee Stage. In particular, we discussed the special working group report commissioned by the Minister, which was published on budget day last month. This is a very important issue for the charitable sector. It is not widely known that Irish charities are estimated to pay in excess of €40 million VAT on independently fundraised income annually. We all know the legal basis for this, which is that because they do not operate in the course of business they are not in a position to register for VAT and claim back the VAT they pay as an input credit. This means a significant proportion of the amount of fundraising they carry out ends up going back to the State by way of VAT.

One of the main concerns expressed by the Minister on Committee Stage, in terms of not looking at this further, is the possible creep effect whereby other sectors, such as sporting bodies, could equally highlight they raise money in a voluntary capacity through weekly lotto payments and much of this ends up going on VAT when equipment is bought or other services are paid for.

The model used in Denmark has in place a compensation system for charities with regard to the VAT they pay which is capped at €20 million. The Minister took a very important first step in commissioning the special working group report, and the Irish Charities Tax Reform Group and others contributed significantly to this work. The report makes for very interesting reading. I understand the Minister's reason for not going further at this stage, but it is worthy of further examination. I do not believe the Minister should close the door on the issue, given the real impact it has on the charitable sector and its capacity to deliver services to the people relying on its work. This is the essential point. It should not be the case that money collected by volunteers for charitable purposes ends up going back to the taxman by way of VAT when the charity buys goods and pays for services for the end user who requires those services for whatever reason. The issue needs to be looked at further, which is why what we have brought forward is quite a modest amendment calling for a report within six months to examine the potential introduction of a VAT compensation scheme for charities which would be capped. I know it is a legitimate concern that if this is demand-led it could become a runaway train with regard to the overall cost to the Exchequer, but this can be dealt with by way of capping the compensation scheme. I look forward to the Minister's response.

Deputy Pearse Doherty

I add my party's support to Deputy McGrath's amendment. It addresses the anomaly which exists, whereby charities are not afforded the same treatment as the many businesses that are able to reclaim VAT incurred. As Deputy McGrath said, this issue has been raised by charities for many years. I remember raising the issue when I was a Member of the Seanad approximately seven years ago. There is an injustice at its heart as has been pointed out. People dig deep into their pockets to provide for charities but, probably unbeknownst to them, out of every €5 they give approximately €1 goes to the State's coffers, and this is not the intention. This is not why people collect and raise money for charities. It is not the spirit of how it should operate.

The Danish model of VAT compensation has been noted. This has been in operation since 2007, and it is a model that would be fit for purpose for this country. It is reviewed on an ongoing basis by the Danish charity organisations and its department of finance and taxation. It needs to be brought to fruition in this country. I support the Deputy's amendment. It makes sense. It is capped, as he mentioned. We have spoken about the knowledge development box and €50 million, of which very high worth companies may avail. That section of the Finance Bill has been passed. These are charities and, in many respects, sometimes they fill a void which the State cannot or will not fill. The fact the State benefits not only from their charity work but also from their fundraising efforts is not acceptable.

Deputy Michael Noonan

As discussed on Committee Stage, a working group was established earlier this year, comprising representatives from the Department, the Revenue Commissioners and the Irish Charities Tax Reform Group, to examine options available to reduce the VAT burden on charities. The report from the group was provided ahead of budget 2016 and is available on the budget 2016 website. The charities sector already benefits from a range of ministerial refund orders and special tax treatment across a number of tax heads. Requests for new ministerial refund orders have been constantly refused since the 1980s, primarily to maintain the integrity of the VAT system. Following consultation with other member states, the report of the working group found relatively limited favourable VAT treatment for charities across Europe. As I stated on Committee Stage, I believe tax expenditures can be blunt instruments and I am not convinced this is the best way to address the issue. In addition, introducing a VAT refund scheme for charities would most likely lead to similar claims from other VAT exempt organisations, most notably sporting organisations. Accordingly, I regret I cannot accept the amendment.

Deputy Michael McGrath

That is a very similar response to what we received on Committee Stage when we discussed the issue. The Minister's key concern seems to be that it would lead to other calls by other organisations which are not in a position to claim back VAT, and the area he has specified is sporting organisations. This is a legitimate point, but the response is that there is an opportunity to cap any rebate at a certain amount. I take some comfort from the fact that the Minister is not saying it is not possible to do this. What he is saying is that it could lead to other demands and he is anxious to protect the integrity of the VAT system which is, of course, a crucial source of revenue for the State. Charities such as the Society of St. Vincent de Paul and Concern collect money from ordinary people and use the money wisely.

We are talking about all the charities that we support and respect, acknowledging the tremendous work they do. There is an issue of equity, justice and fair play at the heart of this. The ordinary punter is putting a few euro into the bucket at a church gate or in a shopping centre but these people do not realise a slice of the money is going straight back to the Revenue Commissioners and the Exchequer by way of VAT when the money is spent by the charity to buy goods or services.

Will this or a future Government be prepared to introduce this scheme, which is capped and limited in scope but which has the ability to really improve the capacity of the charitable sector to deliver what it wants to for the end user, the people relying on those services? I can understand why the Minister is not prepared to move on it at this stage but I ask him to keep an open mind. We had the debate on Committee Stage and the measure will not be included in this Finance Bill, which is regrettable. The report of the special working group is a very important first step and it must be studied very carefully for potential. With this amendment, I advocate that the Minister take a further step to consider the potential introduction of such a scheme. I know the Minister is not willing to do so now but I will press the amendment.

Amendment put and declared lost.

Acting Chairman (Deputy Olivia Mitchell)

Amendment No. 19 is out of order and cannot be moved.

Amendment No. 19 not moved.

Deputy Michael McGrath

I move amendment No. 20:

In page 88, after line 31, to insert the following:

"66. The Minister shall, within three months of the passing of this Act, prepare and lay before Dáil Éireann a report on options available for reducing the burden of Inheritance Tax on persons inheriting an average size family home.".

We have examined the transcripts of our Committee Stage debate and the Minister's views on this issue are quite clear so I will not press the amendment. It was adequately dealt with on Committee Stage.

Deputy Michael Noonan

I thank the Deputy.

Amendment, by leave, withdrawn.

Deputy Pearse Doherty

I move amendment No. 21:

In page 89, between lines 4 and 5, to insert the following:

"67. The Minister shall, within 3 months of the passing of this Act, prepare and lay before Dáil Éireann an analysis of the tax changes in this Act, and the total of tax changes and spending adjustments of Budget 2016, setting out the continuing impact on people based on their gender, income, age, marital and disability status.".

This is about equality budgeting, and we have made this proposal every year that the Government has been in office. We have also produced legislation on equality-proofing and this amendment seeks to provide for equality-proofing of Government budgets and public bodies through impact assessments. More broadly, I hope this would ensure that both the Government and public bodies, in exercising their functions, do so in a way that would reduce inequalities of outcomes resulting from social economic disadvantage. The process would involve additional sectors of society being recognised that require enhanced protection from the State with respect to policy and spending decisions, with the effects of the budget being demonstrated for each of those sections.

The Minister spoke about making tough decisions yesterday and we know times have been hard in Ireland. What some of us have failed to recognise is just how difficult times have been for some of the poorest and most vulnerable sections of our society. Not everybody felt the pain in equal measure. For the fifth year in a row we have been presented with a regressive budget and Finance Bill after the budget. As I have stated, the Bill rewards the top 14% of taxpayers, 27,996 of whom earn above €200,000. They were all rewarded with at least €902 each, at a cost of almost €190 million to the State. That is a choice made by the Minister, his Cabinet and the parties in the Government with regard to the priorities of the budget. They have favoured the wealthy five times in a row over those who are least well off. The Minister has said he made the hard choices.

Social Justice Ireland claims that budget 2016 widened the gap between the rich and poor by €506 per year. The process measured the gap between the disposable income of a single unemployed and a single person on €50,000 per annum. If we compared the circumstances of the single unemployed person with individuals on higher salaries, the rich-poor gap would widen even more.

Equality budgeting has been accepted internationally as a means to deal effectively with inequality and poverty or to point out where budgets go in such directions. We can consider worldwide examples, with over 60 countries which have adopted or are working towards equality budgeting. These include Britain, Canada and many others. Often, in order to create true equality we must put the mechanisms in place to ensure this happens. This is one of those times. By using equality budgeting, we would ensure that equality is placed well and truly at the centre of any decisions concerning public expenditure and income. This amendment is about asking the Fine Gael and Labour parties if they support equality. That is the proposal I am putting to the floor today, and I will push it to a vote if the Minister does not accept the amendment. It would follow the 60 other countries that have accepted or are working towards equality budgeting.

Deputy Richard Boyd Barrett

This amendment simply asks that any budgetary measures that this or any other Government adopts would be assessed for the impact or effect on the most vulnerable sectors of our society. It would ensure that no budgetary measure would contribute to greater levels of inequality. I do not really see how anybody could say "No" to that. Surely any Government, regardless of colour or stripe, should recognise that inequality is something that must be addressed and overcome. That is not just true because inequality is unfair on those who suffer inequality, although that is self-evident and has been particularly the case in recent years. It is almost a cliché now but, sadly, that is because it is true. The most vulnerable people have been hurt most by the austerity regimes. I saw one of those memes on social media yesterday, which gave the definition of austerity as being where the poor pay for the crimes of the rich. That is what happened.

There are 137,000 additional children living in poverty since this Government came to office, which is a shameful indictment of its term. The children bear no responsibility at all for the crash or the policies dealing with the crash, and they should not pay the bitter price for it. Women comprise another big victim group, particularly lone parents. The number of lone parents living in positions of deprivation and consistent poverty has doubled as a result of the austerity measures introduced by this Government. Pensioners have also been hit by cuts to the telephone and fuel allowances, for example. All of these groups have been hit disproportionately by regressive measures like water charges and property tax. The list goes on. Those suffering a disability have been particularly hard-hit. In many cases, these groups overlap significantly, so it is not just one or another of the categories that is hit by austerity, as people are hit on the double and treble by the combination of various cuts and regressive measures introduced.

This is a very fair and reasonable measure if the Government is concerned about inequality. A point has been made before but is worth underlining that there is a very serious strand of economic thought - it is quite mainstream - that argues that inequality is not just wrong but it is dangerous from an economic perspective.

It leads to greater economic instability and arguably it is at the heart of much of the economic instability we face across the world now, such as the stunning gap between rich and poor and the concentration of wealth in the hands of a few at the top. That group can, by dint of its control of vast amounts of wealth, destabilise whole economies. Inequality is bad for everybody, but most particularly for those who are at the sharp end of that inequality. The other big area where-----

Debate adjourned.