For the benefit of Members, it is proposed to group the following amendments: Nos. 2 to 5, inclusive, and Nos. 6 to 12, inclusive. Other amendments not grouped will be discussed individually. All Members can speak twice on each amendment or group of amendments. The first contribution shall not exceed seven minutes and the second shall not exceed two minutes. A Member who moves an amendment retains the right to reply which shall not exceed two minutes.
Knowledge Development Box (Certification of Inventions) 2016 [Seanad]: Report and Final Stages
I move amendment No. 1:
In page 9, between lines 10 and 11, to insert the following:
“(5) The Office of the Revenue Commissioners shall, within 3 months of the enactment of this Act, publish a guidance document to provide information to businesses considering making an application for a KDB certificate.”.
The intention of the amendment is to require Revenue to supply guidelines to assist and advise companies that may be applying to receive a certificate on how to do so. The feedback from the research and development tax credit, which is a similar measure, highlights the experience of many companies. These companies apply for the credit. Then they prepare the accounts and file on the basis of the innovation or research activity undertaken. Subsequently, they find that they have not qualified or that they have qualified but only subject to a Revenue audit later in the process under which there is a claw-back mechanism. This is frustrating for the companies involved. It is counterproductive in the context of the intention of the scheme. It represents a barrier, especially for small and medium sized companies trying to avail of the scheme. The nature of smaller companies means they do not have the cashflow to take a risk in applying for credit or to avail of credit that may be clawed back at a later stage. In fact, it amounts to a block in availing of the credit.
We took the view on Second Stage and Committee Stage that the Bill was worthwhile. We will be supporting the Bill as a whole. However, we want to see this provision carried through in order that innovation is encouraged and that companies can be given every opportunity to avail of it. We are keen for exposure to be maximised in the sense that companies have clear guidance on what is relevant and what is not, on what is applicable and what is not and on what does and does not fall into the parameters of the scheme.
When I made similar points on Second Stage, the Minister for Jobs, Enterprise and Innovation, Deputy Mitchell O'Connor, acknowledged them. She indicated her agreement and said that she would require Revenue to issue such guidelines. The intentions of the Minister are welcome and they mirror my intentions. However, to be certain, my approach has been to put this measure into the Bill. I have included it as an amendment in order that the Revenue guidelines are mandatory and included within three months of the passage of the legislation. This will ensure that small and medium-sized enterprises seeking to avail of the provisions can do so with certainty and confidence. It will mean they can enter into the sphere with that at their back. That is the thrust of the amendment. I hope the Government will accept it. I call on the other parties in the House to support it as well.
I thank Deputy Lawless for the amendment. Of course I understand the concerns that lie behind the attempt to ensure legal certainty for companies availing of this new certification scheme. However, the amendment of Deputy Lawless relates to the provision of the Revenue guidance document. The Bill deals with the process for the certification scheme before the Irish Patents Office. The Controller of Patents, Designs and Trade Marks will be responsible for the operation and administration of the knowledge development box certification scheme.
However, I am happy to confirm to Deputy Lawless that the controller fully intends to issue guidance in the operation of the certification scheme. In his guidance, the controller will provide more in-depth information on the process of making an application before the office.
Moreover, Revenue has already published detailed guidelines on the administration of the knowledge development box scheme following the introduction of the scheme in January 2016. The purpose of the guidelines is to provide certainty for taxpayers seeking relief under the scheme. Following enactment of the Bill, Revenue is committed to issue further guidelines on how the assets under the certification scheme will be dealt with by the agency.
I trust the Deputy can see that his concerns are being addressed without the need for an amendment, since the issue is being taken care of in the normal administration procedures.
We spoke about this on Committee Stage. I understand the well-intentioned nature of the amendment. I wish to draw the attention of Deputy Lawless and other Deputies to a research and development discussion group set up by Revenue. It aims to bring greater certainty to the administration of the scheme, the research and development tax credit scheme and the knowledge development box. This forum will enable Revenue, taxpayers and representative business organisations to raise and address the issues affecting the administration of the scheme. If the Deputy is interested in obtaining further detail on how the process works or on the forum, I would be delighted to provide it.
Having examined the matter, I am absolutely confident that the matters are covered by the research and development tax credit scheme for Revenue, taxpayers, those representing business and so on. I keep making the point that I have input at all stages. I can monitor and see exactly what is happening with the development of the scheme. I can do so on a weekly basis, if necessary.
Amendment put:
The Dáil divided: Tá, 50; Níl, 39; Staon, 0.
Tá
- Adams, Gerry.
- Aylward, Bobby.
- Boyd Barrett, Richard.
- Brassil, John.
- Breathnach, Declan.
- Broughan, Thomas P.
- Browne, James.
- Buckley, Pat.
- Butler, Mary.
- Cahill, Jackie.
- Casey, Pat.
- Cassells, Shane.
- Chambers, Jack.
- Chambers, Lisa.
- Collins, Michael.
- Connolly, Catherine.
- Cullinane, David.
- Doherty, Pearse.
- Donnelly, Stephen S.
- Fitzmaurice, Michael.
- Fleming, Sean.
- Funchion, Kathleen.
- Harty, Michael.
- Healy-Rae, Danny.
- Lahart, John.
- Lawless, James.
- MacSharry, Marc.
- McGrath, Mattie.
- McGrath, Michael.
- Mitchell, Denise.
- Moynihan, Aindrias.
- Moynihan, Michael.
- Murphy O'Mahony, Margaret.
- Murphy, Eugene.
- Nolan, Carol.
- Ó Broin, Eoin.
- Ó Caoláin, Caoimhghín.
- Ó Laoghaire, Donnchadh.
- Ó Snodaigh, Aengus.
- O'Brien, Darragh.
- O'Keeffe, Kevin.
- O'Loughlin, Fiona.
- O'Rourke, Frank.
- Pringle, Thomas.
- Quinlivan, Maurice.
- Scanlon, Eamon.
- Smith, Brendan.
- Smyth, Niamh.
- Stanley, Brian.
- Tóibín, Peadar.
Níl
- Bailey, Maria.
- Barrett, Seán.
- Breen, Pat.
- Brophy, Colm.
- Bruton, Richard.
- Burke, Peter.
- Byrne, Catherine.
- Cannon, Ciarán.
- Carey, Joe.
- Corcoran Kennedy, Marcella.
- Coveney, Simon.
- D'Arcy, Michael.
- Daly, Jim.
- Doherty, Regina.
- Doyle, Andrew.
- Durkan, Bernard J.
- English, Damien.
- Farrell, Alan.
- Fitzgerald, Frances.
- Flanagan, Charles.
- Griffin, Brendan.
- Halligan, John.
- Harris, Simon.
- Kyne, Seán.
- McEntee, Helen.
- McHugh, Joe.
- McLoughlin, Tony.
- Madigan, Josepha.
- Murphy, Eoghan.
- Naughton, Hildegarde.
- Neville, Tom.
- Noonan, Michael.
- O'Connell, Kate.
- Phelan, John Paul.
- Ring, Michael.
- Ross, Shane.
- Ryan, Brendan.
- Stanton, David.
- Varadkar, Leo.
Staon
Tellers: Tá, Deputies Michael Moynihan and Margaret Murphy O'Mahony; Níl, Deputies Regina Doherty and Tony McLoughlin.
Amendment declared carried.
Amendments Nos. 2 to 5, inclusive, are related and will be discussed together.
I move:
In page 10, between lines 15 and 16, to insert the following:
"(7) The Minister at the end of each year (beginning with the year ending 31 December 2018) shall prepare and lay before each House of the Oireachtas an anonymised report outlining why applications for KDB certificates were not successful.".
This amendment requires a knowledge database to be prepared pertaining to applications for a knowledge development box certificate where those applications are unsuccessful. It follows in the spirit of the previous amendment in that, where an SME is reviewing the feasibility of a client for the knowledge box certificate, it would be able to build over time a database of successful and unsuccessful applications. In other words, there would be a record maintained of the applications, starting in 2018, so that when an application is being considered the following year or in the years thereafter, there will be some indication as to whether it will be successful or not. In other words, the parameters of the application would be set out. There is a precedent associated with the Office of the Data Protection Commissioner. It keeps a record of decisions made on particular cases. This allows future applicants in the same situation to look back at precedent and decide whether it is worth their while applying.
My amendment suggests that we create a database of unsuccessful applications that would be used to influence and advise regarding further applications in subsequent years. Those concerned could then make an informed call as to the merits, or otherwise, of an application. It would reduce the number of unsuccessful applications and it should really lead to a much more streamlined process. Again, in the spirit of the previous amendment, it should increase confidence in the applicants. Companies in the SME sector, where cash flow is very relevant, should have the opportunity to have certainty and confidence before they enter into an application.
We debated quite a bit of this on Committee Stage so I will not delay excessively. I will reiterate briefly the reasons we have tabled a series of amendments to this Bill and more generally why we will, at the end of this process, be opposing this Bill and calling for a vote on it. I indicated this on Second and Committee Stages.
This Bill, which will probably go largely unnoticed by the public and media, proposes to provide another tax loophole for the corporate sector such that if one qualifies for the knowledge development box tax break, one will pay tax at a rate of 6.25% rather than 12.5%. I find this extraordinary although it is quite consistent with the general approach of both this Government and Fianna Fáil. Their policy, on which they are united, is to reduce an already extraordinarily low tax burden on corporations' profits even further. This is at a time when we have had the scandal of Apple. There is €19 billion, including interest, that we do not want to collect. This could transform the lives of all those suffering and struggling in the face of the housing and health crises. The revenue would provide the money we need to resolve the dispute in Bus Éireann and so much more. We could literally transform the country just by collecting the taxes from one company, Apple, which according to European Commission dodged tax to the tune of €13 billion. The Apple tax scam was just the tip of a very big iceberg, however.
I addressed this matter in the debate on Second and Committee Stages. It needs to be shouted from the rooftops as often as possible. With the exception of only one of seven years after the crash in 2008, during which years the whole country expected the corporations to be crushed with austerity, the profits of the corporations went up consistently. There was a slight dip in 2008. Therefore, while everybody else was getting poorer, the corporations were making profits and getting richer. Not only that, when the financial emergency caused by the gambling and speculation of the corporate and financial elite was resulting in the imposition of the most cruel and vicious austerity on working people in this country, at which time the Government believed it was justifiable to bring in financial emergency measures Acts and lash up taxes on workers and slash housing budgets, everybody bar one group got hit cruelly hard time and again. One group did not get hit at all.
There was not even an emergency levy or a little bit of extra emergency tax on the corporate sector which was paying pitifully low levels of tax. The 12.5% rate, which is lower than what any average worker would pay on his or her income, is not good enough. Actually, due to a whole rake of loopholes, these corporations were paying on average, interestingly, 6.25%. The Government wants to legitimise this with this knowledge development box proposal to get around moves on an international scale to close down some of those loopholes. It is the new double Irish.
I oppose this fundamentally. This set of amendments at least attempts to oblige the Government to give us detailed information as to who is benefitting from this tax break, in what sectors and in what areas, as well as other information that would allow the public to at least know who is benefitting from this tax scam.
These amendments relate only to the controller’s annual report. This is also about small to medium-sized businesses. It is not a catch-all situation in that whatever might happen with multinationals, the same would apply to small to medium-sized businesses.
On amendment No. 2 in the name of Deputy Lawless, I will begin by recalling the conditions under which a knowledge development box, KDB, certificate may be issued. In accordance with Part 2, section 12 the controller will issue a KDB certificate in respect of an invention that is novel, non-obvious and useful. Under section 13, the controller may refuse to issue a certificate if he is not satisfied in the case of a specific application that these requirements are met. He will provide the applicant with the grounds for his decision which will be specific to that application. The applicant will also be given an opportunity to seek a review of the controller’s decision.
Separately, section 18 sets out the controller’s annual reporting obligations which are statistical in nature. The controller’s annual report on his activities under this Bill will contain statistics on applications received, certificates granted and refused and reviews undertaken. This is in line with the current practice around the annual reporting of patents. In addition, section 18 imposes a non-disclosure obligation on the controller preventing the release of details of any invention the subject of an application. One can understand how a developer would not want the knowledge to be openly available, either nationally or internationally.
The grounds for refusal of applications will, by their nature, be individual and specific to the invention applied for. For this reason, reporting, even in an anonymised form, on applications refused would be difficult without identifying the nature of the invention. It could lead to the inadvertent disclosure of potentially valuable trade secret information to competitors and result in a breach by the controller of the non-disclosure obligation. For this reason, I cannot accept the amendment put down by Deputy Lawless.
Amendments Nos. 3 to 5, inclusive, in the names of Deputies Bríd Smith and Boyd Barrett, propose the inclusion of additional reporting requirements of a prescriptive nature. I draw the Deputies’ attention in particular to section 18(2) which provides that the controller’s annual report on activities under the certification scheme will include information on such matters as the Minister may direct. In addition, section 18(4)(h) provides for a catch-all provision that allows the Minister to request the inclusion of such other statistical information as he or she considers necessary at a given time in response to developments. I am satisfied the combination of these two provisions neatly provides a sound basis for the Minister to request the inclusion in the controller’s report of statistical information that the Minister considers appropriate at any given point. This could for instance include the type of information the Deputies have an interest in, such as reporting on a geographical or sectorial basis. It has the benefit of providing the Minister with the ability to seek statistical information on whatever basis he or she sees fit.
There is an inherent danger in being overly prescriptive in legislation. I said previously on Committee Stage that good legislation should provide a sound basis for ensuring the Minister gets the information he or she wants at a particular point in time. Having read the Bill in its entirety, I am satisfied that, as it stands, it provides a sound legal basis for this. I assure Deputies also that it has been the practice of the controller in his annual report on the activities of the office to provide a rich account of activities at the office. He currently includes statistics on a county by county basis. This is in line with providing good customer service where flexibility is key to an ability to respond to emerging needs. Accordingly, I do not propose to accept the Deputies' amendments.
The discussion mirrors much of that on Committee Stage where fundamental concepts were discussed. There are similarities between our amendments where we are all seeking greater information and disclosure on what type of activities qualify and do not qualify. There might be, however, slightly different motivations in the sense that my amendments are trying maximise the window for companies to avail of the schemes while the other Deputies are looking at it from different angles.
It is important to state that it applies only small and medium-sized enterprises. The knowledge box parent Bill, as such, is out there and small and medium-sized enterprises are enabled by this. The State should be encouraging through every measure available the promotion of innovation and creativity. It is the ultimate leveller. Knowledge is power. The means of production, the capital, is intellectual capital. From any perspective, this is a worthwhile, accessible and egalitarian concept. It allows us to enable financial activity and reward in terms of the driver being intellectual capital, as well as somebody’s own knowledge and creativity rather than any other pre-qualifying attributes.
This is the first OECD compliant measure of its kind in the world. Accordingly, I do not agree with the arguments that it is a new double Irish.
The Minister of State suggested my amendment may reveal trade secrets if the reports were to be produced. I do not believe that it is beyond the ingenuity of the Department to write a report in such a way that those sensitive details would not be revealed to the public. It is important and there is precedent in other similar schemes for this to be done to create a knowledge bank over time and that applicants can have greater confidence before they can begin to draw it down.
If we have concluded that where an application is not novel, not non-obvious and not original, what intellectual property are we protecting? This is about unsuccessful applications. I am not sure that the Minister of State’s concern applies.
I will leave the more philosophical debate to the next group amendments.
The bottom line is that this is a tax loophole, exploiting the rather vague notion of intellectual property, which was at the centre of the double Irish tax scam. This is another tax loophole revolving around the concept of intellectual property, whatever that is.
That is why I say it is the double Irish mark II. It is the new official double Irish, sanctioned by the State and even by the OECD. The reason we want information is that I suspect the people who will benefit from this will be a select few, just as the corporations which benefited from the double Irish will be the select few. It will not be the corner shop or a small and medium enterprise, it will be a select few corporations which know how to exploit the tax code and the concept of intellectual property in order to reduce their tax liability as Apple, Goggle, Facebook and the lot of them have done. That is what this is about. The Minister of State, in these set of amendments, is resisting this under the vague argument about commercial secrecy or anonymity but why does the Government really want to resist this? It does not want us to have detailed information which would confirm that it is the select few industries and businesses that will benefit from it, and that will blow the lie that the ordinary small and medium enterprise will benefit from it. It will not be the corner shop or the small guy in the local town who has come up with an enterprising idea who will benefit from it, it will be the corporate sector. The figure of €7.5 million and the figure of €50 million globally in this context constitutes the definition of a small and medium enterprise, but those figures are not small, they are big.
On the question of whether the knowledge development box, KDB, allows large multinationals off the hook in respect of tax, the answer is "No". The tax rate of 6.25% is on profits specifically arising from substantive research and development activities in Ireland that gives rise to the patents copyright software and an IPSS certificate under the Bill. The KDB has been developed in line with the OECD guidelines. The OECD Forum on Harmful Tax Practices has confirmed that the Irish knowledge development box is the first box in the world to be fully compliant with the rules. Applications to Revenue for the 6.25% relief under the KDB can be subject to random audits by the Revenue Commissioners, and I said this on Committee Stage. The Members can see where the 6.25% arises. It is for research and development activities in Ireland.
Deputy Boyd Barrett spoke about the figure of €7.5 million. We have to be in a position, regardless of who is in government and no matter from where we come, to invest in research and development. I have visited many research and development operations and they require major investment to get them off the ground. I believe Deputy Lawless would confirm that. Investment of €2 million, €3 million or €4 million has been made in operations where only four of five people are employed. Many of these are high-tech operations. I have seen such operations throughout Ireland. I do not consider €7.5 million to be a huge amount in that sense. Deputy Boyd Barrett and anybody else is welcome to come along with me to meet some of the industries and the groups.
Deputy Lawless raised the issue of the non-disclosure obligation on the controller preventing the release of details of an invention and spoke about those who may have an application for funding rejected. We have found that individuals and researchers and developers in small companies want to hold tightly onto a product in the hope that they can further develop it and even those who have been rejected funding from wherever they have sought it would want to keep tight about what they have discovered or developed and would not want it to go into the public forum. That is why that is covered in that section.
Amendment put and declared carried.
I move amendment No. 3:
In page 14, between lines 23 and 24, to insert the following:
“(3) The Minister may seek the introduction of appropriate categories or sectoral headings in respect of applications and request information from the Controller as to the proportion of applications under each heading.”.
Amendment put the declared carried.
On a point of order, I suggest, with respect, that the amendment is not carried.
I can only-----
It is the normal practice from the Chair.
If anybody dissents, they can call it.
The Minister did.
Is the Minister of State calling a vote?
Old practices do not die hard but I am a realist. We will move on to amendment No. 4 and I will test it the other way this time.
I move amendment No. 4:
In page 15, between lines 2 and 3, to insert the following:
“(h) figures in respect of the geographical or regional distribution of applications,”.
Is the Deputy pressing the amendment?
As a matter of interest, has amendment No. 3 been passed?
Congratulations, Richard.
Thanks. I am pressing amendment No. 4.
Press ahead now.
A Deputy
Deputy Boyd Barrett is on a roll now.
I can create votes if Deputy Boyd Barrett so wishes. We will test it this time.
I am happy with the way things are going.
Amendment No. 3 has been dealt with. Is the Deputy pressing amendment No. 4?
Amendment put and declared lost.
Vótáil.
The Minister of State is calling a vote against what I have just decided.
Sorry, no, I am not.
The amendment has been declared lost.
Can I call a vote on amendment No. 3?
The Minister of State is too late on that one.
The House has decided on amendment No. 3. We will move to amendment No. 5.
I move amendment No. 5:
In page 15, between lines 2 and 3, to insert the following:
“(h) such general information as to the operation of the scheme as may be appropriate or relevant,”.
Amendment put and declared lost.
Amendments Nos. 6 to 12, inclusive, are related and will be discussed together.
I move amendment No. 6:
In page 15, between lines 3 and 4, to insert the following:
“Review and scrutiny
19. (1) The Minister shall, as part of the annual Budget process, produce a report on the operation of the KDB including a consideration of the intersection of the KDB with other tax expenditure measures and its impact on the delivery of an effective tax rate for corporations.
(2) The Minister shall ensure appropriate annual information exchange between the Department of Jobs, Enterprise and Innovation and the Office of the Revenue Commissioners in order to facilitate the publication of information on the cost of this initiative, including the cost to date for the Exchequer in revenues forgone, as part of the annual budgetary process.”.
I will be calling a vote on this amendment just to let Members know who may be wondering when there will be a vote. There will be a vote on this amendment in approximately ten minutes.
Ten minutes.
In approximately ten or 12 minutes. The reason I will call a vote on this amendment is that there is a cost to these tax breaks and it is an important cost. I heard Deputy Lawless refer to the fact that we need this so-called knowledge development box because it will incentivise creativity and innovation. That is the argument for it. I am wholeheartedly in favour of creativity and innovation but the question is where should the State invest public money to get the best bang for it buck in terms of innovation and creativity. Should it give its money in tax breaks to profitable corporations or should it give it to universities and invest it in education? That is the choice in reality. If corporations that are making great profits do not pay taxes, we will have less money for the universities, schools and education. I believe that is from where the innovation comes. It is not that I do not believe that genuinely small and medium enterprises should not get some help. I think they should get help but it should be grant help from the State.
However, I do not think that somebody who comes up with a brilliant idea in business, which is the intellectual property, and develops a product from that brilliant idea should forever and a day be permitted to pay 6.25% on all sales generated from that idea. That would not be acceptable. The company could be making an absolute fortune - €7.5 million in income and €50 million globally - but it would only pay 6.25%, not even the 12.5%, which is the lowest level of corporation tax almost anywhere in Europe. These people are already pampered. They are already paying virtually nothing. This is money that should be going into our schools and universities, which, let us not forget, have been axed.
A lot of money has been taken out of third level education and postgraduate grants and study. There are many ideas and much creativity and innovation to be found in postgraduate study, but their grants have been cut. It is apparently fine for a profitable company to make millions of euro domestically and globally and to pay 6.5% but because they are not paying more tax, there is no money to go into the universities. There is no money for postgraduate grants, there are miserable maintenance grants for students living in poverty, and so on. That is the trade-off and it needs to be called out. I am, therefore, very much opposed to this entire knowledge box package. I accept it is linked to what was passed in the Finance Bill 2015, but I opposed that too and did so vigorously.
Another point that needs to be raised is that this is about the amount of forgone revenue. Does the House remember what happened in the last budget when there was only €1 billion in fiscal space to spread around for everybody? How much extra would be available if the corporations in this country paid 12.5%? Going on existing Revenue figures, there would be an extra €4 billion to €5 billion per year if they paid 12.5%. That is not much, but the Government wants them to pay 6.25%, which is, on average, the effective rate they currently pay. Some of them pay less than 1%. Apple was paying less than 1% because of all the other tax loopholes from which these companies benefit. I ask the House to imagine if we had an extra €4 billion or €5 billion in budget 2017 because these corporations were forced to pay the actual 12.5% rate. Imagine what that would do for our universities that have been starved of money. Imagine what it would do for education. Imagine what it would do for public transport, health and the capacity to pay public sector and other workers decently. It would transform the situation. We would get major creativity and innovation from the majority of the population whose lives would be improved, whose services would be improved and whose education would be upscaled to a massive extent.
That is what is at stake in the Bill, so I do not buy this for one minute. It is another tax scam in tax haven Ireland. That is what we are - a tax haven - and because we got caught out on the double Irish, we have brought in the knowledge development box to create another mechanism for the corporations to dodge tax. In so far as the Bill is directed at small and medium-sized enterprise, as I said, they should be given grants, including start-up grants. They should be given some money to develop things in such a way that the Bill is targeted at them. However, once a company starts to make millions in profits, it should pay its taxes. What this Bill will allow it to do is, forever and a day on all sales generated from the wonderful idea, to pay an even lower level of tax than the existing incredibly low level of tax applied to corporations in this country. It is a scandal.
I wish to advance on the comments of the previous speaker. While I cannot agree with the principles he outlined, I see absolutely the need to invest in universities, education, third level, fourth level, post-doctorate research and the programme for research third level institutions, PRTLI, as I have said many times in this House, and to continue the success of institutions such as Science Foundation Ireland which contribute to and fund all these activities. PRTLI is one particular body I have spoken about because it has been starved of funding, unfortunately, falling back to €14.9 million this year. I have been visiting universities this week, and they are struggling on the back of this reduction. They need investment in technology, laboratories, libraries and the bricks-and-mortar infrastructure needed to advance, sustain and house research and development.
There are other ways of going about this. Deputy Boyd Barrett's amendments and the principles he has articulated are a wider observation. Peculiarities in the tax code are a wider picture, as he has alluded to regarding the Finance Bill 2015 and subsequently. I am concentrating my amendments and my focus on the particular measures in this Bill, which I understand to be aimed at the SME sector. Investment in education and encouragement of enterprise and endeavour through the tax code are not mutually exclusive. It is possible to invest heavily in education to create highly skilled graduates who then go on to invest, and this should be the case. However, we must understand that some people wish to move on from the academic world and into enterprise, and they should be rewarded and encouraged for doing so.
It is also important to observe that not every cent of revenue generated by these firms will be subject to the 6.25% rate. The activities derived from the invention, certified by the office, are those in which the credit is claimed upon in that particular year. It is not an ongoing stream. It is not, to my mind, a device for repeated, perpetual tax avoidance. It is a measure to encourage and incentivise the SME sector. I have met those involved in the SME sector and they are not all by any means corporations, whether large or small. In fact, I have dealt with sole traders and have met individuals in the sector. They are not even all high-tech. There are some extremely talented, innovative people across all sectors, including in the trades, who are inventing things using their own intellectual capital. This is something we should reward and focus on, and we should do so through the tax code.
There is merit to the arguments and concerns about the wider tax position and how clever corporations can hedge and marry multiple tax tools to pay a low effective rate of tax. However, as I see it, they are not applicable to this Bill and these measures, and for that reason I will not be able to support the amendments.
The point is that we need to know. I have given the wider argument. When it comes to the budget, we need to know, and that is what these amendments seek. Whether one agrees or disagrees, there is merit in saying we need to know how much money is forgone. Choices are made in budgets, and we will have to decide whether €50 million, €100 million or whatever should be forgone through this mechanism, along with all the other mechanisms. We need to know about the other mechanisms too, such as the €30 billion of tax loopholes per year given away to these corporations, but that is another day's work. We are dealing with this new tax loophole the Government is proposing.
These amendments propose that the relevant committee should scrutinise this measure and that we need information provided prior to the budget as to how much revenue is forgone so that when we vote on the budget, we can say we would rather that €50 million, €100 million, €20 million or whatever it may be go into the universities or second level education or whatever. It seems to me at a very minimum a reasonable thing to ask, that we be allowed monitor this, that the public be made aware and that we be allowed debate whether these tax breaks are actually beneficial for society and the economy as a whole or if they just benefit the select few who have done so well out of the already extensive, myriad tax loopholes from which big corporations have benefited.
The amendments tabled by Deputies relate to the reporting requirements under section 18 and seek to expand them quite extensively. For the reasons that I will outline, I do not propose to accept them.
It might be useful to remind Deputies of the intention behind this Bill. This Bill proposes the introduction of a KDB certification scheme for small and medium enterprises. This scheme is to be administered by the Patents Office. The process before the office involves examination of applications to ensure the invention that is the subject of the application meets the criteria of being novel, non-obvious and useful. At the end of this process, if the application meets these criteria, the office will grant a certificate; if not, the office will not issue a certificate although the facility exists for the applicant to seek a review of the application by the office. The office will report on the limited range of activities in which it is involved and is ultimately concerned that the inventions applied for fit the criteria of being novel, non-obvious and useful.
If successful before the office and if a certificate of invention is obtained, SMEs can then apply the 6.25% corporate tax rate to profits arising from the invention. Revenue will consider tax returns on the basis of the provisions that apply to the KDB scheme introduced by the Minister for Finance in the Finance Act 2015 which came into effect on 1 January 2016. Revenue will, in the same way as the research and development tax credit scheme, have the information on the KDB to provide reliable information to Government on the use of the KDB, including information on revenue forgone to the Exchequer.
The amendments are prompted by a desire on the part of Deputies to ensure ongoing monitoring and evaluation of incentive schemes provided by the State to develop our capacity in the area of research and to promote enterprise. Ongoing monitoring and evaluation is absolutely necessary to protect taxpayers' money and to ensure that when new schemes are introduced by the State that they are reviewed to ensure they continue to provide value for money. I can assure Deputies that the process of monitoring and evaluation of all of our research, enterprise and taxation schemes is ongoing with regular reviews carried out. In the case of the KDB, the report on tax expenditures published with the budget in October 2015 provides an ex ante evaluation of the KDB scheme. This evaluation outlines the basis of the best estimate of tax forgone of €50 million. This €50 million is in respect of all aspects of the KDB and not just the certification scheme aimed at SMEs.
All tax expenditures are reviewed on a regular basis in line with the Department of Finance guidelines for tax expenditure evaluation published in October 2014. These rules apply to the knowledge development box and an evaluation will take place within five years of the introduction of the scheme. A review of the KDB certification scheme for SMEs will fall within a review of the overall KDB scheme and is a matter for the Minister for Finance.
In respect of amendments Nos. 6 to 8, I remind Deputies that it is the case that the controller will, on an annual basis, publish information on the activities of the Patents Office in relation to the KDB certification scheme. This information will be laid before the Houses of the Oireachtas and will be in the public domain. Revenue will therefore have access to the controller's annual report to the Minister. The information, however, will be of a statistical nature only. Information on linkages with other tax measures and revenue forgone will not be known to the controller or to the Minister. Such matters are the policy responsibility of the Minister for Finance.
In respect of amendments Nos. 9 to 12, given the nature of the process that I have just described before the Patents Office, I do not think that these amendments have any place in this Bill. It is open to SMEs to avail of any and all supports and incentives that apply under various research and enterprise programmes. As Minister of State with responsibility for innovation, I fully encourage SMEs to use all available supports for innovation with a view to leading to increased job creation. As I mentioned, research and enterprise support programmes are evaluated and reviewed to gauge effectiveness on an ongoing basis. That is the appropriate manner in which to undertake such evaluations. Requiring a company to indicate if it has ever received a grant, subsidy or other support as part of the KDB certification scheme adds only to the administrative burden for such companies. As these amendments are not appropriate to the Bill I am not accepting them.
These amendments seek to do two things, to see how this knowledge development box which is a limited tax loophole, intersects with other tax loopholes that I referred to, and what is the overall benefit to the companies that benefit from this and potentially other tax loopholes. The sum total of all these loopholes, the deductions and allowances allowed to the corporate sector generally, of which this is yet another, results in the loss of billions of euro, not €50 million, which one can see in Revenue's figures. This is part of that architecture and it will expand. I want to scotch it before it gets off the ground because we saw what the double Irish did. It expanded to extraordinary levels of tax avoidance by corporations.
That is one aspect. We need to know how it intersects and whether companies are benefiting from multiple tax breaks of which this would be one. We also need to know, and this should not be left to the Minister, and the committees need to scrutinise how much money is forgone so that we can count the extent and value of this tax break and decide whether this money would be better spent elsewhere. That is the logic of it. Even if the Minister of State does not agree with my philosophical perspective on the knowledge development box it seems to me this is vital information to be able to monitor and judge the benefit and effectiveness of such a tax break.
The Revenue Commissioners, through the Minister for Finance will have all the information.
We will not have it.
There is an indication that relevant information comes to the Dáil.
Amendment put:
The Dáil divided: Tá, 15; Níl, 76; Staon, 0.
Tá
- Adams, Gerry.
- Boyd Barrett, Richard.
- Broughan, Thomas P.
- Buckley, Pat.
- Cullinane, David.
- Doherty, Pearse.
- Mitchell, Denise.
- Ó Broin, Eoin.
- Ó Caoláin, Caoimhghín.
- Ó Laoghaire, Donnchadh.
- Ó Snodaigh, Aengus.
- Pringle, Thomas.
- Quinlivan, Maurice.
- Stanley, Brian.
- Tóibín, Peadar.
Níl
- Aylward, Bobby.
- Bailey, Maria.
- Barrett, Seán.
- Brassil, John.
- Breathnach, Declan.
- Breen, Pat.
- Brophy, Colm.
- Browne, James.
- Bruton, Richard.
- Burke, Peter.
- Butler, Mary.
- Byrne, Catherine.
- Cahill, Jackie.
- Calleary, Dara.
- Cannon, Ciarán.
- Carey, Joe.
- Casey, Pat.
- Chambers, Jack.
- Chambers, Lisa.
- Corcoran Kennedy, Marcella.
- Coveney, Simon.
- D'Arcy, Michael.
- Daly, Jim.
- Doherty, Regina.
- Donnelly, Stephen S.
- Donohoe, Paschal.
- Doyle, Andrew.
- Durkan, Bernard J.
- English, Damien.
- Farrell, Alan.
- Fitzgerald, Frances.
- Fitzmaurice, Michael.
- Flanagan, Charles.
- Griffin, Brendan.
- Halligan, John.
- Harris, Simon.
- Harty, Michael.
- Healy-Rae, Danny.
- Humphreys, Heather.
- Kehoe, Paul.
- Kyne, Seán.
- Lahart, John.
- Lawless, James.
- MacSharry, Marc.
- McEntee, Helen.
- McGrath, Mattie.
- McGrath, Michael.
- McHugh, Joe.
- McLoughlin, Tony.
- Madigan, Josepha.
- Moynihan, Aindrias.
- Moynihan, Michael.
- Murphy O'Mahony, Margaret.
- Murphy, Eoghan.
- Murphy, Eugene.
- Naughten, Denis.
- Naughton, Hildegarde.
- Neville, Tom.
- Noonan, Michael.
- O'Brien, Darragh.
- O'Connell, Kate.
- O'Donovan, Patrick.
- O'Keeffe, Kevin.
- O'Loughlin, Fiona.
- O'Rourke, Frank.
- Phelan, John Paul.
- Rabbitte, Anne.
- Ring, Michael.
- Rock, Noel.
- Ross, Shane.
- Ryan, Brendan.
- Scanlon, Eamon.
- Smith, Brendan.
- Smyth, Niamh.
- Stanton, David.
- Varadkar, Leo.
Staon
Tellers: Tá, Deputies Richard Boyd Barrett and Maurice Quinlivan; Níl, Deputies Regina Doherty and Tony McLoughlin.
Amendment declared lost.
I move amendment No. 7:
In page 15, between lines 3 and 4, to insert the following:
“Review and scrutiny
19. The Minister shall, as part of the annual Budget process, produce a report on the operation of the KDB including a consideration of the intersection of the KDB with other tax expenditure measures and its impact on the delivery of an effective tax rate for corporations.”.
Amendment put and declared lost.
I move amendment No. 8:
In page 15, between lines 3 and 4, to insert the following:
“Review and scrutiny
19. The Minister shall ensure appropriate annual information exchange between the Department of Jobs, Enterprise and Innovation and the Office of the Revenue Commissioners in order to facilitate the publication of information on the cost of this initiative, including the cost to date for the Exchequer in revenues forgone, as part of the annual budgetary process.”.
Amendment put and declared lost.
Did I not win that one?
I move amendment No. 9:
In page 15, between lines 3 and 4, to insert the following:
“Committee scrutiny
19. An annual report on the operation of the KDB including a consideration of the intersection of the KDB with other tax expenditure measures and its impact on the delivery of an effective tax rate for corporations should be presented and discussed by the Joint Oireachtas Committee on Jobs, Enterprise and Innovation.”.
Amendment put and declared lost.
I move amendment No. 10:
In page 16, after line 36, to insert the following:
“Intersection with wider enterprise and innovation strategy
25. (1) Companies applying for the KDB certificate should be asked to indicate at the time of application whether they are presently or have been previously in receipt of grants, subsidies, tax incentives or other enterprise or research and development supports from a public or semi-state body.
(2) Companies applying for grants, subsidies, tax incentives or other enterprise or research and development supports from a public or semi-state body should be asked to indicate whether they are presently or have been previously granted a KDB certificate.
(3) Information on the level or frequency of intersection between the KDB and other enterprise or research and development initiatives is to be made available to the Minister for Jobs, Enterprise and Innovation in order to inform overall jobs, enterprise and innovation strategies.”.
Amendment put and declared lost.
I move amendment No. 11:
In page 16, after line 36, to insert the following:
“Intersection with wider enterprise and innovation strategy
25. (1) Companies applying for the KDB certificate should be asked to indicate at the time of application whether they are presently or have been previously in receipt of grants, subsidies, tax incentives or other enterprise or research and development supports from a public or semi-state body.
(2) Companies applying for grants, subsidies, tax incentives or other enterprise or research and development supports from a public or semi-state body should be asked to indicate whether they are presently or have been previously granted a KDB certificate.”.
Amendment put and declared lost.
I move amendment No. 12:
In page 16, after line 36, to insert the following:
“Intersection with wider enterprise and innovation strategy
25. Information on the level or frequency of intersection between the KDB and other enterprise or research and development initiatives is to be made available to the Minister for Jobs, Enterprise and Innovation in order to inform overall jobs, enterprise and innovation strategies.”.
Amendment put and declared lost.
Bill, as amended, received for final consideration.
Question put: "That the Bill do now pass."
The Dáil divided: Tá, 75; Níl, 15; Staon, 0.
Tá
- Aylward, Bobby.
- Bailey, Maria.
- Barrett, Seán.
- Brassil, John.
- Breathnach, Declan.
- Breen, Pat.
- Browne, James.
- Bruton, Richard.
- Burke, Peter.
- Butler, Mary.
- Byrne, Catherine.
- Cahill, Jackie.
- Calleary, Dara.
- Cannon, Ciarán.
- Carey, Joe.
- Casey, Pat.
- Chambers, Jack.
- Chambers, Lisa.
- Corcoran Kennedy, Marcella.
- Coveney, Simon.
- D'Arcy, Michael.
- Daly, Jim.
- Doherty, Regina.
- Donnelly, Stephen S.
- Donohoe, Paschal.
- Doyle, Andrew.
- Durkan, Bernard J.
- English, Damien.
- Farrell, Alan.
- Fitzgerald, Frances.
- Fitzmaurice, Michael.
- Flanagan, Charles.
- Griffin, Brendan.
- Halligan, John.
- Harris, Simon.
- Harty, Michael.
- Healy-Rae, Danny.
- Humphreys, Heather.
- Kehoe, Paul.
- Kyne, Seán.
- Lahart, John.
- Lawless, James.
- MacSharry, Marc.
- McEntee, Helen.
- McGrath, Mattie.
- McGrath, Michael.
- McHugh, Joe.
- McLoughlin, Tony.
- Madigan, Josepha.
- Moynihan, Aindrias.
- Moynihan, Michael.
- Murphy O'Mahony, Margaret.
- Murphy, Eoghan.
- Murphy, Eugene.
- Naughten, Denis.
- Naughton, Hildegarde.
- Neville, Tom.
- Noonan, Michael.
- O'Brien, Darragh.
- O'Connell, Kate.
- O'Donovan, Patrick.
- O'Keeffe, Kevin.
- O'Loughlin, Fiona.
- O'Rourke, Frank.
- Phelan, John Paul.
- Rabbitte, Anne.
- Ring, Michael.
- Rock, Noel.
- Ross, Shane.
- Ryan, Brendan.
- Scanlon, Eamon.
- Smith, Brendan.
- Smyth, Niamh.
- Stanton, David.
- Varadkar, Leo.
Níl
- Adams, Gerry.
- Boyd Barrett, Richard.
- Broughan, Thomas P.
- Buckley, Pat.
- Cullinane, David.
- Doherty, Pearse.
- Mitchell, Denise.
- Ó Broin, Eoin.
- Ó Caoláin, Caoimhghín.
- Ó Laoghaire, Donnchadh.
- Ó Snodaigh, Aengus.
- Pringle, Thomas.
- Quinlivan, Maurice.
- Stanley, Brian.
- Tóibín, Peadar.
Staon
Tellers: Tá, Deputies Regina Doherty and Tony McLoughlin; Níl, Deputies Richard Boyd Barrett and Maurice Quinlivan.
Question declared carried.
The Bill, which is considered to be a Dáil Bill in accordance with Article 20.2.2° of the Constitution, will be sent to the Seanad.