I wish to pay a brief tribute to Mr. Frank Cassells, one of the three Revenue Commissioners, who died suddenly last Sunday night. Mr. Cassells was one of the key figures responsible for the emergence of a self-assessment tax system in the late 1980s. Latterly, he was involved in overseeing the reorganisation of Customs and Excise following the completion of the Single Market and the drive against the illegal importation of drugs. As Members will know, Revenue officials play a significant role in preparing the Finance Bill every year. With your agreement, a Chathaoirligh, I wish to take this opportunity to formally express my condolences to Frank Cassell's family and to his colleagues in the Revenue Commissioners. We will all miss him greatly.
I am glad to have the opportunity to put this, my second Finance Bill, before the Seanad and to explain to Senators the motivation behind its contents. Senators will appreciate that some provisions will require more detailed explanation than others and will, therefore, forgive me if my address appears somewhat long.
The Bill itself is somewhat shorter than its predecessor in 1995 but, nonetheless, contains some important new provisions and changes to the tax code. Naturally, a significant proportion of the Bill gives effect to the budget tax proposals but there are other elements, some announced in the budget, which are worthy of particular comment.
One important feature of the Bill is that it seeks to close off a number of tax loopholes and avoidance schemes and to refocus several major reliefs, such as BES, films and patent income onto their original purpose of job creation, investment and innovation. Given the amount of tax resources involved in these reliefs, the regular review and evaluation of reliefs is an indispensable and ongoing requirement of tax policy.
In the course of time, even the most effective tax reliefs can lose their sharpness and their whole rationale can be called into question. I hope that what I am doing in the Bill gets back to the original purpose and intent of these reliefs. Innovation and development are essential to efficiency and effectiveness. In the case of the Finance Bill, I have sought to bring about a new openness in the Finance Bill process.
This year has seen an important innovation in that a considerable number of measures were announced in February, well in advance of the publication of the Bill itself on 28 March. The Bill also sets out a series of provisions which are necessary to prepare the way for the full consolidation of the Income Tax, Capital Gains Tax and Corporation Tax Acts to be enacted next year. These proposals were published on 5 March.
An additional new development is that the Bill was made available in disk format this year for the first time to assist practitioners and other users. These are modest but important steps in developing greater consultation on Finance Bill proposals.
This Bill is being introduced against the background of a robust economic performance. The latest OECD Economic Outlook shows that Ireland had the best growth rate of almost any OECD country last year. More importantly the OECD forecasts that Ireland will have the fastest economic growth rate in the OECD in both 1996 and 1997. According to their forecasts, Ireland's growth rate will be more than twice the OECD and EU average this year. Moreover, our export growth is projected to be well in excess of that of our export markets over the next two years, indicating a further increase in our relative share of world markets.
The OECD also predicts that employment growth in Ireland over the next two years will be faster than in nearly every other European country and will be well over twice the OECD and EU average. While unemployment here is still much too high, the promising aspect is that the unemployment rate is falling faster than in any other EU country, with the possible exception of Finland. Low inflation, historically low interest rates and impressive employment growth are the result of solid management of the nation's finances.
I would now like to turn to the measures in the Bill. Sections 1 to 3 provide for further significant increases in basic personal allowances, income tax exemption limits and the widening of the standard rate tax band as provided for in the budget. The Bill also increases a number of allowances that have not been increased since the middle of the last decade, namely, the blind person's tax allowance, the allowance for an incapacitated child and the maximum income tax allowance for the provision of a carer for an incapacitated taxpayer.
Section 4 renews for a further year up to 6 April 1997 the special exemption from unemployment benefit taxation for all systematic short-time workers, which was introduced in the Finance Act, 1994, and broadened in the 1995 Act.
Section 5 implements the budget announcement of a tax allowance of up to £800 at the standard rate for persons aged 65 or over living alone for the purchase and/or installation of alarm systems. The new relief will apply in respect of expenditure incurred in the period from 23 January 1996 to 5 April 1998. The relief is now being extended to relatives of those elderly living alone who pay for the installation of the alarm so that they can claim the relief. The definition of relative is wide in scope and includes relationship by marriage or by legal guardianship. I am confident this new measure will help the elderly in providing for their personal security.
Section 6 introduces a special 20 per cent relief from benefit in kind tax on cars for those company representatives who spend 70 per cent or more of their time on business away from their place of work. This relief will operate as an alternative to the existing high mileage tapering relief and is available only where the business mileage exceeds 5,000 miles per annum and where the employee works on average at least 20 hours per week. I have been seeking for some time to bring in such a ring-fenced relief for those categories of employees for whom a car is a necessity as part of their employment and I am glad, there-fore, to be the author of this relief.
Section 7 of the Bill brings the definition of an "authorised insurer" into line with the Health Insurance Act, 1994, which regulates the health insurance market in the State. Tax relief will be available at the standard rate on premiums paid to all health insurers who are authorised insurers in the State. This includes prospective new entrants to the market.
Section 8 updates the list of accountable bodies who must deduct 27 per cent withholding tax from payments made by them for professional services. Details of the bodies affected are set out in the section. Under section 9 it is proposed to ensure that awards by the hepatitis C tribunal or by a court in these cases will not be subject to income tax.
Sections 10 and 11 deal with farming reliefs. The £3,000 exemption for income derived from certain leases of farmland is being increased to £4,000 for leases of five or six years taken out from 23 January 1996. Where such leases are for seven or more years, an exemption of £6,000 will apply instead of the previous limit of £4,000. This will encourage older farmers to lease land to young farmers on a long-term basis. A special measure is being introduced in section 11 in regard to the valuation of farm stocks on the discontinuance of a farming trade where the stock is transferred free of charge from one farmer to another. This measure is designed to remove a disincentive to farmers transferring farm stocks on retirement.
Section 12 proposes to increase the lifetime cap on existing tax relief for the purchase by full-time employees and directors of new shares in their employing company, whether quoted or unquoted, from £3,000 to £5,000. The relief is also being extended to part-time employees and directors.
Section 13, which was inserted on Committee Stage in the Dáil, increases the maximum tax relief available to those aged 55 or over in respect of pension contributions by the self-employed from 15 per cent to 20 per cent of relevant net earnings. This is a limited but significant change to the tax code to recognise the future demands which will be placed on society's resources in providing for retirement income.
Section 14 is a technical amendment to the artists exemption relief to remove an anomaly created by the changes in the residence rules introduced in 1994. The relief is now extended to include individuals who are ordinarily resident and domiciled in the State and not resident elsewhere.
Last year I introduced tax relief at the standard rate for students pursuing full-time approved undergraduate courses in private colleges. Following a detailed and constructive debate on Committee Stage in the Dáil, I introduced section 15 of the Bill in order to extend relief at the standard rate of tax to those pursuing approved part-time undergraduate courses of at least two years duration in approved colleges and paying the fees themselves. The intent is to focus relief on those who have left school and gone directly into work but who later wish to improve their skills and prospects through further education. I believe this type of skills enhancement must be encouraged if we are to retain our competitive edge.
Sections 16 to 24 relate to BES relief. This relief is being renewed for a further three years from 6 April 1996 subject to certain changes announced in the budget. These changes include a statutory certification system for any investment of over £250,000, whether single or cumulative, in a company or an associated company and additional measures to combat companies splitting to get around the £1 million BES limit. The guidelines for certification of industrial projects were issued on 15 February 1996 after discussion with the relevant fund managers. Guidelines for tourism projects have been put in place and those for the remaining qualifying areas are being finalised.
The Bill also sets out transitional provisions for pipeline cases which were well advanced before budget day. As a result of further changes announced by me on 29 February, a small number of projects, which were well advanced and in respect of which BES funds were raised by a designated fund prior to 6 April 1995, will qualify under pre-budget BES rules provided at least two-thirds of the money raised by the fund had already been invested by budget day in other qualifying projects. I believe these transitional provisions are fair and reasonable.
The BES is being extended, from the passing of the Bill, to the music industry for investments in the production, publication, marketing and promotion of a new artist's recordings and associated videos subject to a detailed certification system to be operated by the Minister for Arts, Culture and the Gaeltacht. A copy of these guidelines which are being finalised will be provided to the Houses.
The BES is also being extended to FINEX — the financial futures exchange in the IFSC — for a period of two years subject to certification of individual projects and a limit of £100,000 in BES funds per project and £2 million in total BES funds over the two year period.
The various changes to the BES scheme are intended to ensure that funds are invested in genuine business ventures that create additional economic activity and jobs. The certification system being put in place should achieve that effect without the imposition of an unwelcome set of rigid or bureaucratic procedures.
I turn now to corporate and other reliefs. Section 25 provides for the exemption from tax of income from greyhound stud fees on the same basis as the existing exemption from tax of stallion stud fees. This relief is aimed at assisting the development of the greyhound industry in the State. Section 26 ensures that the capital allowances and other reliefs for the construction of multi-storey car parks in certain urban areas will also be available in the three new Dublin administrative counties, with effect from 1 July 1995.
Section 27 renews the 50 per cent initial capital allowance for buildings in the Custom House Docks area and Shannon Airport zone up to 25 January 1999 and for buildings in the Temple Bar area up to 5 April 1998 to coincide with the termination dates for those urban renewal schemes which were given a two year extension in the 1995 Finance Act.
The standard rate of capital allowances for industrial buildings was due to revert from 4 per cent to its former 25 per cent level on 1 April 1996. Section 28, however, provides for a permanent 4 per cent allowance for such buildings. This is a useful industrial incentive in the tax code. To counter certain tax avoidance schemes brought to my attention by Deputy McCreevy in the Dáil, it is proposed in section 29 to restrict these allowances to buildings in the State. This restriction will also apply to expenditure on hotels, where there is evidence of a growing abuse of Irish tax capacity either to acquire or construct hotels abroad. This was never the intention of the favourable capital allowances made available in the case of hotels. To allow for a number of Irish hotel groups in the course of constructing hotels in Northern Ireland, certain transitional arrangements have been put in place in the section.
Section 30 closes off an undesirable loophole in the relief for seaside resorts in so far as holiday cottages and apartments are concerned. The proposed amendments are intended to prevent the use of certain tax aggressive schemes based on holiday cottages which are excessively costly to the Exchequer and to redress the balance in favour of other more worthwhile tourist projects in the resort areas covered by the scheme.
The proposed amendment will modify the tax incentive by providing that both the double rent allowance and the capital allowances cannot apply in relation to holiday cottages, apartments and other self-catering accommodation at the same time, and by ring-fencing the capital allowances for registered apartments and other self-catering accommodation to rental income or the income from the trade of operating holiday cottages or apartments, as is the case already for registered holiday cottages.
The changes apply from 5 April 1996, except in cases where, before that date, an application for planning permission had been received by a planning authority, or a binding contract for acquisition or construction had been entered into or where the Revenue Commissioners had given a favourable opinion in a particular case. In addition, as a result of concerns brought to my notice since the Bill was published, I have extended the scope of the transitional measures for cases where genuine commitments in relation to the acquisition of land for a holiday cottages development has been made by investors on the basis of the existing law and where the promoters can demonstrate this to the satisfaction of the Revenue Commissioners.
As announced in the budget, section 31 overhauls the existing section 35 film relief along the following lines. Section 35 relief will be continued for a further three years with effect on and from budget day, subject to a reduction in the amount of expenditure on larger films which qualifies for relief; an increase in the limit for corporate investment; the restriction of the tax deduction to 80 per cent of the investment and the substitution of a one year investment holding requirement for capital gains tax purposes instead of the current three year holding period.
Tax relief will only be available in future from the date of commencement of principal photography in order to encourage films to be commenced within a reasonable period of the investment in the film. In addition to details announced in the budget, the Bill provides for certain transitional measures announced by me on 29 February in relation to investments in film companies made before budget day.
Two further changes are proposed to the section 35 relief. First, an additional special 10 per cent increase in the maximum level of qualifying expenditure eligible for the relief will apply for off-seasonal activity — that is where principal photography commences between 1 October and 31 January. Second, corporate investors will be allowed to invest on an annual basis up to £4 million in addition to their new £2 million annual limit, provided the additional investment is in small scale projects which tend, by their nature, to be Irish films.
I turn now to patent income relief. Section 32 deals with tax relief on royalties from patents. There is clear evidence which indicates that the relief is being used by manufacturing companies as a means of rewarding directors and certain employees in a tax efficient manner without any obvious benefit to the economy from greater research and development activity. The Exchequer cost associated with this practice is significant and the indications are that the cost will continue to increase substantially in the future if no action is taken. The estimated cost over a four year period of the reliefs in a sample of cases surveyed by Revenue was between £10 million and £20 million. As Senators will be aware, a patent can last for 20 years. The relief being claimed in many cases is in respect of minor changes to production and other processes.
The 1994 Finance Act dealt with abuses in the non-manufacturing sector by restricting the relief to royalty payments between unconnected persons. This year's Bill tackles abuses in the manufacturing sector. In order to target the relief at those companies pursuing ongoing research and development programmes or exploiting significant innovations protected by patent, the Bill proposes, first, to retain tax relief for patent royalties received by a company from a manufacturing company whether connected or not. However, the Bill restricts the amount of tax free royalty income to the amount which would have been received if the parties were dealing with at arms length. Second, it is proposed to retain tax relief in full for distributions to shareholders made by companies out of patent royalty income received from unconnected companies.
Third, in the case of a company receiving patent royalty income from a connected company, the maximum amount of tax exempt distributions which the company or group can make in an accounting period to shareholders will be determined by the actual level of research and development expenditure incurred by the company or group in that accounting period and in the two preceding accounting periods. However, where it is shown to the satisfaction of the Revenue Commissioners that the patent is in respect of a radical innovation and not taken out for tax avoidance purposes, the tax exempt distribution of the royalty income will not be limited in this way. The phrase "radical innovation" in the legislation was carefully chosen to denote substantial technological advances and to exclude minor technical changes.
The Government considers that the measures proposed are balanced and reasonable. They will help to curb more questionable claims for relief and refocus the relief on productive R&D expenditure. In this way the section will reduce the unnecessary cost of relief to the Exchequer while at the same time conforming to the original intention of the relief when introduced in 1973, that is, to stimulate research and development and significant innovation.
A number of different sections are designed to facilitate the carrying on of business in the IFSC and Shannon. These provisions extend the range of financial transactions which can be carried out in the IFSC. In the case of Shannon, retailing operations are currently excluded from the 10 per cent corporation tax regime. This rules out mail order or distance selling activities to the extent that such operations are targeted at the final consumer. The Bill will allow such mail order operations to be carried out in the Shannon zone where these contribute to the use and development of the airport. It is hoped through this measure to attract a number of important mail order businesses to the region.
Section 34 is aimed at assisting a mining company to return a mine site to a greenfield site after the closure of the mining operation. The section provides a tax allowance for expenditure incurred in this way and also for advance payments made by a mining company into a fund to finance the eventual closure costs where such advance payments are required under a State mining facility or other agreement with the Minister for Transport, Energy and Communications.
The Bill introduces a number of measures dealing with the tax treatment of certain investment media. These measures, some of which were amended in the other House, are intended to ensure that the losses on gilt disposals by life assurers and others, where the disposal is ex-dividend, are not allowable for offset against income or gains until the related interest accrues. It is also proposed to ensure that no unintentional relief arises from the procedure whereby life assurance companies and undertakings for collective investment can spread their unrealised non-gilt capital gains over a seven year period. These new provisions are contained in sections 36 to 38 and a number of other sections.
The Bill also proposes changes in section 42 to the tax treatment of certain, longer term deposits subject to DIRT. The Bill provides that DIRT will be levied on the relevant deposits each year on the annual accrued interest of the relevant deposits instead of being rolled up until the final year. The financial institutions will now have to pay the DIRT to the Exchequer annually, to the extent that this is not already done in certain cases.
There is active competition between banks and the life assurance sector in the savings market. It is important that, as far as possible, the tax system should be neutral as regards different types of savings products. I will be examining on an ongoing basis what other tax changes might be undertaken over time in the savings market to maintain a level playing field and to encourage the provision of a greater range of savings and lending instruments best suited to customer needs and to the requirements of developing financial markets.
The Government has extended the range of various employment grants and subsidies to encourage the creation of employment opportunities, particularly for the long-term unemployed. To make these incentives attractive to firms, section 40 provides that, as with IDA employment grants, a variety of other employment grants will be exempt from tax in the hands of employers with effect from 6 April 1996, such as back to work, Leader and county enterprise board grants and the new £80 a week subsidy for the long-term unemployed effective from 1 June next. The section also extends relief in respect of any employment grants which may be provided under the EU peace initiative and the International Fund for Ireland.
Section 41 amends section 17 of the Finance Act, 1970, which relates to deduction of withholding tax from subcontractors under the C45 system. The amendment deals with the tax transparency of the gang system and provides that, in determining the tax to be deducted from a payment to a gang, a principal contractor must take into account the tax status of each individual member of the gang.
Sections 44 to 58 contain the main corporation tax provisions. Section 44 introduces the 30 per cent rate of corporation tax on the first £50,000 of annual income as announced in the budget. Section 45 amends the tax treatment of certain exchange rate gains and losses on hedging instruments which are used to remove exchange risks on the corporation tax liabilities of trading companies. Sections 48 and 49 are technical amendments designed to preserve the existing life assurance tax arrangements in relation to capital gains tax. The provisions in section 51 are designed to close off certain corporation tax avoidance schemes.
Section 54 broadens the scope of the definition of a qualifying ship for the purposes of the 10 per cent rate of corporation tax. It also removes one of two ring fences in relation to the leasing of ships. The effect of this will be to allow capital allowances and losses in relation to a leased ship to be offset against leasing income generally as opposed to the leasing income from the particular ship. This easing of the ring fence rules will only be available where the Minister for the Marine, with the consent of the Minister for Finance, certifies that the grant of relief will enhance the economic, employment, safety and environmental aspects of the Irish shipping trade. I intend to monitor this new relief carefully as tax reliefs for shipping have been abused in the past.
Section 57 broadens the scope of tax relief on research and development expenditure, introduced in the Finance Act, 1995. This relief already provides for an exceptional quadruple allowance for incremental research and development expenditure by manufacturing companies over a three year period. The relief is being extended, first, to allow companies or groups which receive grants for research and development not exceeding £50,000 in a relevant accounting year to obtain the relief in respect of their non-grant aided expenditure. Second, relief will now be calculated by reference to increases in expenditure over a fixed base year level in contrast to the previous regime which imposed increasing yearly thresholds. Finally, a definite termination date is being set to ensure that the scheme is not open ended. The 1995 scheme so far has been slow to get off the ground. The changes now proposed should allow for a better take-up without adding significantly to the cost of the relief.
Sections 59 to 64 make further changes in the area of capital gains tax. The aim of the changes is to target relief on productive investment and to close off certain loopholes. Section 59 allows insurance companies to pay claims under material damages policies without operating the capital gains tax withholding provisions. This is to rectify an unintentional side effect of an antiavoidance provision introduced by section 76 of last year's Finance Act. Section 60 extends the scope of the provisions relating to capital gains tax retirement relief to ensure the effectiveness of the relief.
Section 61 is intended to remove any doubt as to the correct treatment applying where, on the reorganisation of a company, a taxpayer receives a loan note in exchange for shares. Any subsequent disposal of the loan note will give rise to a charge to capital gains tax in the same way as disposal of shares themselves.
Section 62 amends roll-over relief on the disposal of certain quoted or unquoted shares and the acquisition of shares in an unquoted trading company. It does so by relaxing the requirements in relation to holding periods and employment with the company which a person must satisfy in order to qualify for relief.
The lower rate of capital gains tax — 27 per cent — applies to gains realised by individuals on the disposal of ordinary shares in certain small and medium sized companies. The shares in question must be held for at least five years prior to disposal. This ownership period is now being reduced to three years by virtue of section 63.
Finally, the Bill provides in section 64 for an exemption from any capital gains tax liabilities that might arise from the winding-up and dissolution of the Dublin and Cork District Milk Boards. Since the proceeds of these disposals are to be paid into the Exchequer, the net effect of the exemption is to avoid an unnecessary and circular transfer of funds.
On the question of offshore islands, Senators will be aware of the recent report on island development and the proposals in that report to address the economic and population decline of offshore islands. To assist in achieving this worthwhile objective, the Bill proposes in sections 65 to 70 to extend to certain offshore islands two specific reliefs to encourage the construction or refurbishment of residential accommodation. The reliefs are, first, an allowance against income tax of 50 per cent of expenditure on construction or refurbishment of permanent accommodation for owner occupiers at a rate of 5 per cent per annum for a period of ten years and second, the offsetting of construction, conversion and refurbishment expenditure on the provision of rented accommodation against all rental income of the owner provided that the accommodation lease is for a period of at least 12 months and that the house is used as the lessee's sole or main residence throughout. The reliefs will apply to qualifying expenditure in the three year period from 1 August 1996 and the reliefs are structured so as to encourage permanent residence on the islands concerned.
Turning now to indirect taxes, sections 71 to 74 make a limited number of changes to VRT as it applies to certain special vehicles, namely, motor caravans and crew cabs. This involves a reduction in the VRT rate to 13.3 per cent. A small change is being made to the VRT scrappage scheme to remove a complication where one spouse owns the scrapped car but the new car is being registered in the other spouse's name. The Revenue Commissioners have exercised their discretion in allowing the relief in the few such cases which have arisen so far.
Section 75 to 86 deal in the main with the principal budget excise duty changes which are already in effect. There are other new reliefs, however, contained in these sections. Section 75 will abolish betting duty on bets placed "on course" at greyhound tracks in respect of events taking place at other locations. Section 77 removes the value of food sales from the turnover basis on which pub licence duty is calculated. This will apply both to pubs and to restaurants with full pub licences and brings the basis of charging excise duty into line with hotels.
Section 78 relates to the disabled drivers' scheme. This scheme provides exemptions from VRT, VAT and road tax on motor vehicles, and excise duties on fuel used in such vehicles, driven by disabled drivers or used to carry disabled passengers. To qualify for relief in respect of a disabled passenger, adaptations to take account of the passenger's disablement must be carried out to the vehicle at a cost of not less than 20 per cent of the pre-tax price of the vehicle, i.e. excluding VRT and VAT. In response to representations, section 78 provides that this requirement will be reduced to 10 per cent of the cost.
Section 82 makes a minor adjustment in the spirits duty rate on a revenue neutral basis to ensure that the average amount of duty payable on a bottle of spirits will not increase as a result of the implementation of EU rules on the definition of spirituous products. Section 82 will also reduce the duty on low alcohol drinks based on spirits to bring it into line with that of other similar drinks based on beer or made wine.
With regard to tobacco and tobacco stamps, the Finance Act, 1994, prohibits the sale of cigarettes at a price higher than the manufacturers' listed price. Section 84 of the Bill amends that provision to permit the price of cigarettes sold through coin operated vending machines to be rounded to the nearest 5p. This amendment takes account of the shortage of copper coins and the practical difficulties with regard to using such coins in the machines.
Section 85 makes three changes to the offences provisions relating to tobacco tax stamps. In the first instance it will be an offence to have unstamped cigarettes on display in shops, etc., second, counterfeit or altered stamps will be seizable and, finally, it will be an offence to misuse a valid stamp from one packet by putting it on another. These amendments are necessary to ensure the effectiveness of the tobacco stamp regime which came into full effect on 4 March 1996.
The provisions in the Bill relating to VAT are to be found in sections 87 to 100. These transpose the EU Second Simplification Directive into primary legislation with effect from 1 January 1996; they provide for an increase in the farmers' flat rate addition and the rate of VAT on livestock, from 2.5 per cent to 2.8 per cent as announce in the budget, with effect from 1 March; and they make a number of technical changes to the VAT treatment of second hand goods and the invoice rules in the case of hire purchase transactions.
The EU Second Simplification Directive simplifies, among other things, the VAT rules in relation to cross frontier supplies of contract work. The strict requirements of the directive were already in force by virtue of EU regulations signed by me in December. The Bill confirms these and, in addition, makes certain necessary technical tidying up amendments to the VAT Act, which are consequential on the simplification provisions.
Sections 101 to 111 of the Bill introduce a new stamp duty charging provisions in respect of the transfer of uncertificated securities. Most Irish quoted companies will opt later this year to allow the title to their shares to be transferred by a new electronic settlement system called CREST. This will replace the existing paper based system and will do away with the needs for share certificates for those shareholders and companies who opt into the new electronic system. It is necessary, there-fore, to revise the stamp duty charging arrangements which are based, at present, on the taxing or stamping of documents.
There have been extensive discussions between Revenue, my Department and the Stock Exchange on the new form of stamp duty taxation which is set out in the Bill. My concern has been to protect the substantial annual revenue yield of almost £25 million from share transfers while, at the same time, seeking arrangements which allow the trading of shares to proceed in an efficient manner. I believe the new provisions achieve this goal.
A number of other changes are also being made to the stamp duty regime. Section 112 repeals the £10 stamp duty charge that applies on incorporation of a company on both the memorandum and the articles of association of the company. The need to remove the charge arises from a recent ruling of the EU Court of Justice. The revenue loss is estimated at £300,000 per annum.
Under existing law, new houses with a floor area not exceeding 125 square metres are exempt from stamp duty. However, the deed of transfer of conveyance must be submitted to Revenue together with a floor area certificate issued by the Department of the Environment. Section 113 provides that these deeds need no longer be presented for stamp duty purposes if the deed itself contains a statement to the effect that a valid Department of the Environment certificate was in force for the new house at the date of conveyance or transfer. This will reduce the formalities and simplify the procedures for obtaining the stamp duty exemption.
Other sections provide stamp duty relief on transfers of American depositary receipts issued in the US in respect of Irish unquoted shares and on certain international business mergers involving Irish companies. Both these changes are to assist Irish firms in the international arena, either by way of raising capital or forming international corporate alliances.
Section 114 confirms the increase in stamp duty on ATM cards from £2 to £5 announced in the budget with effect from 1 February 1996. Section 117, with section 34 earlier, re-enacts the tax and stamp duty exemptions contained in the Securitisation (Proceeds of Certain Mortgages) Act, 1995, and section 118 exempts the transfer of certain EU trademarks and international trade-marks from stamp duty.
The budget and this Bill make a number of changes to the capital acquisitions tax code. I have received a sustained level of representations to the effect that the CAT code is hindering business development and the transfer of business assets intact from one generation to the next. My philosophy in these cases is to distinguish between productive and non-productive wealth. We should act where it can be shown that there are genuine employment concerns or where a business might not be able to survive intact on transfer from one generation to another because of CAT. My aim, however, is not to remove CAT as there are obvious equity and other reasons inherited wealth generally should be subject to tax.
In line with this, section 121 is an antiavoidance section. In certain circumstances it may be possible for share-holders in a private company to reduce capital acquisitions tax liabilities by increasing the number of shareholders above 50 and thereby escape the current private company control test. Section 121 amends the definition of private company for CAT purposes to ensure that companies cannot escape the private company control test in this way.
Sections 122, 125 and 127 give effect to the budget day proposal to increase CAT relief on the transfer of relevant business and agricultural assets from a maximum of 50 per cent to a rate of at least 75 per cent and to extend the minimum holding period for such assets from six to ten years after transfer in order to qualify for the full relief of 75 per cent. Section 126 provides that where the beneficiary and his or her relatives control the company concerned, the 10 per cent minimum share-holding requirement will no longer apply for the purposes of business relief. This removes an anomaly in the rules for qualifying for business relief.
Section 123 provides an exemption for gifts and inheritances used exclusively to discharge the medical expenses, including residential care, of a permanently incapacitated individual. Section 124 allows a life tenant who is not a spouse of a disponer to effect a tax exempt section 60 insurance policy used to pay CAT liabilities.
At present, all applications to the Land Registry for registration of property based on squatter's title must be cleared by Revenue for capital acquisitions tax purposes before any registration can take place. However, a considerable number of such cases involve small holdings where a charge to CAT would not have arisen in any event or where any CAT which might possibly have arisen would be insignificant. Section 128 proposes to dispense with Revenue clearance for holdings generally of less than five hectares and £15,000 in value, provided solicitors are willing to certify that the holding being registered is within these limits of value and size. The section also introduces a similar but broader relaxation for statutory authority acquiring property on which a CAT liability may arise.
Section 129 ensures that the instalment facility for business and agricultural property introduced in last year's Finance Act will continue to be available where the business or agricultural property concerned is sold or compulsorily acquired and the proceeds are reinvested within one year of the sale in other qualifying business or agricultural property.
Part VI of the Bill sets out miscellaneous preconsolidation provisions. As the House will know, the law in relation to income tax, corporation tax and capital gains tax will be consolidated in a tax consolidation Act in 1997. Work on the consolidation Bill is progressing on schedule for the introduction of the Bill next spring. In order to speed up the process and to allow early consultation on proposals, I already published on 5 March a series of proposed amendments which are designed to clear the way for consolidation next year. These sections were issued in a fully drafted form, together with an explanatory memorandum. These measures are now included in sections 130 to 137 and in the Fifth Schedule of the Bill. The provisions are explained in detail in the explanatory memorandum.
The final sections of the Bill cover a small number of miscellaneous matters. Section 138 is the standard provision in relation to the annuity to be paid into the capital services redemption account. Last year's Finance Act provided for the setting off against income tax, corporation tax, capital gains tax or capital acquisitions tax of the value of donations of heritage items made by a person to approved Irish cultural institutions. There is a cap of £500,000 on the maximum value of donations which can be accepted in any one calendar year under this scheme. Section 139 increases this cap to £750,000 as announced in the budget.
Section 140 provides for a new system for the recoupment to vehicle licensing authorities of the costs incurred by them in the operation of motor tax offices. Licensing authorities are now allowed to deduct their expenses at source instead of the system which operated up to 31 December 1995 whereby licensing authorities handed over the gross amount collected in motor tax and were reimbursed from the Vote of the Department of the Environment. Section 141 amends the Casual Trading Act, 1995, to ensure that applications for casual trading licences must contain the tax reference number of the applicant. This will promote tax compliance in this sector.
I recommend the Bill to the House and I will be happy to respond to Senators' comments and concerns.