Select Committee on Finance and General Affairs debate -
Wednesday, 24 Apr 1996

SECTION 18.

Mr. Coveney

I move amendment No. 19:

In page 26, subsection (3), between lines 37 and 38, to insert the following:

"Provided that this subsection shall not apply as repects eligible shares, issued by a company on or after the 23rd day of April, 1996, to which the provisions of section 13A (as amended by this Act) of the Finance Act, 1984, apply.".

Section 18 provides for transition arrangements for BES projects which were well advanced on budget day, thereby relieving those projects from the necessity of complying with the new certification procedure contained in section 17 of the Bill for projects in excess of £250,000. Section 18(3) was intended simply to confirm that pre-budget BES provisions would apply to projects being relieved by the transitional arrangements of the need to go through the certification process.

However, an unintended effect of the subsection is that companies which are caught by the strengthened anti-company splitting devices in section 16 of the Bill, which were intended to have immediate effect without any transitional arrangements, can avoid those provisions if they also qualify for the transitional arrangements under section 18.

This amendment secures that companies at which the company splitting provisions are aimed will no longer, from the date of publication of the amendment, be able to avoid those provisions by qualifying for the transition arrangements from the certification process. Where we have transition arrangements we do not intend also to allow the abuse of the splitting to continue just because we are giving a concession on transition.

Mr. McCreevy

The purpose of the section is to overcome the problem of the new certification process announced in the budget in respect of projects that were well in hand or which were not supposed to be caught?

Mr. Coveney

Yes.

Mr. McCreevy

Why penalise the investor? If money had been raised for BES projects prior to that date and the investors had put in their money, why not consider the matter from this viewpoint? I do not know how many investors there are but I know some of them. People put money into the BES schemes in good faith and were not aware that the Minister would change the rules on budget day. Some people are caught under these new provisos.

Mr. Coveney

We are providing for a transitional arrangement where it was genuinely seen that an investment raising operation occurred prior to budget day. However, we did not also intend to convey the benefits of splitting, which was a clear tax avoidance measure. This is the only issue we dealt with here in order to be consistent.

Mr. McCreevy

Why not allow all investments made prior to budget day to be allowed under the BES rules as they then applied rather than have them reconsidered under the type of investments that were being made, including projects and the certifying projects that must be undertaken? There are some cases where people have been caught; this is unfair.

Mr. Coveney

The problem was brought to our attention primarily from funds that were invested in business expansion schemes. We dealt with this. Nobody can reasonably object to the fact that we are dealing with the problem of splitting. We have no evidence that it affects any investors. We have tried to provide relief in the transition arrangements, especially in respect of money raised last year that was not invested and could have been caught unfairly in the budget day announcement.

Amendment agreed to.

Section 18, as amended, agreed to.

SECTION 19.

Question proposed: "That section 19 stand part of the Bill."

Mr. Penrose

On the question of musical theatre, people near my home have written about Ireland and the Great War. I understand that BES relief is not available for this as a stage production is not one of the qualifying trades specified in the tax legislation which can avail of relief. This is a pity. Those involved in this musical have made a tremendous effort. It is original, revolves around Ireland, is about an easily identifiable subject, has popular appeal, is in the national interest and is about a topic with which most people are familiar. However, it does not qualify. Perhaps it could be considered under this section.

I made representations to the Minister for Arts, Culture and the Gaeltacht some time ago. This original Irish musical has the potential to generate employment. My understanding from accountants, etc., is that it would take an amendment to the Finance Bill. They have indicated to me that there would be little loss to the Exchequer if the wording of the clause providing benefit prevented big concerts and such like from getting in on the act. The clause could read as follows:

Investment in the extremely high risk area of musical theatre must back an original Irish work, not an adaptation, in the musical comedy genre, must be written and composed by Irish citizens, contain a full length score and libretto and be performed by a cast and orchestra of not fewer than 20 in an established theatre.

I ask the Minister to consider this. It is the opinion of professional advisers that a musical could only qualify if the BES was extended to cover potential produce, such as merchandising, records etc. They believe that an extension of section 35 relief to cover an original Irish musical should be implemented. While this is limited in its application it is very important. It would provide employment for a large number of people.

Mr. M. McDowell

Why is it that the company must exist solely for the purpose of the production, publication, marketing and promotion of a qualifying recording or qualifying recordings by one and only one new artist? Can three people form a group?

Mr. Coveney

The definition of an artist includes an act or a group. It is not confined in the way suggested by the wording.

Mr. M. McDowell

Can a musical company be an artist?

Mr. Coveney

It can be——

Chairman

A person can be ten persons in this case.

Mr. Coveney

It can be a group; it does not have to be a single artist.

Mr. M. McDowell

The Garda Band could be an artist.

Mr. Coveney

It could, yes.

Mr. M. McDowell

It can only be one artist.

Mr. Coveney

Yes. With regard to the kind of activities referred to by Deputy Penrose, this is the beginning of a scheme and the State is putting its feet gingerly into the water. It was devised in consultation with the Minister for Arts, Culture and the Gaeltacht and his Department. The extension of the scheme to the kind of activities described by the Deputy, and which are desirable in themselves, may be more appropriately dealt with under donations to the arts under section 32 or by an Arts Council grant, and should be addressed by the Department of Arts, Culture and the Gaeltacht rather than the Department of Finance. My Department has responded to a proposal from the Department of Arts, Culture and the Gaeltacht and this section reflects that. We do not intend at this point to extend the section in the way suggested by the Deputy. This section reflects that. I cannot say any more than that. I do not think we have in mind to extend it in the way the Deputy suggested, certainly not at this point. However, it is open to the relevant Minister to come forward with a proposal in the future if he believes he should extend it. We will be interested to monitor what this produces in terms of activity and jobs and what it costs the State.

Mr. Penrose

Perhaps the Minister could examine it on Report Stage. We should not dismiss anything that has a chance of creating some local employment as well as being Irish. If it was coming in from abroad we would have the red carpet out to welcome it. This is extremely important locally and we should never dismiss something for its originality and effort. My advice is that it is basically Exchequer neutral and no doubt it would be Exchequer positive because of the employment and potential for employment in it.

Mr. Coveney

The Department will review the operation of the proposed new scheme. I do not think we can expand it at this stage. I would not like to raise the Deputy's expectations by saying we will come back on Report Stage. We could be opening an enormous Pandora's box all over the country. We obviously could not consider that in the space of a couple of days and come back on Report Stage. We will review this to see how it is working and it would be open to the Minister, to whom we have responded generously in the Department of Finance, to make proposals for expanding the scheme next if he wishes. However, I do not think we can go any further this year.

Mr. M. McDowell

What is the definition of a new artist in the context of a group act? Does everybody else have to be new or can they change their name?

Mr. Coveney

The Department of Arts, Culture and the Gaeltacht is preparing guidelines on this area and they will define that. Clearly, this is not targeted at people who are well established and do not need this kind of aid. It is to assist new people.

Mr. M. McDowell

Is there a definition of the word "new" in the Act?

Mr. Coveney

There will be a definition in the guidelines which the Department of Arts, Culture and the Gaeltacht is preparing. They will be the certification authority and the guidelines have to be agreed by them with the Minister for Finance. That has not yet been done.

Chairman

Can the Minister explain the use of the word "new"? How long does an artist remain new? When does the promotion end if he is to qualify?

Mr. Coveney

That issue will be covered by the guidelines. We do not have an exact definition of the word "new" but it is clear that it is not referring to long established artists.

Chairman

If that is the case should we not say that in the legislation? We could be allowing the promotion of an artist who is new at the beginning but who might become quite a big act over a number of years. Would they still qualify after a number of years?

Mr. Coveney

A new artist is someone whose sales of albums, either as a solo performer or as a member of a band, have not exceeded a certain level. The actual level of sales which constitutes a reasonable cut off mark between new and established artists has yet to be agreed between the Minister for Arts, Culture and the Gaeltacht and the Minister for Finance. In other words, it is not somebody recording for the first time, but it is somebody who is not established beyond a certain level and in that event they would need assistance.

Mr. M. McDowell

Does it not amount to this legislation meaning whatever the Minister says it means?

Mr. Coveney

I have given the Deputies the flavour of what is intended.

Mr. M. McDowell

We will not see the guidelines ever again.

Chairman

It is a good point. There is no provision in the section for the Minister to establish the guidelines by regulation. I would query the word "new" . It is open to much flexible interpretation.

Mr. Coveney

Once the guidelines are established, in consultations between the Minister and the Minister for Finance, it will be spelt out. It will not be a question of applying an arbitrary judgment from one to the other. There will be set of guidelines agreed and they are currently being drafted by the Minister for Arts, Culture and the Gaeltacht, who brought this scheme forward.

Mr. McCreevy

Perhaps the Minister could give an example of how his Department visualises this working. That might be the simplest method of explaining this more deeply. We have many great artists in our party as you know. One of them may not yet have been discovered as a singer. There are Members of Parliament, including one in Northern Ireland, who have many albums. How does the Department of Finance visualise the operation of this scheme? A studio or an artist could come to the Department. No more than Deputy Penrose, my knowledge of this area is very limited, but perhaps someone could explain or give me an example of what might happen and the areas to which this tax relief applies.

Mr. Nealon

I would be worried about the definition the Minister of State has given us. If the definition is that one is a new artists if one has not reached a certain level or threshold of sales, one could then be a new artist all one's life. Is it meant to benefit people who do not have a certain level of sales or income? If that is so, it should not refer to new artist. There should be a more concrete definition.

Chairman

Tax subsidy for pop traders or something like that.

Mr. McCreevy

How will it work?

Mr. Coveney

The section will provide that a company whose trade consists of the production, publication, marketing and promotion of qualifying musical recordings will not be a qualifying company for the purposes of BES unless it exists solely for that purpose in relation to one, and only one, new artist and it produces to the Revenue Commissioners a valid certificate issued by the Minister for Arts, Culture and the Gaeltacht in relation to such qualifying musical recordings. I am sorry we do not have the guidelines yet, but the Minister for Arts, Culture and the Gaeltacht is producing a framework within which this scheme will operate. It will require his certification to the Revenue Commissioners before the scheme will be permitted for BES purposes. That is about as much as I can say about it.

Mr. McCreevy

I accept your point. I just wonder whom this is designed to help. How will it operate? My colleagues and I or some group in Kildare might decide to produce a record. They usually go to a recording studio which signs them up. Does the recording studio form a company or does the group form a company? As far as I can make out, the group forms itself into a company. If they do not form a company, I do not know how they will qualify. They might get some very rich people to back them. Is this how it will operate? Maybe someone on the far side could enlighten me as to how this will proceed. Maybe we should ask the Department of Arts, Culture and the Gaeltacht. I am totally confused.

Mr. Coveney

I cannot give the Deputy a clear answer because I do not have it yet. The certifying Minister will be the Minister for Arts, Culture and the Gaeltacht and he has yet to agree with the Department of Finance the actual details of the scheme covering who qualifies and who does not. However, the object is clear enough in that it brings within a BES type scheme companies who are in the business of producing, publishing, marketing or promoting qualifying musical recordings. Therefore, people who invest in those companies will benefit under the scheme provided it has the valid certificate from the Minister.

Mr. McCreevy

It seems that it is the recording which must qualify. It is a new piece of work. Is it visualised that this group will get together with a new piece of work, form a company in which others will invest money and get BES type relief? This group forms a company in which investors put money and they get BES relief. Is that what will happen?

Mr. Coveney

I would like to get guidelines from the Department of Arts, Culture and the Gaeltacht for Report Stage. That would enable me to give the Deputy a more clear-cut answer. I cannot guarantee I will get them because I am not producing them. However, I will try to have the qualifying criteria available on Report Stage.

Mr. McCreevy

Perhaps it could forward some examples of where this scheme might operate and who will benefit, because I do not know how it will operate.

Mr. Coveney

I will get that information for the Deputy.

Mr. McCreevy

That would satisfy me.

Mr. Coveney

I will either have guidelines or draft guidelines for Report Stage.

Mr. M. McDowell

Is it proposed that a company can be established by a new artist or someone who has not reached a level of success in terms of sales of records and that he can attract into that company BES funds to help promote it? I take it that it is solely for the purpose of production, publication and marketing of the group's records. The Minister must then certify with the relevant certificate that the money has the potential to create a reasonable level of additional sustainable employment. What company will take on employees to produce one record?

Chairman

The other problem is that the section states "one, and only one, new artist". Does that mean it could have several old artists? This section is badly drafted.

Mr. McCreevy

Perhaps the Minister could get officials from the Department of Finance to perform the section.

Mr. Coveney

I understand the Deputy's concerns. I am a little frustrated also because I have guidelines for other sections of the Bill but not for this one. However, I will have guidelines or sufficient information on Report Stage.

Chairman

The committee is uneasy about this section. Perhaps the Minister could amend this section by providing that guidelines should be included in regulations.

Mr. Coveney

I assure you, Chairman, that the Department of Finance is concerned that these regulations are sensible and watertight. We will take the Chairman's views into consideration.

Mr. Nealon

What is the overall purpose behind this initiative? Is it to help emerging artists or people with potential or a company involved in this business? I take it the overall purpose is to help an emerging artist or someone who might not otherwise make the breakthrough.

Mr. Coveney

It is also for the establishment of indigenous companies in the area of production. It is a combination of those factors.

Mr. M. McDowell

It must be for the purpose of creating additional sustainable employment. Does this refer to the artist or to the people making the records?

Mr. Coveney

Both.

Mr. M. McDowell

It seems unlikely that a person of whom no one has ever heard would get huge sums of money to take on people to make records.

Mr. McCreevy

I presume there is a good reason for this section because people should be encouraged. However, I do not understand how it will operate. The Department of Arts, Culture and the Gaeltacht must issue a certificate and make judgments. This reminds me of the person who turned down the job to manage the Beatles. I can visualise the Minister for Arts, Culture and the Gaeltacht and his programme manager, Mr. Kevin O'Driscoll, listening to music and saying it will make the top 20.

Mr. M. McDowell

A jukebox jury.

Mr. McCreevy

I can also visualise civil servants, whom I know in that Department, listening to a record and then suggesting that they should contact the Department of Finance to get their views on it. They should submit it to Senator Cassidy and allow him to decide

Mr. Penrose

He will have a saxophone.

Mr. Nealon

We might want to hold back great talent for a big race.

Mr. Coveney

It will not be a discretionary decision because a set of guidelines will be agreed between the Minister and the Department which will set out the criteria. I will try to make those guidelines available on Report Stage so that we can have a more informed discussion.

Dr. O'Hanlon

Why is it necessary to state "one, and only one, new artist", particularly if it includes more than one person?

Mr. Coveney

The Department of Arts, Culture and the Gaeltacht specified that limitation to the Department of Finance.

Mr. M. McDowell

How many people are employed in companies which are devoted to only one artist of whom no one has ever heard?

Mr. Coveney

I explained that one artist is not necessarily a single person.

Mr. M. McDowell

I accept that. However, how many people will get sustainable employment in a company which is producing records for one group or one artist of whom no one has ever heard?

Mr. Coveney

I agree that cannot be the intention.

Chairman

I mentioned old artists and the fact that the section is open to that interpretation.

Mr. McCreevy

Section 20 also refers to this issue. A company will not be deemed to be a qualifying company unless its trade consists of the production, publication, marketing and promotion of a qualifying recording. Both are subject to the guidelines set out by the Minister for Arts, Culture and the Gaeltacht. I have nothing against the scheme if it helps to promote and encourage people, but I do not know how it will work.

Mr. Coveney

Until I can bring in the draft or the final recommended guidelines agreed between the Minister for Arts, Culture and the Gaeltacht and the Minister for Finance, I cannot answer all the Deputy's questions.

Chairman

I will allow this section to be recommitted tomorrow if the Minister has more information then.

Mr. Coveney

I do not know if we will have it in that time frame. Could we recommit it on Report Stage?

Chairman

We can recommit any time up to the end of Report Stage.

Dr. O'Hanlon

I am still concerned about the phrase, "one, and only one,". I accept the Minister's explanation that "one" could refer to a number of artists on the one recording. However, why is it necessary to include "one, and only one,"? That seems to suggest that it can only be one person. I do not see the need for it if it refers to one recording of a number of persons. Perhaps the Minister could examine this before Report Stage.

Mr. Coveney

This comes from the experience of the Department of Arts, Culture and the Gaeltacht in the film industry. Their guidelines confine it to a film rather than to films in general. It comes from that and the advice was that it should be confined to a single one. Some of the questions raised require clarification and I will get it.

Chairman

There has been a long discussion on this section because people are concerned about it. Is the question agreed?

Mr. McCreevy

Will the section be recommitted?

Chairman

It is open to the House to recommit any section up to the conclusion of Report Stage. However, I am sure the Minister will come back to the committee as soon as possible.

Question put and agreed to.