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

SECTION 26.

Mr. McCreevy

I move amendment No. 28:

In page 40, subsection (1), line 26, to delete "80 per cent" and substitute "100 per cent".

The amendment relates to relief for investment in films. I will not labour the point but it relates to a matter I mentioned earlier regarding business expansion schemes and changes which have been introduced. I do not profess to be an expert on the cost of films, whether it is £1 million or £201 million, but I am aware that stars are very well paid. If we lose our jobs as politicians, perhaps the Minister and I could use our talents in that area because they are much better paid.

It has been brought to my attention that the changes which have been made will have a detrimental effect on the relief under section 35 of the Finance Act. It is worth recalling what has happened since significant changes were made to the section 35 relief. Section 35 was introduced in 1987. It did not work well for a number of years because no one availed of its incentives. However, during the last Labour-Fianna Fáil Government significant changes took place after considerable prompting from the Minister for Arts, Culture and the Gaeltacht, Deputy Michael Higgins. These were agreed by the Government and by the Minister for Finance, Deputy Bertie Ahern. It has been an astounding success. Some of the restrictions were too severe but the new changes are better.

Having heard about parts of the report prepared by independent economic consultants, I am not convinced about the cost benefit of these films to the country. Have they provided any lasting benefit to the economy? I believe there has been more benefit to the economy than there was and I would continue the section 35 relief. However, I am not convinced about all the benefits which are supposed to have helped the economy. A lot of activity has been generated and the country has gained prestige as a result of the successful films shot here.

These changes will encourage smaller budget type films, which is a move in the wrong direction. Deputy de Valera asked me to table this amendment on that basis. The effect of my amendment would be to restore the situation to what it was before the Finance Bill was introduced.

Mr. Quinn

An undertaking was given in the 1994A Programme for Partnership Government to review and assess the economic and efficiency performance of the revised section 35 relief. Independent consultants were hired and they published their results after an extensive study involving consultation with various practitioners. One of the recommendations was that the 100 per cent relief should be reduced to 80 per cent.

Amendment No. 28 suggests that it should be restored to 100 per cent. We are against that because it was recognised that, until such time as the changes were made in section 35, the Irish film industry would be dormant. A major tax boost was needed to get it up and running. I support the view that any industry which is dependent on a 100 per cent tax break is inherently vulnerable. Having established the credentials, the support infrastructure and the other elements required for film making, it was recommended, from an economic viability and sustainability point of view, that the 100 per cent relief should be reduced to 80 per cent. We accept that recommendation.

In 1993-94 the total cost of section 35 relief was £40 million invested and the tax cost was £18 million. In 1994-95 £60 million was invested and the tax cost was £27 million and in the 1995-96 tax year £23 million was invested and the tax cost was £10 million. I and the people in the industry accept that the consultants have got the balance right. Indecon Economic Consultants carried out this study and they recommended a number of changes, including the 80 per cent substitute for the 100 per cent relief. We are proposing to do it for that reason.

Mr. Cullen

The film industry is cyclical. I am convinced that we must attract major films to the country, such as Braveheartwhich won a few Oscars and which was filmed in Ireland and in Scotland, because this will attract smaller film productions. Some international magazines have said that Ireland is shooting itself in the foot. This worries me because we have managed to successfully develop a fledgling industry. We must be aware of international perceptions. The number of countries which want to become involved in this business is growing substantially. The cake is getting smaller because the competition is greater.

The changes which the Minister proposes in this Bill and which could have a negative impact on companies who want to come to this country to produce films are wrong. I made this point to the Minister for Arts, Culture and the Gaeltacht but he felt he had to continue with his taxation proposals. It is the wrong step at the wrong time, given the market's instability and the shrinking number of companies which control the industry.

Mr. Quinn

This area is complex. Although the Chairman does not want a detailed discussion of the film industry — I am not sure I am competent to give an authoritative view — Deputies should be aware of some facts. There were 85 certified film projects, of which only two would not qualify as a result of the 80 per cent provision. Rather than the industry being cyclical, we are trying to avoid the once-off big production which totally distorts numeration patterns, including negotiated agreements with the trade unions, because it is feast or famine country. They drive a hard bargain for the one feast which comes around every three or four years to pay for the famine years. On the contrary, we are looking for something which will have steady regular production.

I disagree with Deputy Cullen because the market is growing in terms of the capacity to deliver products as a result of deregulation and the advent of new television channels. The appetite for English language products, in particular, is insatiable which, perhaps, explains why some of the quality is declining and why we see so much recycled material. A number of people who come into this economy are engaged in and committed to low budget regular productions. One individual is now located in Galway and has specialised in making what we know as B films. He specialises in buying second hand sets from primary films and using them again. It is the regularity and consistency of an industry that is non-cyclical which gives a steady flow of product and, therefore, builds up the expertise base and the support services.

We were informed by the consultants that these and other tax changes will reduce the level of taxpayers' money we have to give by way of incentive without significantly damaging or undermining the industry. It is on that basis that we brought them forward. If we had not done so, the Opposition would have tabled amendments proposing that they be incorporated on foot of the consultants' report.

Mr. M. McDowell

They would be ruled out of order.

Mr. Quinn

That would not have stopped them being tabled. I cannot accept the amendment.

Mr. McCreevy

I have taken on board a lot of what the Minister said and I can see both sides of this argument. I am very open-minded as regards this area. Deputy Cullen can take it that the Minister for Arts, Culture and the Gaeltacht, Deputy Higgins, would have put up a great battle against the proposed changes.

Mr. Quinn

An Oscar performance.

Mr. McCreevy

I can visualise the performance and I am sorry I did not witness it. The Minister for Arts, Culture and the Gaeltacht must be congratulated on what he has done in the arts and culture areas, including film. As Deputy Cullen said, we have many competitors and other countries have similar schemes to section 35. I have not read any of the magazines in which the changes in legislation have been referred to. The UK, in particular, was jealous of Ireland's success, a matter which was raised at the highest level, that is, the UK Government. Ireland was used as an example. Although people in the UK regarded it as the place to make films in Europe, they were unsuccessful in lobbying their Ministers.

Our success resulted from changes under section 35 and the single-minded approach taken by the Minister for Arts, Culture and the Gaeltacht. He pursued his aim in making Ireland a cultural capital. I suggest he followed on from the former Taoiseach, Mr. Haughey, who had the same idea some time ago.

I take the Minister's word that these changes will not have a detrimental effect. I accept countries become fashionable for film making. There was a time when every film was made in Hollywood, but then for years no film of any significance was made there. For the past number of years Ireland has been the place to make films. I hope the Minister is right and that the changes now proposed will not have a detrimental effect. There will be other reasons people will not come to Ireland to make films, but I would not like to think anything we do would discourage them from so doing.

Mr. Cullen

I was quoting from the front page of Variety, a widely read magazine. I take the Minister’s point, but he should bear in mind that the UK has been perceived not to be in the film business at all in the past few years. The reason was that it lost the major productions. The Minister was right when he said Channel 4 and other television stations were making films and series and that it has made a substantial difference. I am conscious that the perception of a country is often led by its ability to host a major production. I spoke to the Minister for Arts, Culture and The Gaeltacht about new developments in video and the music industry. I am glad that it has been included and I take some credit for that debate in the Dáil. It is a good move because there is huge growth in that area and we are right to signal our interest in that business as well.

Amendment, by leave, withdrawn.

Mr. McCreevy

I move amendment No. 29:

In page 43, between lines 20 and 21, to insert the following:

(iv) a condition that the qualifying company shall give appropriate bank guarantees of indebtedness to suppliers of accommodation and services for filming on location.".

I raised this point on Second Stage because of problems in the south as regards a film being made in Bally-cotton in Deputy Michael Ahern's constituency. The local suppliers of services were investors in that film and they were left holding the baby. The purpose of my amendment is to make it a condition for a qualifying company, certified by the Minister for Arts, Culture and the Gaeltacht, to give appropriate bank guarantees to local suppliers.

This is a unique idea and I do not know how it could be implemented. I tabled this amendment to highlight this aspect of film making. We all think about investors who lose money, but it is those who supply goods and services who are the biggest losers. A film means more to these people than to a person who invests £20,000 and who is getting a tax break. Such a person would probably have an arrangement to get the money back and it would probably be the top end of their income. Film making provides a real income to the shopkeeper or the supplier of cars. The purpose of my amendment is to ensure that a qualifying company provides guarantees to such people. I recognise the difficulty in trying to frame an appropriate amendment, but I have made an attempt.

Mr. M. McDowell

There is a danger that Deputy McCreevy is being a fairy godmother to these people with a rather broken wand. The only guarantee somebody can get in those circumstances is cash up front. That is what people will need to get in the future.

Mr. Quinn

Deputy Michael McDowell has made an excellent case on behalf of the Government.

Amendment, by leave, withdrawn.

Mr. McCreevy

I move amendment No. 30:

In page 47, to delete lines 13 to 16.

I do not know why it was deemed necessary to include section 28 (18)(a), which states:

An allowable investor company or a qualifying individual shall not be entitled to relief in respect of a relevant investment unless the relevant investment——

(a) has been made for bona fide commercial reason and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax,

I propose to delete section 26(18) (a). It is not a good principle to include catch-all provisions without being specific. It is an accepted rule that the taxpayer is entitled to avail of every legitimate and legal means available to him and I said this on Second Stage. A judge whose name escapes me said the taxpayer is entitled to have the Acts construed in his favour. This catchall provision will be decided on by the Revenue Commissioners and it turns the balance against the taxpayers. I object to this in all circumstances. When I was Minister for Social Welfare I had the opportunity to include a similar provision whereby the Minister would be able to decide on a certain matter. I am not in favour of such legislation.

The Revenue Commissioners lost the capital gains tax case some years ago in the High Court after they had attempted to establish the type of situation that pertains in the UK. The United Kingdom had introduced a catch-all anti-avoidance measure which allowed the tax authorities to deem something an avoidance measure. The Irish courts in the McGrath case held that the law was to be interpreted as it was laid down. I am all in favour of closing off avoidance measures when they are proven to be avoidance measures. However, I am not in favour of including catch-all provisions which more or less allow the Revenue Commissioners to say: "We think this is an avoidance measure". The taxpayer is entitled to have the law interpreted to the letter.

In non-taxation matters barristers like my colleague, Deputy McDowell, defend people to the utmost of their ability and the accused is convicted or otherwise under the letter of the law. We may not like that — a celebrated case that has come to prominence in the last few days has caused much difficulty — but that is the law of the land. Tax legislation has also always been implemented on that basis. In this subsection and in the subsection on royalties there is the type of catch-all provision to which I, in principle, have always objected. It should not be there.

Mr. Quinn

This provision has been in the legislation from the beginning and it has been retained in this section. It was not identified by the consultants as being a barrier to the consolidation or improvement of the film industry. It has not affected total investment, which was £78 million for 1994/1995 for which the tax cost was £36 million.

I am not expert in this area but there have been cases where film productions were entered into purely for the purpose of tax avoidance and the film was never distributed or promoted. It was made and dumped deliberately for that purpose. That undermines the credibility of the industry. In the first instance, as Deputy McCreevy, a professional accountant, would acknowledge, it would be for an inspector of taxes to form a view as to whether a film application could be deemed to be a bona fide film project. If the person who was making the application felt that they were not being properly dealt with, they could appeal it.

The provision has not affected the resurgence of the industry. It is a reasonable safeguard. There are examples in the past of films that were simply made and dumped for tax avoidance purposes. That is why the provision is in the Bill. I will not get into the Deputy's general philosophical argument.

Mr. McCreevy

My objection is more fundamental and does not relate to films. I object in principle to such catch-all legislation and have always done so. It is not necessary. I could offer many examples of films and say it was a matter for the Minister for Arts, Culture and the Gaeltacht, who certified the film makers in the first place as a qualifying company. Tax law should be specific and should be construed in favour of the taxpayer. I do not like catch-all provisions.

Amendment put and declared lost.

Mr. Quinn

I move amendment No. 31:

In page 50, subsection (4), lines 6 and 7, to delete "on or".

Amendment agreed to.

Question proposed: "That section 26, as amended, stand part of the Bill."

Mr. McCreevy

Why should a section of a Bill be 12 or 14 pages long? Surely it could be divided into other sections?

Mr. Quinn

I am told that there are many transitional provisions in the section and that is why it is so long. They are transitional provisions from the old scheme in section 35 to the new scheme.

Mr. McCreevy

As a general point, there is no need to draft sections of that length. This section could be divided into six or ten sections. I am not specifically referring to this Bill because I have seen lengthy sections in other Bills. They can go on for pages. That might be the old way of doing it but there must be a better way.

Mr. M. McDowell

It is not the old way. It appears to be a new practice. The Consumer Credit Bill, for example, had 19 subsections to section 97. Five or six subsections should be enough in a section. They are hard to follow whether one is advising on or litigating them, although perhaps that is the purpose.

Chairman

When you become Attorney General you can deal with it.

Mr. M. McDowell

A five page section of small type is almost the equivalent of a Chapter of an Act.

Mr. McCreevy

There are 12 or 14 pages in this.

Mr. Quinn

I can assure the Deputies that nobody on this side of the House and nobody involved in drafting the Finance Bill engages in lengthy drafting for the fun of it.

Question put and agreed to.