Finance Bill, 1999: Committee Stage (Resumed).

Today we will deal with chapters 3 and 4 of Part I covering sections 22 to 60 and amendments Nos. 31 to 90. The following amendments have been ruled out of order: amendment No. 52 in the names of Deputies Noonan and Deenihan which seeks to impose tax at the rate of 20 per cent on relevant deposits and shares held in a credit union subject to certain conditions——

On a point of order, there is already an imposition of tax at 46 per cent on credit union deposits and shares. Consequently this is not the imposition of a charge. This is a relief. We propose DIRT tax be imposed at 20 per cent which is a significantly lower rate so this is not the imposition of a charge. It is a relief.

I will finish the note. The amendment, therefore, imposes a charge on the people and must be adjudged out of order in accordance with Standing Order 141(3). That is the considered ruling.

I submit that since the liability on interest on deposits in credit unions is currently at the marginal rate of tax of 46 per cent, a DIRT tax imposition at 20 per cent as a full and final settlement is not a charge, it is a relief.

We will note that, pass it on and bring back the response.

Amendments Nos. 53, 118, 136, 139, 156 and 162, all on the first white list of additional amendments and all in the name of Deputy McDowell, oblige the Minister for Finance to prepare reports on issues which represent either a potential charge on revenue or the people. Amendments have previously been tabled under the substantive matter involved in these substitute amendments and have been adjudged out of order in accordance with Standing Order 141(3). Notwithstanding the fact that the substantive issue in each case is now being framed in terms of the preparation of a report, the amendments still do not comply with the terms of Standing Order 141(3) and for that reason have been ruled inadmissible.

However, the Deputy may wish to note that although the amendments may not actually be moved because of this ruling, the matters involved are relevant to the subject matter of the Bill and he may, therefore, make his points in relation to the amendments when the individual sections in the Bill to which they have been addressed arise for discussion.

Arising from that, could the additional amendments on the white sheets be recirculated?

They were circulated last night.

It is proposed to group the following amendments for the purposes of debate: amendments Nos. 31 and 38 to 42, inclusive; amendments Nos. 33 to 37, inclusive, 47 to 49 inclusive and 50; amendments Nos. 43 to 46, inclusive; amendments Nos. 54 and 55; amendments Nos. 56 and 69; amendments Nos. 59 to 62, inclusive; amendments Nos. 63 and 64; amendments Nos. 67 and 68; amendments Nos. 70 and 71; amendments Nos. 74 and 75; amendments Nos. 77 to 79, inclusive; amendments Nos. 80 and 81; amendments Nos. 82 to 86, inclusive, and amendments Nos. 88 and 89; amendments Nos. 87 and 90. All other amendments will be discussed individually.

SECTION 22.

Amendment No. 31 is consequential on amendment No. 40; amendments Nos. 39 and 40 are related; amendment No. 38 is consequential on amendment No. 39; amendment No. 42 is consequential on amendment No. 40 and amendment No. 41 is consequential on amendment No. 42. Amendments Nos. 31, 38, 39, 40, 41 and 42 will be taken together by agreement.

On a point of order, at the conclusion of business yesterday there was an argument on amendment No. 30. Amendment No. 30 on the document circulated to me is on page 35, before section 22 and after section 21. The time motion said that we would continue to the end of section 21. I think that should be in today's section, but the Chairman has ruled differently. I am indicating that I will be contemplating a Report Stage amendment.

That is accepted.

I move amendment No. 31:

In page 35, paragraph (a), between lines 9 and 10, to insert the following:

" "American depositary receipt" has the same meaning as in section 207 of the Finance Act, 1992;".

These amendments relate to section 22 of the Bill which provides for the introduction of a scheme of dividend withholding tax, or DWT, on distributions made by Irish resident companies. The amendments concern investment instruments known as American depositary receipts or ADRs. ADRs are US dollar denominated negotiable instruments which allow US investors to trade in non-US securities without the costs and difficulties normally presented by overseas equity investment, high custody and brokerage commissions, currency risk and different settlement dates. ADRs are traded in the main US stock exchanges, New York, AMEX and NASDAQ. They provide non-US companies easy access to the US capital markets - the largest investor base in the world - and are widely recognised as the optimal method for domestic US investors to invest internationally.

In recent years many of the large Irish quoted companies, as well as emerging new companies, have raised substantial capital in the US via ADRs. Since the Bill was published, I have received representations to the effect that the proposed arrangements for exempting US portfolio investors from DWT are too cumbersome where the investment is made through ADRs and may as a result deter US investment in Irish quoted companies.

The proposals in the Bill generally require a "chain" of certification, from the individual US shareholder through any intermediaries, including depositary banks, up to the Irish dividend-paying company, before the dividend can be paid gross. This is in line with the normal practice internationally and was put in place following consultations with representatives of company registrars and the main intermediaries. It ensures that only genuine residents of tax treaty countries will be able to avail of the exemption.

The main point of the representations received is that the volume of US investment in Irish companies via ADRs is so great - one company alone has over 16,000 US shareholders, 25 per cent of its shareholder base - that the burden of the certification "chain", and the associated paperwork, may put off potential investors and make Irish companies comparatively unattractive for US investors.

The amendments before the committee will allow the American depositary banks, who receive dividends from Irish companies and pass them on to the US ADR holders, a less rigorous certification procedure. Specifically, the depositary bank will be allowed to receive and pass on the dividend from the Irish company gross where the depositary bank's register shows that the direct beneficial owner has a US address on the register, but without being supported by a certificate of US tax residence and if there is a further intermediary, such as a mutual fund between the depositary bank and the beneficial shareholder, where the depositary bank receives confirmation from the intermediary that the beneficial shareholder's address in the intermediary's records is in the US, but again, without being backed up by a certificate of US tax residence.

In effect, the procedures for exemption from DWT would operate on an "address system" for that part of the chain of ownership which is below a depositary bank, but only where the ultimate individual owner's recorded address is in the United States. I would point out here that US depositary banks and US intermediaries such as mutual funds have "know your customer" requirements similar to our money laundering provisions.

Given the exceptionally large volume of existing US portfolio investment in Irish quoted companies, and the growing importance to Irish companies of access to the US capital markets via ADRs - for example, Telecom Éireann will be raising capital in the US via ADRs following its initial public offering later this year - the proposed amendments are a reasonable compromise between ensuring that exemption claims are validly made, based on US tax residence and minimising the paperwork burden in substantiating US residence.

I commend the amendments to the committee.

The test of the exemption is to have an American address, rather than to have American domicile or residency for tax purposes. It is a new concept to work on the basis of an address rather than on the well-founded concepts of residency or domicile.

The address system procedures for these depositary banks operate somewhat differently from here. It was felt that it would be too cumbersome to apply the provisions of the section as set down to these ADR-type vehicles in the United States. The amendment proposes a "look through" mechanism to look at the address. The actuality of investments from US shareholders in Ireland, through these mechanisms, are cumbersome. Later this year Telecom Éireann will have their initial placement offer. This will be sold vigorously in the United States to attract potential investors to Ireland.

Is the Minister saying that an address alone will be sufficient for a particular product to avail of the exemption? I understood the Minister as saying that a tax clearance certificate from the United States revenue authorities will not be required?

I said the address is all that will be required.

What is the position regarding a person who has an American address and an Irish address but for tax purposes is an Irish resident? Will that person be exempted if they buy Telecom Éireann shares through the ADR system using his or her New York address?

The provisions of these ADR mechanisms in the United States are similar to our money laundering provisions. In the United States the opening of bank accounts, as well as other activities, is strictly controlled; one cannot give an obscure address.

I am referring to a person who has a genuine American address. Many Irish business people with American addresses could be treated as Irish residents for tax purposes. Is an avoidance mechanism being written into the law so that these people can buy Telecom Éireann shares using their American address?

No, that would be an evasion mechanism. That person would still be an Irish resident for tax purposes and would be obliged to return their dividend income on their Irish tax returns.

Absolutely, but not by way of withholding tax. Under the law they would fulfil their obligation if they made their returns subsequently.

Of course, because they would not have evaded tax. I do not anticipate many people will go through the ADR mechanism in the United States to buy company shareholdings in Ireland. People who would do this would be anxious to evade tax in its totality rather than legally avoid tax. It was deemed that one of these American companies would have 1,600 individual persons and having these type of withholding tax requirements would be far too onerous and would probably lead to these particular vehicles not being used to invest in Irish companies. We have considered this an appropriate mechanism which would relieve that particular burden. We could review this situation if evidence came to light of another mechanism which could be used. This seems to be a concession which would encourage these type of investors into the Irish market and to encourage them in future.

That is fair enough.

Amendment agreed to.

I move amendment No. 32:

In page 35, paragraph (a), between lines 37 and 38, to insert the following:

"company" does not include a credit union within the meaning of the Credit Union Act, 1997;".

Since putting down the amendment, the position has been clarified for me. The amendment was intended to ensure that distributions from credit unions by means of dividends did not attract the withholding tax. I am assured that is not the case in any event.

That is not the case. We made it clear that it was intended to catch the difficulty to which the Deputy was referring. This amendment relates to section 22 of the Bill which provides for the introduction of a scheme of dividend withholding tax (or DWT for short) on distributions made by Irish resident companies. The amendment seeks to ensure that DWT will not apply to dividend payments made by credit unions to the shareholders.

I do not see there is any need for this amendment. The DWT scheme applies to payments which are treated as distributions for tax purposes and which are targeted under Schedule F of the Taxes Consolidation Act, 1997. The payment of interest or dividends by a credit union to its shareholders is not treated as distribution for tax purposes but is instead chargeable under Case III of Schedule D of the Tax and Consolidation Act, 1997. Such payments, therefore, are clearly outside the scope of the DWT charge.

I may be anticipating the debate that we may have later on, could the Minister explain why credit union dividends have not been treated in that fashion?

We will be discussing it later on.

It is directly relevant to this amendment.

They are treated for tax purposes as interest payments. In the credit union for tax purposes, there is no differential between what is paid as interest or as dividends. They have been treated almost like interest payments.

I am banking that point for further discussion later.

It might not be to the Deputy's betterment to bank that matter because it might prove a point that he would not like to prove.

It was ruled out of order.

Amendment, by leave, withdrawn.

The next amendment is amendment No. 33. Amendments Nos. 34 and 35 are cognate, Amendments Nos. 36, 47 and 48 are cognate and related. Amendment No. 37 is consequential on amendment No. 36. Amendment No. 49 is consequential on amendment No. 48. Amendment No. 50 is consequential on No. 49. Amendments Nos. 33, 34, 35, 36, 37, 47, 48, 49 and 50 may be taken together by agreement.

I move amendment No. 33:

In page 42, lines 50 and 51, to delete "referred to in subsection (3)(b)" and substitute "which is not resident in the State and to which subparagraph (i) or (ii) of subsection (3)(b) applies and".

These amendments related to sections 22 and 23 of the Bill. Section 22 provides for the introduction of a scheme of dividend withholding tax (or DWT for short) on distributions made by Irish resident companies. Section 23 provides that only certain non-resident persons are to be exempt from Irish income tax in respect of such distributions. A non-resident person in question are those persons who are to be exempt from DWT. Included among the persons who are to be exempt from DWT and the charge to income tax from distributions made by Irish resident companies are companies which are not resident in the State and the principal class of the shares of which are substantially and regularly traded on the stock exchange in another EU member state or in a country with which Ireland has a double taxation treaty.

However, a number of multinational companies located in the State pay dividends to intermediate holding companies. The amendments now before us will ensure that these intermediate holding companies will also be exempt from DWT and income tax on such dividends if their ultimate parent company's shares are listed on a recognised Stock Exchange in another EU country or tax treaty country.

Amendment agreed to.

I move amendment No. 34:

In page 43, lines 21 and 22, to delete "referred to in subsection (3)(b)" and substitute "which is not resident in the State and to which subparagraph (i) or (ii) of subsection (3)(b) applies and".

Amendment agreed to.

I move amendment No. 35:

In page 43, lines 49 and 50, to delete "referred to in subsection (3)(b)" and substitute "which is not resident in the State and to which subparagraph (i) or (ii) of subsection (3)(b) applies and".

Amendment agreed to.

I move amendment No. 36:

In page 44, to delete lines 49 to 51 and substitute the following:

"(ii) the principal class of the shares of-

(I) the company, or

(II) another company of which the company is a 75 per cent subsidiary,

is substantially and regularly traded on".

Amendment agreed to.

I move amendment No. 37:

In page 45, between lines 35 and 36, to insert the following subsection:

"(5) For the purposes of subsection (3)(b)(ii)(II), sections 412 to 418 shall apply as those sections would apply for the purposes of Chapter 5 of Part 12 if subparagraph (iii) of section 411(1)(c) were deleted.".

Amendment, agreed to.

I move amendment No. 38:

In page 47, line 40, to delete "and".

Amendment agreed to.

I move amendment No. 39:

In page 47, between lines 40 and 41, to insert the following:

"(h) in the case where the intermediary is a depositary bank holding shares in trust for, or on behalf of, the holders of American depositary receipts-

(i) if authorised to do so by the Revenue Commissioners, to operate the provisions of subsection (3)(d) of section 172F, and

(ii) to comply with any conditions in relation to such operation as may be specified in the agreement,

and".

Amendment agreed to.

I move amendment No. 40:

In page 50, between lines 41 and 42, to insert the following:

"(c) Notwithstanding paragraphs (a) and (b), a qualifying intermediary, being a depositary bank holding shares in trust for, or on behalf of, the holders of American depositary receipts, shall, if provided for in the qualifying intermediary agreement and subject to any conditions specified in that agreement, operate the provisions of paragraph (d).

(d) Where this paragraph applies in relation to a qualifying intermediary, the qualifying intermediary shall include in its Exempt Fund-

(i) any person on whose behalf it is to receive any relevant distributions to be made by a company resident in the State, or on whose behalf it is to receive from another qualifying intermediary payments representing such distributions, being a person who is beneficially entitled to such distributions or payments, who is the holder of an American depositary receipt and whose address on the qualifying intermediary's register of depositary receipts is located in the United States of America, and

(ii) any specified intermediary to which such distributions or payments (or amounts or other assets representing such distributions or payments) are to be given by the qualifying intermediary and are to be received by that specified intermediary for the benefit of-

(I) persons who are beneficially entitled to such distributions or payments, who are the holders of American depositary receipts, whose address on that specified intermediary's register of depositary receipts is located in the United States of America, and who in accordance with paragraph (e)(iii)(I) are to be included in that specified intermediary's Exempt Fund, or

(II) any further specified intermediary to which such distributions or payments (or amounts or other assets representing such distributions or payments) are to be given by the first-mentioned specified intermediary and are to be received by that further specified intermediary for the benefit of persons who in accordance with clauses (I) and (II) of paragraph (e)(iii) are to be included in that further specified intermediary's Exempt Fund.

(e) For the purposes of paragraph (d), an intermediary shall be treated as a specified intermediary if the intermediary-

(i) is not a qualifying intermediary but is a person referred to in paragraph (a), (b), (c) or (d) of section 172E(4) who is operating as an intermediary in an establishment situated in the United States of America,

(ii) creates and maintains, in relation to such distributions or payments (or amounts or other assets representing such distributions or payments) to be received by it on behalf of other persons from a qualifying intermediary or another specified intermediary, an Exempt Fund and a Liable Fund in accordance with subsections (1) and (5), but subject to subparagraphs (iii) and (iv), as if it were a qualifying intermediary,

(iii) includes in its Exempt Fund in relation to such distributions or payments (or amounts or other assets representing such distributions or payments), only-

(I) those persons who are beneficially entitled to such distributions or payments, being persons who are the holders of American depositary receipts and whose address on its register of depositary receipts is located in the United States of America, and

(II) any further specified intermediary to which such distributions or payments (or amounts or other assets representing such distributions or payments) are to be given by the intermediary and are to be received by that further specified intermediary for the benefit of persons who in accordance with this subparagraph are to be included in that further specified intermediary's Exempt Fund,

(iv) includes in its Liable Fund in relation to such distributions or payments (or amounts or other assets representing such distributions or payments), all other persons (being persons who are the holders of American depositary receipts) on whose behalf such distributions or payments (or amounts or other assets representing such distributions or payments) are to be received by it from a qualifying intermediary or a further specified intermediary, other than those persons included in its Exempt Fund,

(v) notifies, by way of notice in writing given in accordance with subsection (1), the qualifying intermediary or, as the case may be, the further specified intermediary from whom it is to receive, on behalf of other persons, such distributions or payments (or amounts or other assets representing such distributions or payments), whether such distributions or payments (or amounts or other assets representing such distributions or payments) are to be so received by it for the benefit of persons included in its Exempt Fund or persons included in its Liable Fund,

(vi) notifies the qualifying intermediary or, as the case may be, the further specified intermediary, by way of notice in writing or in electronic format, at the time it gives such distributions or payments (or amounts or other assets representing such distributions or payments) to other persons, of the name and address of each such person, and

(vii) agrees that the information given in accordance with subparagraph (vi) to the qualifying intermediary or, as the case may be, the further specified intermediary shall be returned by the qualifying intermediary to the Revenue Commissioners in accordance with subsection (7)(f).

(f) Where, by virtue of the preceding provisions of this subsection, any person, being a person who, apart from this paragraph, would not be a non-liable person in relation to the distributions or payments (or amounts or other assets representing such distributions or payments) to be received on that person's behalf by a qualifying intermediary or a specified intermediary, is included in the Exempt Fund of the qualifying intermediary or, as the case may be, of the specified intermediary, that person shall, notwithstanding any other provision of this Chapter, be treated as a non-liable person in relation to such distributions.".

Amendment, agreed to.

Has the Minister any additional notes on amendment No. 40.

I dealt with amendment No. 40 when I was speaking on the other amendments.

Does the Minister have a specific speaking note on it?

I do not have any separate speaking note. If the Deputy wants a note on the overall section I will send it to him.

I move amendment No. 41:

In page 52, line 8, to delete "and".

Amendment agreed to.

I move amendment No. 42:

In page 52, line 14, to delete "intermediary." and substitute "intermediary, and

(f) where subsection (3)(d) applies in relation to the qualifying intermediary, the information given to the qualifying intermediary by specified intermediaries in accordance with subsection (3)(e)(vi).".

Amendment agreed to.

Amendment No. 43 in the name of the Minister. Amendment No. 43 and 44 are consequential on Amendment No. 45. Amendment No. 45 is consequential on amendment No. 46. amendments Nos. 43 to 46 inclusive together by agreement.

I move amendment No. 43:

In page 63, paragraph (c), to delete lines 26 and 27 and substitute the following:

"1. In this Schedule-

"appropriate person", in relation to a pension scheme, means-".

These amendments relate to section 22 of the Bill which provides for the introduction of a scheme of dividend withholding tax (or DWT for short) on distributions made by Irish resident companies. The DWT provisions allow for payment of dividends gross to certain categories of shareholders. One of the categories is shareholders who are not companies and who are resident in a tax treaty country or in another EU member state. There are certification and information provisions in place to ensure as far as possible that the shareholders claiming exemption are genuinely resident in those countries.

However, where the shareholders in Irish companies are the trustees of a trust resident in a tax treaty country or in another EU member state, the certification procedures included in the Bill which allow for payment of dividends gross do not, as they stand, allow for the identification of the trust beneficiaries. All that is required is a declaration that the trustees are tax resident in a qualifying country backed up by a certificate confirming that fact from the tax authorities in the country in question.

Since the publication of the Bill it has been pointed out to me that Irish residents or indeed residents of non-qualifying countries could easily side-step DWT on dividends from Irish companies if the dividends were routed through a trust based in a qualifying country. The trustees would only have to produce a certificate that the trustees are tax resident in that country - there would be no obligation to establish the identity of the settlors or beneficiaries of the trust.

The amendments now before the committee propose to rectify this weakness by providing that, where the non-resident persons claiming DWT exemption are trustees of a trust, it will be necessary for them to provide Revenue with the name and address of the trust beneficiaries and the settlors.

I commend the amendments to the committee.

Arising from the Minister's explanation, what is the Minister's definition of a qualifying country? Is it a country with which Ireland has a bilateral tax agreement?

Or an EU country. You would be allowed to pay dividends gross to persons in countries with which Ireland has a double tax treaty or another EU country. An amendment I moved this morning relates to a country which has a regularised Stock Exchange in a tax treaty country or an EU country.

But there is an additional qualifier that they must have Stock Exchanges.

No, that was a separate amendment. One of the exceptions is that if the recipient of the dividend is a quoted company or is controlled by a quoted company.

Regardless of country of residence.

Amendment agreed to.

I move amendment No. 44:

In page 63, line 39, to delete "scheme." and substitute "scheme;".

Amendment agreed to.

I move amendment No. 45:

In page 63, between lines 39 and 40, to insert the following definitions:

" "beneficiary", in relation to a trust, means any person (in this definition referred to as "the first-mentioned person") who, directly or indirectly, is beneficially entitled under the trust, or may, through the exercise of any power or powers conferred on any person or persons, reasonably expect to become so beneficially entitled, to income or capital or to have any income or capital applied for the first-mentioned person's benefit or to receive any other benefit;

"settlor", in relation to a trust, includes any person who has provided or undertaken to provide assets or income directly or indirectly for the purposes of the trust;

"trust" means any trust, disposition, settlement, covenant, agreement or arrangement established, made or entered into by one or more than one settlor, whereby-

(a) assets, which may or may not change from time to time in the course of the management of the trust, or

(b) income, the sources and nature of which may or may not also so change from time to time,

beneficially owned by the settlor or settlors are or is vested in a person or persons (in this Schedule referred to as the "trustee" or "trustees") to be-

(i) either or both held and managed for,

(ii) paid over to, or

(iii) applied for,

the benefit of any beneficiary or beneficiaries, but does not include a pension fund, charity or undertaking for collective investment in transferable securities which is established or regulated under the law of any relevant territory.".

Amendment agreed to.

I move amendment No. 46:

In page 67, between lines 34 and 35, to insert the following:

"(g) in the case where the relevant distributions (or amounts or other assets representing such distributions) are to be received by a trust, is accompanied by-

(i) a certificate signed by the trustee or trustees of the trust which shall show the name and address of-

(I) the settlor or settlors in relation to the trust, and

(II) the beneficiary or beneficiaries in relation to the trust,

and

(ii) a certificate from the Revenue Commissioners certifying that the certificate referred to in clause (i) has been furnished to the Revenue Commissioners and that they are satisfied that that certificate is true and correct,".

Amendment agreed to.

I move amendment No. 47:

In page 68, to delete lines 33 to 36 and substitute the following:

"(ii) the principal class of the shares of-

(I) the company, or

(II) another company of which the company is a 75 per cent subsidiary (within the meaning of section 172D(5)), is substantially and regularly traded on a recognised stock exchange in a relevant territory or territories,".

Amendment agreed to.
SECTION 23.

I move amendment No. 48:

In page 69, to delete lines 27 to 30 and substitute the following:

"(ii) the principal class of the shares of-

(I) the company, or

(II) another company of which the company is a 75 per cent subsidiary, is substantially and regularly traded on one or more than one recognised stock exchange in a relevant territory or territories;".

Amendment agreed to.

I move amendment No. 49:

In page 70, between lines 9 and 10, to insert the following subsection:

"(3) For the purposes of paragraph (b)(ii)(II) of the definition of "non-resident person" in subsection (1), sections 412 to 418 shall apply as those sections would apply for the purposes of Chapter 5 of Part 12 if subparagraph (iii) of section 411(1)(c) were deleted.".

Amendment agreed to.

I move amendment No. 50:

In page 70, subsection (2), line 20, to delete "153(3)" and substitute "153(4)".

Amendment agreed to.
Section 23, as amended, agreed to.
SECTION 24.
Question proposed: "That section 24 stand part of the Bill."

I am considering an amendment for Report Stage on the dividend withholding tax and an exemption for certain non-resident shareholders.

Question put and agreed to.
NEW SECTIONS.

I move amendment No. 51:

In page 71, before section 25, but in Chapter 4, to insert the following new section:

"25.-The Principal Act is hereby amended in section 649A (as inserted by the Finance (No. 2) Act, 1998) by the insertion of the following subparagraph III in subsection (2)(b)(ii)-

'(III) to an agency charged with industrial development under any statute, which land is specified in a certificate in writing given by the agency as land being required by the agency for the purposes of promoting industrial development.'.".

Last year the Minister reduced capital gains tax from 40 per cent to 20 per cent. Around the time of the Finance (No. 2) Bill, 1998, the Bacon recommendations were implemented and he made some changes in the capital gains imposition for development land, in effect, applying 20 per cent in circumstances where planning permission existed on land used for house building purposes. This was justified on the basis that there was a shortage of land for houses. While there were problems on the demand side there were certainly serious problems on the supply side. Part of the Minister's strategy for increasing the supply was to increase the supply of serviced land. Consequently, the rate of capital gains tax on serviced land with conditions on planning permission was reduced to 20 per cent.

That measure has put some of the State agencies, particularly the IDA, in difficulties when competing with builders for appropriate sites for industry. In certain towns, such as Wexford and various others throughout the country, where serviced land near the town is limited if the landowner sells to a builder, the tax liability on the capital gain will be 20 per cent but if he sells to the IDA the liability will be 40 per cent. It is becoming increasingly difficult for the IDA, and presumably other agencies, to find a willing vendor because if they sell to the IDA their tax liability will be doubled.

There are a number of categories in the section to which the 20 per cent applies. The amendment, in effect, introduces a third category. The vendor of land for an agency charged with industrial development under any statute, where land is specified in a certificate in writing by the agency as land being acquired for the purposes of promoting industrial development would have his tax liability for capital gains reduced from 40 per cent to 20 per cent. This will be of increasing importance if the Government's regionalisation policy is successful. The Minister is well aware that if 13 or 15 counties succeed in maintaining Objective One status on the basis of a regional policy, the level of grant aid to industry establishing in Objective One regions will be significantly higher than to industries establishing in the regions designated Objective One in transition.

In addition to the regional disadvantages which counties outside the Objective One area will face there is the major difficulty for the IDA in acquiring sites. The same difficulty will affect SFADCo and enterprise boards when they become involved in the site acquisition business.

In Limerick city 12 months ago, one could purchase land at between £60,000 and £70,000 per acre. In the autumn the price had increased to £200,000 per acre and it now stands at £250,000. If a landowner sells a tranche of land with correct planning arrangements to a builder he will pay capital gains tax at 20 per cent, but if he sells to the IDA or SFADCo he will pay 40 per cent. There is no contest and these agencies can no longer compete for certain parcels of land.

When I announced the general reduction in the rate of capital gains tax to 20 per cent in my Budget Statement in December 1997, I specifically excluded "development land" which would continue to be taxed at 40 per cent. There are good reasons for this. A simple rezoning of an area under a county development plan, for example, can, at a stroke, multiply the market value of that land many times over. Although the owners of such land will enjoy a windfall gain on any subsequent disposal, they cannot reasonably expect to be taxed at 20 per cent on any gains they realise.

However, in response to the Bacon Report on the escalating cost of house purchase, which was published last year, I introduced in the Finance (No. 2) Act, 1998 a temporary reduction in the tax rate applying to disposals of development land which was suitable for residential use. This is a targeted response to a specific crisis and one which will help release more land for residential development in the short-term. This low rate will only apply until April 2002. It must be obvious to the committee that if this temporary reduction is now to be broadened to include land disposed of to IDA for the purposes of industrial development, the original policy response to housing needs will become less and less effective.

There have been representations about the problem of which Deputy Noonan spoke. I was contacted by a Deputy recently who told me of a local authority trying to acquire a suitable plot for a cemetery but the landowner concerned was not prepared to sell because his accountant advised him it would be deemed to be development land and he would be obliged to pay capital gains tax at 40 per cent. As he was not prepared to pay that, the local authority could not acquire the land. I received many oral and written representations about the IDA problem whereby people are holding back on selling land to the IDA because they do not want to pay capital gains tax at 40 per cent when if they sold it for housing it would be at 20 per cent.

On the one hand, the Bacon recommendation which culminated in the Finance (No. 2) Bill, 1998 was designed to encourage people to sell for housing to get more land on the market to increase supply. I reduced the 40 per cent capital gains tax on development land to 20 per cent for that type of sale up to 2002. The clear purpose of the Bacon recommendation was to put more housing land on the market. If I apply 20 per cent on development land to the IDA also it would lessen the carrot approach proposed by the Bacon report. If I do that for IDA development land, what would stop the local authority making representations about a cemetery? Following this logic, it strikes me, despite all the protestations about the CGT, that people do not like paying it at a rate of 40 per cent. Everyone seems to have an overwhelming desire to reduce it to 20 per cent and that may be a proposition. In my budget statement in December 1997 I reduced CGT to 20 per cent, except for development land. When the Bacon report was published, I immediately initiated the Finance (No. 2) Bill, 1998. I complimented my officials and the officials in the Revenue Commissioners before about this Bill because it was prepared quickly. The officials involved worked for many nights to prepare this Bill.

The CGT was at a rate of 40 per cent pre-December 1997. I reduced it to 20 per cent, except for development land. When the Bacon report was published, and in response to its proposals to make people sell their land for housing, I reduced CGT. Therefore, this land was no longer subject to 40 per cent CGT. This measure meant the classification of development land would apply only to a limited number of categories and would be subject to 40 per cent CGT. I am now being asked to take out the IDA category for industrial development. If I do that I will be left with very little. I have had representations about graveyards and for logic reasons, I would have to agree to that as well. I will be left with nothing at 40 per cent CGT.

Deputies McDowell and Noonan will not be surprised to hear that I am not a believer in high CGT because many recent tribunals and financial scandals, etc. relate to taxation matters, particularly tax evasion. Even if CGT, inheritance or income tax rates are high, people will try to evade them.

It does not matter if tax is high or low, some people will evade it.

There will always be people who will sin and neither the Deputy nor I will be able to legislate against that.

The Minister has given those people a general pardon. A lot of greedy people do not want to pay for anything, especially if it is for the public service.

; If we had a 1 per cent tax rate, many people would still evade tax. The inescapable logic is that high tax rates at all levels encourages tax evasion.

I am not willing to consider this proposal at present. If this logic is pursued and people are honest about it, the ultimate logic is that CGT for all categories should be at the lower rate of 20 per cent. If I acceded to Deputy Noonan's request and that of other colleagues, it would be logical to reduce CGT to 20 per cent for all activities. I would like to hear the discourse on this issue both inside and outside of the House.

I remind Deputies that all indications, including statistics, show that by reducing CGT to 20 per cent the tax yield will increase.

Will the Minister chase people guilty of tax evasion?

Anyone living in the real world was not surprised by those indications.

I want to put these points while we are discussing this issue. I have listened to Deputy Noonan's comments on CGT.

With regard to development land and the Bacon report the Minister has mentioned only one part of its recommendation, but he mentioned the other part in passing. He described it at the time as a carrot and stick approach and that there would be a 20 per cent rate for three or four years which would rise to 60 per cent in 2002.

It will increase after 2002.

The Minister seems to be saying he might not increase the rate to 40 per cent or 60 per cent in 2002. I am not surprised by this.

The Deputy did not believe it would be 60 per cent after 2002. I included that measure in the Bill.

I still do not believe the Minister will do that, if he is still in a position to do so. He seems to be signalling here that is precisely the way his mind is moving. If he intends to reduce CGT to 20 per cent overall, then the stick element of the Bacon recommendation has been taken away. He is signalling to people who have development land, or may have development land, available to them for disposal that they need not worry about the 2002 deadline. This move is extremely dangerous and runs the risk of severely diluting the Bacon recommendation on CGT.

The Minister mentioned that the reasoning behind keeping the CGT rate at 40 per cent for development land was that it came about because of a stroke of a pen, in other words, rezoning. He also said most of the individuals concerned had not done anything to increase the value of their properties. That is a compelling argument.

The principal point I want to make here, after listening to the Minister, is that he should clarify whether he will remove the provision in the Finance (No. 2) Bill, 1998, about the 60 per cent increase in 2002. If he does, he will undermine the measure.

Whatever else I have done as Minister for Finance, I have followed through on what I said I would do, including reducing CGT by 20 per cent and various other issues which we debated yesterday regarding pensions and so on. I stated clearly in the Finance (No. 2) Bill, 1998, and put it into legislation, that the purpose was to bring more land onto the market as quickly as possible. The incentive was an increase of 20 per cent up to 2002 and an increase of 60 per cent after 2002.

I am not being argumentative. Did the Minister not invite our views on a general 20 per cent rate?

Deputies and people outside the House were very forceful in their arguments that I should not have reduced CGT to 20 per cent. Now it is being suggested that I should reduce the rate to 20 per cent for other categories of development land. They cannot have it both ways. Deputy McDowell has not argued this point so far. Does he support Deputy Noonan's amendment?

The Minister is badgering Deputy McDowell.

Deputy McDowell is consistent on this issue. I know the Labour Party believes there should be no more concessions about the lower rate of CGT. It does not want a 20 per cent rate of CGT for IDA development land, cemeteries, and so on.

There is a 20 per cent rate for housing.

Deputy Noonan, on behalf of the Fine Gael Party, criticised the reduction of CGT to 20 per cent, but he now wants me to reduce CGT on development land to 20 per cent. If he wants me to have a 20 per cent rate on more development land, the impelling logic is that there should not be a 40 per cent rate of CGT for any development land. Commercial development land would be the only land at the 40 per cent rate. The CGT would be reduced for every category. If Deputy Noonan and others want a 20 per cent rate of CGT for every category, I will consider it further in light of next year's Finance Bill. Their proposal contradicts their position last year when I reduced CGT to 20 per cent.

Deputy McDowell clarified his position. He did not support this measure last year and he does not want it now. He wants higher CGT rates which would not yield a greater deal to the Exchequer. He has had the traditional left wing position since time immemorial. He did not support it then and he does not support it now. In fact, he seeks a higher capital gains tax rate and less yield for the Exchequer. However, that has been the left wing position since time immemorial - tax rates up to the ceiling and no yield for the Exchequer. It is also the traditional Labour Party position secula seculorum but it is not mine.

The Minister made a persuasive argument for retaining a 40 per cent rate on development land which, five minutes later, he disowned. He now says he will consider introducing a generalised 20 per cent rate of capital gains tax next year. At the same time he is saying he will stick with the 60 per cent rate planned for three years' time. His position is bizarre.

If I am being pushed by the main Opposition party and others outside the House to go down this route, I will consider it in next year's Finance Bill. I did not say I would do it. If they are trying to persuade me that this is the way I should go, I will listen to them.

The purpose of this amendment is to anticipate the problems areas outside the main industrial centres will have attracting industry, especially if the Objective One proposals are sanctioned. It will become increasingly difficult for areas outside the Objective One region, who will only get 20 per cent grant aid, to compete with Objective One areas and with areas in growth centres such as Dublin, Cork, Galway and Limerick.

It is becoming increasingly difficult to attract industry to rural areas in the midlands and the south west. That is why we put down the amendment. Would the Minister consider giving a tax reduction on a site where specific projects are earmarked for it? Recently I was involved in the development of an advance factory in Listowel. It is difficult to collect £1 million under the BES scheme——

A potential Objective One region.

Hopefully. It would be easier to fill the factory if there were a 40 per cent grant rather than a 20 per cent grant to offer industrialists. That is why it is so important. It is difficult to collect £1 million through a BES scheme. We are obliged to pay 40 per cent on the site and if that were reduced, it would be a great deal easier.

The Minister is trying to drag us into a general discussion but there are many more amendments to be discussed. He appears to be setting up an ambush to prevent us reaching the end of the section.

No. There is a certain inconsistency in what was said about capital gains tax a year ago and what is being said now.

The Fine Gael problem with capital gains tax falls under two headings. First, the marginal rate of capital gains tax at 20 per cent on assets, where people can sit by the fire and wait for the buyer to arrive, is out of line with the marginal rate of tax on work and effort at 46 per cent. It is hard to explain to somebody who works hard, possibly overtime, or gets a Christmas bonus why they must pay 46 per cent tax if their neighbour, who appears to live a more tranquil existence, only has a tax liability of 20 per cent on the disposal of an asset.

Our second difficulty is that we were concerned about the Government's motivation for introducing a 20 per cent rate in the first budget. Everybody is familiar with the payback agenda and the biggest payback I have seen during my time in politics was for the people who were actively promoting the interests of the Minister's party. They were clearly major beneficiaries of this reduction and we had serious doubts about its probity.

With regard to this amendment, it is a bad principle of taxation to differentiate by way of rate on the basis of the proposed use of assets. Land is land, serviced land is serviced land and zoned serviced land is zoned serviced land. The Minister is trying to make distinctions on the basis of the possible use of the land. Houses are vitally important to society and to couples who wish to buy their own homes but jobs are also vitally important. IDA and SFADCo will be in a market in which they will have to outbid the local builder for serviced land. Ultimately, the Minister will be responsible for sanctioning the capital budget for the Tánaiste's Department and the grant to the IDA to purchase the land for industry in order to provide jobs for people, especially in large provincial towns. The IDA will have to outbid the builder and pay seriously above the odds because the vendor will be aware that if they sell to the IDA, the charge will be 40 per cent whereas if they sell to the builder, it will be 20 per cent.

The Minister is right in that once he moved there was a certain logic to the progression. It is impossible to make false differentiations based on what will happen subsequently in the use of land. If I thought there were serious consequences from what the Minister did, arising from the Bacon report on the supply side, I would agree with him. However, what is happening at present is a disgrace. The Minister has provided money to the Department of the Environment and Local Government but that Department and its Minister have failed to get extra serviced land even though they have the money. There is a planning problem——

The discussion on housing should be left for another day.

We are talking about serviced land and how it is treated for tax. I was not the one who went on the long march on this issue. If we want to go on the long march we must follow the Minister. I am anxious to move the debate forward and I ask the Minister to consider this amendment between now and Report Stage. It is a serious issue.

With regard to Deputy Deenihan's comments, it would not be possible to have different rates of capital gains tax applying in certain parts of the country. There are tax incentives regarding capital allowances in centres for urban renewal and in other special areas. However, I do not believe it would be——

No, that is not what I said. It will be difficult to attract industry into certain areas if the Objective One proposal goes through. It would be an advantage if capital gains tax were at 20 per cent, for the reasons outlined by Deputy Noonan.

I have set out my stall in this regard. People know my views about capital gains tax and high nominal rates of taxation, be they capital gains tax, inheritance tax or income tax. My views are not shared universally but many supporters of the Deputy's party share them. Those views were once the Fine Gael position.

There is no point saying I will consider the amendment between now and Report Stage. I can see the merits of the Deputies' arguments but if one accepts the argument in the amendment, one must also accept the argument that the impelling logic of the Deputy's position is that there should be a lower capital gains tax rate for all types of development land. If I were to accept this amendment, I would be left with a 40 per cent rate for almost nothing. That would be unrealistic.

I accept there is logic in the Deputies' arguments but they must accept the corollary of their position which is that they are arguing for a 20 per cent capital gains tax for all types of activity. That is not the position they adopted in the past. Unfortunately, I must reject the amendment.

Amendment, by leave, withdrawn.

Amendment No. 52 has been deemed out of order as it involves a potential charge on the people.

Amendment No. 52 not moved.
Question proposed: "That section 25 stand part of the Bill."

This section deals with a variety of taxes, including income tax. In the second last budget the Minister for Finance sought to introduce tax changes which applied to credit unions. Those proposals caused a huge controversy and he was forced by the credit union movement to drop them. The Minister subsequently set up a working party which made certain recommendations. He remarked earlier that from a tax point of view a dividend from a credit union or interest on a deposit in it is treated in the same way for tax purposes and income tax applies. I understand the present position is deposit holders in credit unions are liable to income tax on their dividends and on the interest on their deposits but they must declare them themselves, because DIRT tax does not apply to credit unions.

Because of this, the imposition on deposit holders in credit unions is 46 per cent, whereas DIRT tax is 20 per cent in its full and final settlement. We propose that the Minister legislate in accordance with the recommendations of the working group. The working group's recommendations have been accepted by the credit union movement. The Minister can now achieve most of what he wanted in a non-contentious manner.

He will not put thousands of small deposit holders on the wrong side of the law by making them liable for tax which they do not declare. Most of them do not declare it and, consequently, are in the position that they are not paying their tax. Under the enforcement provisions which we will discuss tomorrow afternoon, the Revenue Commissioners will be able to access their accounts because they will have a prima facie case that small deposit holders are not fulfilling their liabilities in respect of interest on deposit.

Everyone is familiar with what is being suggested - that 20 per cent DIRT tax will be applied to interest on credit union deposits, it will be full and final settlement, and there will be no requirement on the credit union to report, other than to do the calculation on the totality of the interest arising from deposits and send the Revenue Commissioners a cheque for 20 per cent of that.

As everyone knows, members of credit unions can have shares as well as deposits. We propose that any dividend in excess of £750 per year would be subject to the 20 per cent DIRT tax as well and this would be full and final settlement. Where the dividend is less than £750, the proposal is that the first £375 of the dividend would be exempt and then DIRT tax would apply at 20 per cent on the balance. This reflects the views of the working party which the Minister set up and has the support of the credit union movement.

The Minister got his fingers burnt when he made his original proposals. Some of us would have a certain amount of sympathy for him; his motives were good. He probably thought he was acting in agreement with the credit unions at the time. He is reluctant to re-enter the fray but this is a blotch in the way he treats the financial institutions for DIRT tax. If he accepts this amendment or introduces one along similar lines on Report Stage he will have removed a significant bone of contention from the agenda and will be taxing the credit unions in a fair and transparent manner. Hundreds of thousands of deposit holders, through the leadership of the credit unions, are willing to accept this method of taxation.

Deputy Noonan has gone through the recommendations in the report of the working party and there is no need for me to repeat them. There are two compelling reasons why the Minister should implement the recommendations made by the group. There is the special position of the credit unions, which everyone in the House, except perhaps the Minister, accepts, and there is the need to regulate an area which is not well regulated at the moment.

The theoretical position in relation to taxation of credit union dividends does not apply in practice because the vast majority of people do not declare any earnings they get from credit union dividends. If the Minister has any figure for the returns in that regard I would be interested to hear it.

Most credit union members would welcome the position being regulated in the manner proposed by the working group. Since the report is in the public arena, I wanted to give the Minister an opportunity to tell us if he endorses the statement on the part of the Department of Finance in the report. Does that represent his own view? It states that the Department of Finance sees no case for any further changes to tax law to favour credit unions.

There is an overwhelming case for doing this. We do not need to trot out the argument why credit unions are different - they are non-profit making and they serve a different customer base to other financial institutions. The Minister should grasp this nettle. It would increase the tax take from credit union savings because it would bring more credit unions savings into the white economy. I urge the Minister to act on the report of the working group which he set up.

I am sure the Minister would agree that if you apply the same financial rules to credit unions as you do to other financial institutions, the ethos and founding principles of the credit union movement would be damaged. Ordinary members of credit unions, many of whom would be in the Minister's party, are dissatisfied with the way he is treating the credit unions and the recommendations of the working party. They felt that if an expert working party was set up, they could be confident that the Minister would accept its recommendations. A representative of the Department of Finance was a member of the working party. The Department dissociated itself from the recommendations of the report but the rank and file members of credit unions feel they will have to be treated differently from other financial institutions because of their nature.

Perhaps the Deputy could return to section 25. I do not see much about credit unions in it.

I am only following the discussion.

I have allowed some leniency and the Deputy is off the point.

I am sure the Chairman has constituents who are concerned about this. Is there anything the Minister can do before Report Stage to satisfy the demands of credit unions? Even the Taoiseach recently recognised the role of credit unions. We would like to hear the Minister's response despite the untimely interruption of the Chairman.

In future I will stick to the Bill and its sections.

At risk of incurring the Chairman's wrath, I want to put it on record that it was not just the Labour Party and the Fine Gael Party which were lobbied by the officers of the credit unions. All parties were approached and there is great sympathy for their case.

I did not hear the same sympathy for the Minister expressed by Deputy Noonan last year. I am glad people understand that we all felt a stroke was pulled last year which did no good to anyone - the Minister, credit unions or anyone else. It appears a group within the National League of Credit Unions was ahead of the rank and file members for whom we are concerned but did not seem to be aware of the discussions taking place. l am hopeful that the working party made recommendations which are acceptable to the Minister, the Department and everyone else.

I have stated that ordinary paying members must be fully au fait with what is happening. A group is working very hard with the Department and others, including Mr. Smith, the national secretary, but it appears the people who came to me were left behind. I would be interested in the Minister’s comments as the issue needs to be resolved.

We are on section 25. Does the Minister wish to speak on this section?

Section 25 is concerned with the making of an affirmation as an alternative to the taking of an oath. The matter has its origins in the Taxes Consolidation Act, 1997, when the lack of formal provision in that Act for the making of an affirmation was raised. Amendments were tabled to make express provision in that Bill for the making of an affirmation which, in the case of a conscientious objection to the taking of an oath, is a legal alternative to an oath.

These amendments could not be taken in the context of consolidation as they would have resulted in a substantive change to underlying law. Amendments along these lines were again tabled to the Finance Bill, 1998. This section addresses the issue and inserts a new section in the Taxes Consolidation Act, 1997. As a result, reference in the tax Acts and the capital gains tax Acts to an oath will be construed as including an affirmation, thereby enabling persons to affirm as an alternative to taking an oath.

I thank the Minister for the speaking note. Will he make a solemn affirmation to implement the recommendations of the working party on credit unions? We are not asking him to take an oath, an affirmation will be enough. If he affirms that he intends to do so on Report Stage, we can move on. What are the Minister's views on this?

Since I received the report on 1 October 1998, hardly an hour has gone by that I have not given it detailed consideration. I intend to give it the same deep and intense consideration in the coming months. I affirm that to the Deputy.

The Minister is suffering from a fit of pique. He got burnt by the credit unions. He has a responsibility to deal with this issue, but he is not doing so. He has a recommendation which has the support of the credit union movement and the parties in the House, including Fianna Fáil. Why not move on this now and take this issue off the agenda?

I have answered the Deputy in a number of parliamentary questions. I am considering the report of the working party, and I must give it further consideration.

The working party reported last September. The Minister has had plenty of time to consider it and he has had the views of all parties, including his own, the wider credit union movement and his officials. He got burnt on this issue and he feels sore about it. Some of us think he has mishandled it. He may believe he is justified in feeling sore about it, but that is not sufficient reason for not acting on something which clearly requires action, particularly in circumstances in which he is giving powers to the Revenue Commissioners to look at the private accounts of any deposit holder, including deposits in credit unions.

It is clear, and it might as well be said, that small depositors in credit unions are not complying with their liability in terms of paying tax on their interest or dividends. The shareholding is so small that they are regarded as inconsequential. This puts them on the wrong side of the law with the new powers the Minister is giving to the Revenue. An official of the Revenue Commissioners will be able to say that in such a credit union there are virtually no returns in terms of income tax on income or deposits. Consequently, he or she would be within his or her rights to sign the authorisation to allow a tax inspector to examine the individual accounts. The Minister is making matters worse by not acting now. Another head of steam will build up on this issue because of the powers being given to the Revenue Commissioners and how they might apply to credit unions. The Minister should act on this issue.

This question is central to the argument. The Minister said he is considering this issue. That is open to debate. The statement included in the report from his Department suggests that he is not considering it. It suggests that the Department has a particular view. It states "The Department of Finance sees no case for any further changes to tax law to favour credit unions". Is that the view of officials in the Department or is it the view of the Minister? If it is his view, clearly he has made up his mind.

I will consider the report in the next few months and I will reach a decision at some time in the future.

Is the statement published by the Department last week the view of the Minister, or is he hanging his officials out to dry?

The Deputy is aware that much time and resources went into preparing the credit union report. It is worthy of full consideration by the Minister.

I am specifically asking about a part of the report headed "Statement by the Department of Finance". I read the first sentence to the Minister. Is that his view or the view of his officials?

Which view?

The statement that, "The Department of Finance sees no case for any further changes in tax law to favour credit unions". It goes on to make that argument so I am not taking it out of context. It is on page 15. Is the statement by the Department the Minister's view? It was clearly represented as the Department's view in the discussions by the working group. Is it the Minister's view?

The views of a Department do not have a separate existence from those of the Minister.

So it is the Minister's view?

That was the view put forward to the working group. It is part of the deliberations put forward in the report.

So the matter is decided.

I have stated on a number of occasions that I am considering the report and will continue to do so.

That does not add up. There is no sense in the Minister saying he stands over a statement which states he sees no case for change and, at the same time, saying he is considering change. He cannot have it both ways.

Every day of the week I consider representations by various people and reach conclusions to change the law. I changed various aspects of this year's Finance Bill which I did not do last year. I made changes in a number of areas which were debated last year. I am willing to consider the report of the working group and I will come to a conclusion in due course.

The Minister is doing himself and his Department no service. He should either stand over the statement he made in the report or reject the report.

If that was the case there would be no purpose in setting up the working group in the first instance.

That is precisely the point. There clearly was no purpose in setting it up.

As the Deputy rightly stated, during last year's debate - if one could call it that - these suggestions were put forward by the credit union movement, to which I acceded. The movement then ran away from them. When the group report was published last September, Deputy McDowell called for it to be implemented. Deputy Rabbitte described the report as a penny-pinching exercise which would serve only to limit the capacity of credit unions to invest in their own opportunities and told me not to touch it. Deputy Noonan advised me to take a cautious approach to the recommendations.

Very good advice.

I am taking the Deputy's advice and I am going to take a cautious approach to this matter.

Deputy Ferris tabled a number of amendments to this effect during the debate on the Taxes Consolidation Act, and, on his behalf, I thank the Minister for acting on the affirmations he made at that time.

I thank the Chairman for the latitude he allowed in respect of the amendment he ruled out of order. Would it be possible to obtain a ruling on it before Report Stage because I intend to table it again at that time? The amendment was ruled out of order on the basis that it imposes a charge. I cannot see how an amendment which seeks to reduce the imposition of tax from 46 per cent to 20 per cent, with some exceptions, could represent a charge on the public. As far as I am concerned, it is a relief on the public. I intend the re-enter the amendment for Report Stage. It is procedurally unsound to debate matters which are not in order.

It has already been put in train for Report Stage.

If it is not in order at that stage, we will have a very hot compliance debate given that credit unions will be included under the new powers for the Revenue.

On a point of clarification, credit unions were covered under the Revenue Commissioners' existing powers. They are not being singled out and included under the new powers. The credit unions were always classified as financial institutions and have always been subject to the Revenue's powers. There is nothing new in that.

I am aware of that but I am making a different point.

Question put and agreed to.

Amendment No. 53 in the name of Deputy McDowell is deemed out of order as it involves a potential charge on the people.

Amendment No. 53 not moved.
SECTION 26.
Question proposed: "That section 26 stand part of the Bill."

This section arises from the changes introduced in the Finance (No. 2) Act, which implemented a number of the recommendations of the Bacon Report. One of the changes made in tax law was that investors would no longer obtain interest relief on mortgages if their purpose in investing was to set out or rent out a house. Many people who had genuinely bought houses but who had not signed a contract were treated very unfairly at the time. The Minister used two trigger mechanisms: first, the signing of the contract and, second, the provision of a date for the completion of conveyancing. In the section, the Minister is extending the date for completion from December to March which will allow a further three months for the completion of conveyancing.

I oppose the section because I wish to discover what gave rise to this extension. Are we returning to the situation that obtained in respect of section 19 of the Finance Act, 1994, where we legislated for a single case or a single individual?

Will the Minister indicate the number of people who will benefit from this provision? Will he provide an estimate of the loss to the Exchequer which will result from the extension of this relief?

The extension involves a period of three months, two months of which have already expired. I assume that in the interim we have continued to apply the exemption or the relief in the two month period.

Yes. I announced in the budget——

Is it covered by the financial resolutions?

I am informed that a resolution was not needed because we were giving something away. However, it was covered by the Budget Statement.

The aim of this section is to extend the deadline for the completion of transactions under the transitional arrangements contained in the Finance (No. 2) Act, 1998, from 31 December 1998 to 31 March 1999. These transitional arrangements provided that the deductibility of loan interest from rental income from rental property and the imposition of stamp duty on the purchase of new residential property by non-owner occupiers from 23 April 1998 do not apply to contracts in writing entered into prior to that date if the transaction was completed by 31 December 1998. The extension of the deadline is made on the basis of representations from the Construction Industry Federation. These representations indicated that adherence to the 31 December deadline could lead to significant problems, particularly related to safety, in view of capacity constraints in the construction sector and the usual seasonal weather problems at that time of year.

The Finance (No. 2) Act of 1998 introduced a number of tax measures to assist those wishing to purchase houses as owner occupiers. The Act gave effect to tax measures which represented a significant part of the Government's package of measures aimed at addressing problems in the housing market. This is a three pronged approach aimed at increasing the supply of serviced land, reducing excess investor demand and assisting ordinary house purchasers.

The Act introduced three tax measures to achieve these aims. It reduced the rate of capital gains chargeable on development land, for a limited period, to encourage the early release of such land for building. It restructured the stamp duty regime, first, by reducing the rates applicable on houses at the lower end of the market, and, second, by imposing, stamp duty on new dwellings bought by non-owner occupiers. Most significantly, it removed the deductibility of interest on borrowings used for the purchase of rented residential accommodation.

These measures were designed to restore balance to the housing sector - balance between supply and demand and balance between investors and owner occupiers. In the latter case it would be fairer to say the aim of the Act was to tilt the balance significantly in favour of the owner occupier, particularly for the first time buyer. It was recognised at the time the Act was introduced that those measures aimed at alleviating excess demand would have a more immediate effect while the measures aimed at improving supply would take longer to have an impact. The evidence to date shows that the demand side measures are having the desired effect. The rate of increase in house prices has moderated particularly in the Dublin area. Reports suggest that owner occupiers have replaced investors as purchasers of new homes. These measures, taken in conjunction with the significant reduction in interest rates in the final quarter of last year, have been of considerable benefit to house buyers.

First time buyers have largely replaced investors in the market for new homes. One of the consequences of this is that the supply of new rented accommodation has become restricted and this is reflected in the widespread reports of rising rents. The Bill contains a measure I announced in budget 1999 - the provision of section 23 type reliefs for the provision of student accommodation - this represents a targeted response to one point of pressure, one which can be applied without jeopardising the overall strategy.

Application of a more general relaxation of last year's action would lead to further upward pressure on house prices and this would also be reflected in rents. When the measures aimed at improving supply have come on stream, we should see some further improvement in the overall housing position. However, the Government is not inactive in relation to housing. The Minister of State at the Department of the Environment and Local Government, Deputy Molloy, yesterday announced the introduction of a new scheme of affordable housing to help lower income householders purchase their own homes. In addition, Peter Bacon and Associates have been commissioned to carry out an evaluation of the effectiveness of the Government action on house prices last year. It is expected that this report will be submitted to Government shortly.

With regard to Deputy Noonan's specific question, the extension to 31 March relates to the long dark winter evenings. This was put to me by the Construction Industry Federation at a pre-budget meeting. The federation requested an extension to 31 March 1999 of the cut-off date for interest on the deductibility of stamp duty exemption on homes for letting arising from the Government decision in implementing the Bacon proposals. In its submission the Department put it to me that the Construction Industry Federation, in its pre-budget submission, had called for an extension of the 31 December 1998 deadline to 31 March 1999. The Department stated that the federation regarded the deadline as restrictive following a poor summer construction season and that health and safety problems might arise in attempting to comply with it. It was also argued that there are no Exchequer implications arising out of this change.

The Department put forward the view, with which I agreed, that the deadline was unrealistic and there were no Exchequer cost implications because the jobs would be finished in any event. In the lead up to the budget, Deputies put it to me that the deadline was placing extraordinary strain on building contractors operating in Dublin who were working night and day to meet it. They also stated that health and safety problems could arise.

After the budget, the President of the Construction Industry Federation, Joe Tiernan, wrote to me to express his thanks and those of his colleagues in the home building industry for extending the deadline from 31 December to 31 March. He also wished me and my family and happy Christmas and a bright new year.

As long as the assurances are there from the Department and the Minister that this is not directed at one or two developers with blocks of apartments in Dublin city which remain unfinished.

I do not recall receiving any direct representations. However, I am sure the Department would have received representations from individual developers throughout the country. I do not recall anyone approaching me directly in respect of this matter. However, it was mentioned to me in passing by Deputies and Senators in the lead up to the budget. I understand that there was one representation from a large accountancy firm on behalf of the clients. One need not necessarily read into everything nowadays that something must be done for a particular purpose.

The reason I ask the question is that contracts had to be signed before April of last year. It would be unusual for a contract to be signed a year in advance.

I published the Finance (No. 2) Bill on 23 April. The contract had to be signed and the job completed by 31 December in order to benefit from the interest deductibility. Builders and developers tried to have their jobs completed by 31 December but in some cases where it was not possible, they looked for a reasonable extension. It was considered a worker safety issue. There is no initial cost to the Exchequer in this regard.

I am sure that in previous Finance Bills a number of changes have been made on foot of representation received from individual groups. For instance I received a letter from a person regarding the Shane Broderick case.

Under all the sections on 94 there is only one beneficiary.

That is quite a nonsensical argument. It is ridiculous. There are thousands of sections in Finance Bills brought in by Ministers for Finance going back to the foundation of the State that would only benefit one particular group or individual.

Very few of them are retrospective.

The Shane Broderick case is one for a start. I could list a number of cases. When Deputy Quinn as Minister for Finance he put forward a proposal under the Finance Act to allow roll over relief for capital gains on foot of the sale of property belonging to a racecourse. It was designed specifically to accommodate one racecourse in the country which was situated in Limerick. It was not mentioned in the Bill.

Some years ago owners of a racecourse in my constituency were subject to capital gains tax on land which they sold to reinvest in their track. It was not brought in for them. Deputy Noonan, as a former Minister for Finance, brought forward an amendment on Report Stage which back dated the proposed relief to a date which would ensure that Naas racecourse did not qualify. In fact, Naas racecourse had already paid capital gains tax and got it back from the Revenue Commissioners.

They are two examples that I can readily give publicly. To make the argument that they are not retrospective is not correct.

I understand from where the Minister is coming. The point is that if something is done at the request of one individual——

In the present political climate it is very easy to make these accusations and to imply that each section of legislation was designed to suit one particular person. I reject that accusation. I know sensible individuals in this House know it is a load of nonsense.

We do not want a lengthy debate on this. If some sort of amendment or provision is introduced to specifically benefit one individual it should be said that is why it is being done and that was not done in the case of the amendment we were speaking about earlier.

Deputy Noonan are you pressing your amendment?

Question proposed "That section 26 stand part of the Bill"?

Can the Minister give us some indication of when he expects to receive the Bacon report?

The report is not sent to me. It is sent to the Minister for the Environment and Local Government. The context of the report is to evaluate the effect of the accident last year. I understand the draft report has been received by the Department of the Environment and Local Government and will be going to the Government in the near future.

In the course of his remarks the Minister said he was satisfied that the demand side measures had been largely effective. That was generally the view for the first four or five months of the implementation of the recommendations but there seems to be a view amongst the industry that the investors are coming back in.

It is a pity that the debate on Committee Stage on some of these important Bills are not the binding reports they should be. We had a very in-depth debate on Committee and Report Stage both in the Dáil and Seanad on the Finance (No. 2) Bill. Deputies will recall that I said both on scripted and non-scripted remarks that I believed it was a short-term attempt at distorting the demand side of the market but that in the immediate longer term it would have very little effect unless supply came up to meet it. The point was made by Deputy Noonan and others that on the rental side, for example, there would be problems where the investors would get out of the market. But I did say as returns built up they would get back in. That is what happening.

We cannot have any further discussion on the Bacon report.

I am anxious to get a little bit of clarity from the Minister. Chairman this will take less than half a minute.

Nothing takes less than half a minute.

The Minister remarked that he was satisfied that the demand side of things were working now he tells me that the investors are coming back in.

Question put and agreed to.
SECTION 27.

Section 27, amendment No. 54 in the name of the Minister. Amendment No. 55 is related. Amendments Nos. 54 and 55 may be taken together by agreement.

I move amendment No. 54:

In page 72, between lines 45 and 46, to insert the following:

" "initial period" in relation to any one originator or original lender means the 3 month period commencing on the day on which any qualifying assets were first acquired from that originator or original lender, as the case may be;".

Section 27 of the Bill deals with the tax treatment to be applied where assets are securitised. The legislation requires, among other things that the value of assets required by the securitisation company from any one source cannot be less than £10 million or the entire period these assets are held by the company. I understand that in some situations all the assets may actually decline especially towards the end when the transaction is being unwound. If this were to happen the company may be unable to avail of the special tax scheme. It is in that context that these amendments are being proposed. The lower limit of £10 million is now to be imposed for a initial three months period after which time the value of assets can vary without limit.

I commend this amendment to the committee.

The memo that accompanies the Bill seems to suggest that securitisation is considered as trading for the purpose of an IFSC company but not for a non IFSC company. Is that the case?

This is a decidedly technical area in which I remember getting the briefing on the rundown in preparing for the budget. I understand at the time that the problem was exactly the point that the Deputy raised.

Why is the same activity regarded as differently inside the IFSC as outside?

In previous times this committee, when giving a very technical explanation, went into private session.

The committee went into private session at 11.40 a.m. and resumed in public session at 11.43 a.m.

Amendment agreed to.

I move amendment No. 55:

In page 73, lines 38 and 39, to delete "at any time" and substitute "throughout the initial period".

Amendment agreed to.
Section 27, as amended, agreed to.
SECTION 28.
Question proposed: "That section 28 stand part of the Bill."

This section relates to the bus or train pass. Am I right in saying this applies only to CIE?

No, it also applies to licensed operators.

Will the Minister refresh my memory as to who are licensed operators?

The situation as regards licensed operators has become more liberalised over the years. There have been other licensed operators in the State, apart from CIE, for a long time. I believe St. Kevin's is one which I remember seeing when I was a student in this city.

The section exempts from income tax the benefit-in-kind arising from the provision of an annual or monthly bus or train pass by an employer to any employee or director. The exemption will apply in respect of bus and train passes issued by CIE or any of its subsidiaries, including Bus Éireann, Iarnród Éireann, Bus Átha Cliath or by any other person who operates scheduled licensed passenger transport services.

It is hoped this exemption will encourage employers to issue such passes to their employees, thereby encouraging a move from private to public transport. It is estimated that the cost of this measure will be £0.6 million in 1999 and approximately £1 million in a full year. While this note does not list the other scheduled licensed passenger transport services, there is a number of them throughout the country.

It is my understanding that the application of the licensing system for buses is not working. I heard a response from the Minister for Public Enterprise a few weeks ago which seemed to suggest the Department was still considering a means of doing this but that it was not satisfied with the way it worked at the moment.

I confess I am not an expert in the area but there are licensed bus operators, some of whom have been in operation for a number of years. As far as I recall, their number has increased substantially in recent years. I am certain some operate in the Limerick area, about which Deputy Noonan may know, and some operate from Wicklow and elsewhere. There are other licensed passenger transport services apart from Bus Éireann and Iarnród Éireann.

When will the measure come into effect?

On 6 April.

Question put and agreed to.
SECTION 29.

Amendment No. 69 is related to amendment No. 56 and both may be taken together. Is that agreed? Agreed.

I move amendment No. 56:

In page 79, lines 12 to 14, to delete "at any time" and substitute "throughout the initial period".

Section 29 provides that certain child care services provided by employers to employees on a free or subsidised basis will not be subject to income tax as benefit-in-kind. There are certain conditions which the Minister has attached to the section where the child care service is provided on premises made available by the employer alone or where two employers provide the service jointly. However, the Minister will not allow the relief if the premises used for crèche purposes, or if any part of the building, is used as a dwelling house.

I cannot understand why he is restricting it in this way. In my part of the country, if an employer is making arrangements to have the children of employees minded during the working day, the most appropriate place to do so would be in part of a dwelling house. I do not believe the Minister has to take it on himself to decide the appropriateness of the building in which the child minding service is supplied. The appropriateness of buildings for the purposes of child minding is a matter for the health boards, and there are regulations which have been promulgated by the Department of Health and Children through the health boards. The health boards check to see if premises used for crèche facilities comply with the regulations.

What the Minister is really saying is that if an employer sections off part of the factory, then the employees will not be charged for benefit-in-kind for the child minding facility provided. If, however, there is a dwelling house next door and he makes an arrangement with the lady in the dwelling house to turn part of her house into a crèche and if it complies with the health board's requirements, benefit-in-kind cannot be given to employees simply because the physical facility in which the child minding occurs is part of a residence. That makes no sense.

While I very much welcome the section, the Minister is spoiling it by attaching this. It would be quite appropriate for an employer to make an arrangement with somebody to use part of their house as a crèche which would be licensed as a crèche and at which employees would drop their children off on their way to work. This provision ties it into the premises or an arrangement where it would have to be part of the premises in which the work is carried out or in other premises of an unspecified nature but one other than a residence. Does it not make sense that the most congenial atmosphere in which children could be minded is in a home? The Minister is ruling out the possibility of a person looking after children in a home atmosphere and wants a type of stand alone institution.

The purpose of the text which is the subject of the amendment is to rule out section 29 of the Finance Bill, which exempts certain child care services provided by employers to employees on a free or subsidised basis from a charge to benefit - in-kind, from applying where any part of the building or structure deemed to be a qualifying premises under that section is used as a dwelling house.

I appreciate the concerns giving rise to the amendment. There may be concerns that this benefit-in-kind exemption may not be available where a child care facility, that otherwise meets the qualifying conditions under this section, operates from a private house or dwelling. Let me assure all that this is not the case. Where a self-contained child care facility operates from an extension to a private house or where a basement or rooms in a private house are refurbished to private a self-contained crèche facility, such child care premises will qualify under this section. However, where a child care facility is situated in an extension or in rooms that are also used for dwelling house purposes, such a facility would not qualify under this section. This ensures this provision is focused on increasing the supply of employer assisted crèche facilities and is not diluted in any way by being diverted for private use.

I see what Deputy Noonan is getting at. I do not think the section will inflict itself on the kinds of cases he refers to. The safest thing to do is to accept the amendment. I do not think that the section would catch people, but in case it would I will go along with the Deputy's amendment.

I thank the Minister.

Amendment agreed to.
Section 29, as amended, agreed to.
SECTION 30.
Question proposed: "That section 30 stand part of the Bill."

What has been the take-up on this scheme?

My officials inform me that it is 1,066, as it was recently the subject of a parliamentary question. That is the job assist scheme.

Question put and agreed to.
NEW SECTION.

I move amendment No. 57:

In page 77, before section 31, to insert the following new section:

31.-(1) Section 485 of the Principal Act is hereby amended in subsection (1) by the substitution of the following definition for the definition of 'approved institution':

' "approved institution" means-

(a) an institution of higher education within the meaning of section 1 of the Higher Education Authority Act, 1971, or any body established in the State for the sole purpose of raising funds for such an institution, or

(b) an institution in the State in receipt of public funding which provides courses to which a scheme approved by the Minister under the Local Authorities (Higher Education Grants) Acts, 1968 to 1992, applies or any body established in the State for the sole purpose of raising funds for such an institution;'.

(2) This section shall apply and have effect as on and from the 6th day of April, 1999.".

This amendment inserts a new section to amend section 485 of the Taxes Consolidation Act, 1997. Section 485 provides tax relief for gifts of money made to certain third level institutions which are to be used for the purpose approved of by the Minister for Education and Science. Projects that can be approved under this section relate to research, acquisition of equipment, infrastructural development in certain institutions and the provision of facilities designed to increase student numbers in areas of skills needs. The relief applies to both personal and corporate donations with a minimum qualifying donation of £1,000. At present that relief is available only to third level institutions in receipt of grants from the Higher Education Authority. Representations have been made to me that the relief should be extended to cover additional colleges, such as the Royal College of Surgeons and other colleges within the meaning of section 1 of the Higher Education Authority Act, 1971. Last year I provided for an extension, for capital allowances purposes, for buildings used for third level education to cater for such colleges. Having given consideration to the representations made, I now propose to extend the relief to all third level educational institutions defined in the Higher Education Authority Act, 1971.

Is this an income tax relief?

This provides tax relief on gifts of money made to certain third level institutions to be used for projects approved by the Minister for Education and Science.

If one makes a gift of money individually, one gets an income tax break, while a corporation gets a corporation tax relief.

It does not apply to private colleges?

No. My main targets are the bodies approved by the Higher Education Authority. I can give the Deputy a list of those bodies covered by section 1 of the Higher Education Authority Act, 1971: University College, Dublin, University College, Cork, University College, Galway, University of Limerick, Maynooth University, Trinity College, Dublin City University, the National College of Art and Design, the Royal College of Surgeons, the National Council for Educational Awards and the Royal Irish Academies. Other colleges recognised for the purposes of section 1 as affiliates of the above are: St. Patrick's College, Drumcondra and St. Mary Immaculate College, Limerick.

I do not want to make much of this at this stage, but we appear not to have worked out yet how to deal with private third level institutions, both in terms of paying fees and in past treatment. There seems no persuasive argument for treating private colleges which deal in approved courses differently from established colleges. We must look at this matter in terms of payment of fees and other aspects.

That is an area to which I intend to give consideration before next year's Finance Bill. I find the logic of the Deputy's argument very persuasive, though my officials advise that extending this scheme would mean a loss to the Exchequer. I remember thinking some time ago that this would be the way to go, and I will give this further consideration before next year's Finance Bill. If the Deputy reminds me in good time I will endeavour to accede to his request. I see no logic in denying this to other colleges.

Do the approved institutions include the institutes of technology?

No. I read out the list of institutions. The institutes of technology would have been in.

They would have been included already.

Deputy McDowell would want to be careful of the Harriet Harman precedent.

I remember that.

Amendment agreed to.
Sections 31 to 34, inclusive, agreed to.
NEW SECTION.

I move amendment No. 58:

In page 82, before section 35, to insert the following new section:

35.-Schedule 29 to the Principal Act is hereby amended-

(a) in column 1 by the insertion after 'section 951(1) and (2)' of 'section 986 and Regulations under that section', and

(b) in column 2 by the insertion after 'section 891' of 'section 891A'.".

The Taxes Consolidation Act, 1997, provides for fixed penalties for non-compliance with the PAYE and PRSI regulations. The standard penalty is £1,200, and section 21 of the Bill proposes varying this to allow a low of £500 and a high of £2,000 in the case of late filing of end of year returns of P35s. However, unlike schedule D tax, corporation tax and VAT, the basis for PAYE and PSRI contains no ad volorem civil penalties, which are penalties related to the amount of tax underpaid. This has been adverted to by the Comptroller and Auditor General, and to remove it I now propose bringing penalties for PAYE-PRSI within the scope of penalties for fraud or neglect as contained in section 1053 of the Taxes Consolidation Act, 1997. The basic penalty of that section is £100 plus the amount, or, in the case of fraud, twice the amount of the tax evaded. When the defaulter is a body of persons, the fixed penalty increases to £500 or £1,000 in the case of fraud. In addition the secretary will be liable for a separate penalty of £100, or £200 in the case of fraud.

Amendment agreed to.
Section 35 deleted.
SECTION 36.
Question proposed: "That section 36 stand part of the Bill."

Can the Minister tell us how the dispute with the European Commission about double rent relief and rates allowance being repaid is going?

Giving effect to certain tax law changes relating to the Custom House docks area scheme, the changes in question were originally included in the Finance Act, 1998 and were mainly concerned with extending the deadline of the scheme from 24 January 1999 to 31 December 1999. The EU Commission raised objections to the time limit extension, and particularly the application for double rent allowance purposes. An amended provision was included in section 20 of the Urban Renewal Act, 1998. This included a return to the old 24 January deadline for double rent allowance, and the new provision was to be activated by ministerial order when agreement was reached with the EU Commission. The provision for making such an order was contained in section 25 of the Urban Renewal Act, 1998, which is set in such terms that any order made must embrace all the changes in section 20 of the Act, including those relating to the double rent allowance. As agreement is simply finalised with the European Commission on the issue of the double rent allowance, including its operation prior to the proposed extension, there is some doubt about the need for another provision contained in section 20 which may cause unavoidable delays in its enactment. There may not now be a need for such an all-embracing order.

The section rectifies the problem by putting in place a new commencement provision which gives the Minister the flexibility to bring the measures enacted into operation on a piecemeal basis. This would allow for the possibility of making an order at the earliest opportunity giving effect, for instance, to the extended time limits beyond 24 January 1999 for expenditure on commercial or residential premises. Agreement has been reached with the Commission to extend these generally to include expenditure incurred up to 31 December 1999. In the case of commercial premises, the deadline extends to 30 June 2000 but 51 per cent of the expenditure is incurred by 31 December 1999. The section gives the Minister the flexibility to make an order providing for capital allowances and residential reliefs on this extended basis in the Custom House Docks area. Deputy McDowell's question really relates to how the negotiations are progressing.

The question relates to negotiations on the double rent and rates allowances. Did the deadline for the double rent allowance expire last year or in January of this year? I understand it expired in January 1998 but that agreement had not been reached with the Commission in the first place.

The committee went into private session at 12.02 p.m. and resumed in public session at 12.10 p.m.

I think the Minister did not regard it as appropriate to provide capital allowances for residential developments.

The Deputy is straying again.

I have an amendment dealing with this matter later on. What is the Deputy's question?

Does the section extend capital allowances for residential development in the Customs House docks centre until the end of this year?

It goes to the end of this year.

My point is that it includes residential development. Are there already residential projects under way there which will benefit from this?

There are.

Is it the same logic? Are we talking about something that has already started, with expenditure incurred, contracts signed and so on?

Question put and agreed to.
SECTION 38.

Amendment No. 60 is related to amendment No. 59 and amendments Nos. 61 and 62 are alternatives to amendment No. 60. Amendments Nos. 59 to 62, inclusive, may be taken together by agreement.

I move amendment No. 59:

In page 85, to delete lines 20 to 23 and substitute the following:

" '(6A) Subsection (6) shall apply and have effect as respects capital expenditure referred to in subsection 2(b), which is incurred after the 31st day of July, 1998, only if a qualifying lease, within the meaning of section 345, is granted in respect of the qualifying multi-storey car park in respect of which that expenditure is incurred.',".

Amendments Nos. 59 and 60 concern the availability of double rent allowance for multi-storey car parks. Double rent allowance is granted for rent paid under a qualifying lease. At present, the latest date for entering into qualifying leases in respect of multi-storey car parks is 31 July 1998. Section 38 provides that the capital allowances in respect of multi-storey car parks are to be increased from the current maximum of 50 per cent to 100 per cent, with effect from 1 August 1998, to "compensate" for the fact that double rent allowance is no longer available.

I have received representations in connection with the fact that the time for entering into qualifying leases for the purposes of double rent allowance in the case of multi-storey car parks has passed. I have been asked to extend the deadline to cater for a number of car parks being constructed in various parts of the country and which are proceeding on the basis that double rent relief will be available.

I propose, by means of this amendment and amendment No. 60, to extend the double rent time limit and to make the relief available for qualifying leases entered into up to the end of June 1999. This extension will apply with two conditions attached. These are, first, that the transitional condition for qualifying for the 1998 extension for capital allowances for multi-storey car parks under section 344 of the Taxes Consolidation Act - which involved certification by the relevant local authority that 15 per cent of the total cost of the project had been incurred before 1 July 1998 - has to be met in regard to the car park; and, second, that only 50 per cent capital allowances would be available in these cases, not 100 per cent.

Amendments Nos. 59 and 60 recast section 38 to achieve this and I commend them to the House. However, this double rent relief will have to be cleared with the European Commission.

Why does the section not apply in Dublin and Cork?

That is the situation under the section as it stands, but the amendment will allow that concession until the end of July.

In Dublin and Cork as well?

I have been in correspondence with the Minister about a car park which will drive the urban renewal development of a block in Limerick city centre. There is strong public interest in the development of this site, which has been derelict for almost 25 years. The Minister's officials are familiar with the case. Can he assure me this amendment will cover that case?

I am told by my officials, who spoke to the accountants yesterday, that it will. Deputy Noonan has a very good case. However, in the era of political correctness in which we now live, in years to come the Deputy will be accused of——

I do not think so.

I am just protecting the Deputy.

I know that.

One is now afraid to walk down the street with a person. If one were in Croke Park with 67,000 other people and an undesirable person were there at the same time, one might be in danger of coming into contact with him. That is the era in which we live, but I do not subscribe to it. I intend to continue to be seen with all types of undesirables from my past, in my present and future life. I have no intention of changing the habits of a lifetime, despite what The Irish Times might advocate for me.

I presume it depends on which team one supports.

I understand there are four such instances around the country. The device of doubling the capital allowance does not work because the structure concerned involves a quasi-BES scheme, in which there are investors acting as intermediaries between the financial house and the developer. It is only the double rent allowance that can trigger it. My primary concern is not for the developer, although I have corresponded with the Minister about him.

I hope the Deputy has not been seen with him.

He is not a constituent and cannot even vote for me.

That is even worse.

However, there is a serious problem with a block in the centre of Limerick which will not be resolved unless this is done. The Minister has assured me now that this will work. I would appreciate if he could give me a copy of his speaking notes.

I can give the Deputy a copy of the speaking notes. However, I understand the professional people acting on behalf of the operation in Limerick spoke to officials in the Department of Finance yesterday.

There is also one in Cork and a couple of others.

Deputy Dennehy raised the problem there earlier. I understand the four of them will be covered.

Thank you.

Amendment agreed to.

I move amendment No. 60:

In page 85, lines 25 to 48, to delete paragraph (e) and substitute the following:

"(e) in section 345——

(i) in subsection (1), by the substitution for the definition of 'qualifying lease' of the following:

' "qualifying lease" means, subject to subsections (IA) and (8), a lease in respect of a qualifying premises granted in the qualifying period, or within the period of one year from the day next after the end of the qualifying period, on bona fide commercial terms by a lessor to a lessee not connected with the lessor, or with any other person entitled to a rent in respect of the qualifying premises, whether under that lease or any other lease but, notwithstanding the foregoing, a lease which would otherwise be a qualifying lease shall not be such a lease if granted in respect of a building or structure within the meaning of paragraph (a)(iii) of the definition of "qualifying premises" the site of which is wholly within an area——

(a) described in an order referred to in section 340(1)(a), if the lease is granted on or after the 3Ist day of July, 1999, or

(b) described in Schedule 7, if the lease is granted on or after the 31st day of December, 1999, or

(c) described in an order referred to in section 340(2)(i), irrespective of the date of the granting of the lease;',

and

(ii) by the insertion of the following subsection after subsection (I):

'(IA) Notwithstanding any other provision of this Chapter, including this section, "qualifying period" for the purposes of this section in the case of a building or structure within the meaning of paragraph (a)(v) of the definition of "qualifying premises" in subsection (1) means the period commencing on the 1st day of August, 1994, and ending on——

(a) the 31st day of July, 1997, or

(b) the 30th day of June, 1998, where, in relation to the construction or refurbishment of the qualifying multi-storey car park concerned, the relevant local authority has certified in accordance with the requirements of paragraph (b) of the definition of "qualifying period" in section 344(1).'.".

Amendment agreed to.

Amendments Nos. 61 and 62 cannot be moved as they have already been discussed with amendment No. 59.

They were not.

They should have been.

The Minister dealt with his own amendments but did not deal with ours. You are being over strict, Chairman. Deputy Coveney has been waiting all morning to discuss amendment No. 62.

I assume the Chairman will be interested in amendment No. 62 because it deals with Cork.

I do not mind what the Deputy says. The amendment cannot be formally moved but I will allow him to discuss it.

I wish to draw the Minister's attention to an issue concerning enterprise zoning around airports. My understanding is that Cork Airport is the only airport which has taken full advantage of this. A significant business park is being developed at the moment in the area of Cork Airport, with the potential to provide about 2,000 jobs in the next two or three years. Five hundred secure jobs will come on stream this summer.

There are two problems with the development, however. We have already mentioned the first, which is the problem of double rent allowance. I am fully aware that the Minister is under pressure in regard to double rent allowances because of the position in Europe on it. We are proposing in amendment No. 62 that tenants who have been granted a lease before the end of this year should be allowed to receive double rent allowance, although I accept the allowance has to end after that date.

When the developers and promoters of this project decided to go ahead with it they were assured they could avail of double rent allowance. They must be compensated if that allowance is done away with, which I understand the Minister is attempting to do by increasing initial capital allowances from 50 per cent to 100 per cent. Is that correct?

No, that referred to car parks - this is an enterprise area.

I ask the Minister to consider that, if he has not already done so.

The other problem is not covered by this amendment but I will table an amendment on it on Report Stage. The real problem in regard to this development is the timescale involved. At the moment, only one third of the business park has been developed. The time limit for this zoned area ends in December 1999. If the Minister is considering extending the timetable for car parks, surely he will consider extending the timetable for a project of this size which is providing so many jobs for the Cork area, which has suffered job losses in recent months at Apple and which is about to suffer the loss of a further 130 jobs at Bourns Electronics in Mahon.

I will table the amendment again on Report Stage. I hope the Minister will look favourably on it and extend the timescale to allow the development of the second two-thirds of the business park with the benefit of zoning the area and without, I will accept, the double rent allowance.

The purpose of amendment No. 62 is to allow tenants who have received their leases before the end of this year to benefit from double rent allowance. If that is not possible, what compensation is the Minister willing to give the developer?

Amendment No. 61 attempts to do the same for enterprise zones in general.

On a point of clarification, I said the Chair was not interested in what Deputy Coveney had to say. Personally, I am very interested in what he has to say and would be very supportive of him, but in my role of Chairman I am not interested.

Much as I would like to accommodate Deputy Coveney on his first intervention on Committee Stage of the Finance Bill, I am precluded from doing so. There is a certain history about the enterprise zones and Cork Regional Airport and the airport's relief. The background to it has helped in no small way to put us under considerable scrutiny from Europe regarding taxation. It goes back to the original 1997 decision to have these zones around airports. I described it in the past as a problem which started as a political one to accommodate events in the Mayo constituency. If it had been handled somewhat differently at the time, we might not be in the same difficulty at present about all kinds of taxation matters. For one reason or another, the impression was given for political purposes at one stage that we were more or less going to create another Shannon area in Knock with a 10 per cent tax rate and this received great headlines in the newspapers. Of course that was not the case. That eventually led to the airport designation which was intended only for Knock. Then, through political pressure, the Minister had to concede it for all the regional airports. Arising from all that hoo-ha, this idea that Ireland was more or less going to set up another Shannon zone came to the attention of Brussels. That could be determined as the starting point for all our trouble regarding designation tax matters, which we are trying to negotiate and about which my officials spoke earlier. Therefore, this is a pretty sensitive area.

Last year the Commission decided that no double rent allowance would be given to the airport enterprise areas and my Department immediately informed the developers in Cork, as that was the only area where activity was to take place at the time Cork people should be under no illusion about this matter.

I understand what Deputy Coveney's amendment is trying to do but I cannot accept it because the Commission has already decided on this matter. We have been told clearly of its decision and we passed on that message.

Amendments No. 61 and 62 concern the availability of double rent allowance in the case of certain enterprise areas. Section 38(e) amends section 345 of the Taxes Consolidation Act, 1997, which provides for the granting of double rent allowance. As a result, this allowance is being curtailed in the case of enterprise areas so that double rent allowance will apply in the case of enterprise areas under the 1995 Finance Act only if the qualifying leases are entered into before 31 July 1999; in the case of enterprise areas under the 1997 Finance Act - other than airport enterprise areas - only if the leases are entered into before 31 December 1999; and in the case of airport enterprise areas the relief will not be available at all.

The amendments propose that, in the case of the enterprise areas under the 1995 Finance Act and the airport enterprise areas under the 1997 Finance Act, double rent allowance should be available if a qualifying lease is entered into before 31 December 1999.

The position regarding the availability of double rent allowance is that it is subject to the approval of the EU Commission in the context of State aids. When the Commission decided in December 1997 to approve the tax reliefs for existing and some new enterprise areas in the context of State aids, the decision did not cover the regional airport enterprise areas scheme. Subsequently, the Commission indicated that it would not approve the double rent relief in any application to be made on behalf of the airport enterprise areas. Thus, double rent relief can never apply in those cases and this is provided for in paragraph (c) of the revised definition of "qualifying lease" in section 38(e).

Enterprise areas under the 1995 Finance Act were due to expire at the end of July 1997, but the Commission approved their extension for transitional cases until the end of July 1998 and, if certain conditions were met, for example relating to planning delays, until 31 July 1999 at the very latest. Qualifying leases for double rent allowance purposes could be entered into until 31 July 1999.

As regards the non-airport enterprise areas designated in the 1997 Finance Act, the agreement concluded with the Commission specified that qualifying leases for double rent relief must be entered into by the end of December 1999.

The expiry dates set out in section 38(e) are, therefore, the final dates for which EU approval has been granted and there can be no question of any later dates being considered. In the circumstances, I am not in a position to accept the amendments. I am sorry I cannot accede to the Deputy's request, which he made persuasively and reasonably. My hands are tied in this particular regard.

Amendments Nos. 61 and 62 not moved.
Section 38, as amended, agreed to.
NEW SECTION.

Amendment No. 63 is in the name of Deputy Ulick Burke. Amendment No. 64 is an alternative. Therefore, amendments Nos. 63 and 64 may be discussed together by agreement.

I move amendment No. 63:

In page 86, before section 39, to insert the following new section:

"39.-Section 351 of the Principal Act is hereby amended by the substitution of the following for the definition of 'qualifying period':

' "qualifying period" means the period commencing on the 1st day of July, 1995, and ending on-

(a) the 30th day of June, 1998, or

(b) the 31st day of December, 1999, where, in relation to the construction of, conversion into, refurbishment of, or, as the case may be, construction or refurbishment of the building or structure concerned, being-

(i) a building or structure to which section 352 applies, or

(ii) a qualifying premises within the meaning of section 353, 354, 356, 357 or 358,

the relevant local authority gives a certificate in writing, on or before the 30th day of September, 1999, to the person constructing, converting or refurbishing, as the case may be, the building or structure stating that it is satisfied that not less than 50 per cent of the total cost of the building or structure and the site thereof had been incurred on or before the 30th day of June, 1999 and, in considering whether to give such a certificate, the relevant local authority shall have regard only to guidelines in relation to the giving of such certificates issued by the Department of the Environment and Local Government for the purposes of this definition, or

(c) the 30th day of September, 2000, where, in relation to the construction of, conversion into, refurbishment of, or, as the case may be, construction or refurbishment of the building or structure concerned, being a building or structure referred to in paragraph (b),

(i) the relevant local authority has given to the person constructing, converting or refurbishing, as the case may be, that building or structure, a certificate in writing certifying that not less than 15 per cent of the total cost of the building or structure and the site thereof had been incurred prior to the 1st day of July, 1998, and

(ii) the relevant planning authority had issued its Notice of Decision to grant planning permission for the work represented by the expenditure incurred or to be incurred on the building or structure before the 1st day of December, 1998, and

(iii) where the expenditure to be incurred on a building or structure has not been fully incurred by the 30th day of June, 1999, the relevant local authority gives a certificate in writing to the person referred to in subparagraph (i) stating that in its opinion——

(I) that the person had, on the 30th day of June, 1998, a reasonable expectation that the expenditure would have been incurred in full on or before the 30th day of June, 1999, and

(II) the failure to incur that expenditure in full on or before the 30th day of June, 1999, was, on the basis of reasons of a bone fide character stated to it, due, to a significant extent, to a delay outside the direct control of that person, including an unanticipated delay in obtaining the grant of planning permission or an unanticipated delay due to legal proceedings or unanticipated difficulties in completing the acquisition of a site.".

What is the Minister's disposition towards this amendments?

I am not in a position to accept these amendments.

Amendment No. 64 deals with the seaside renewal scheme. I am concerned because there are a number of projects in BallyÍbunion, which will not go ahead unless this scheme is extended. If it is extended for a further six months, it would increase the chance of these schemes being completed. One is talking about an investment in access of £20 million which will have a major impact on the economy of BallyÍbunion and the area. I understand there is no technical reason it could not be extended for schemes which have already been approved and which would be at various stages of the planning process, including appeal to An Bord Pleanála.

The Minister is familiar with Ballybunion. He performed well down there last September. He can say yes or no. I hope he says yes.

The answer is no and the reasons are EU related.

Will the Minister expand?

Section 39 extends for a further six months the termination date for the scheme. The original closing date was 30 June and I am pushing it forward to 31 December. Deputy Deenihan is asking me to go further. The closing date of 31 December provided for in the Bill is a key date for EU purposes, since the present EU regional aids framework comes to an end on that date and new State aid guidelines, with aid intensity ceilings, will come into effect on 1 January 2000 throughout all 15 member states. Given our present difficulties with the EU Commission, I would be opposed to extending the resorts scheme beyond the critical date of 31 December next as provided for in the Bill.

My attention has been drawn to a printing error in section 39. In line 19 the words "is is satisfied" should read "is satisfied". If the committee is agreeable it is proposed that the section be amended accordingly.

That is agreed.

I will table amendments in regard to section 19 of the Finance Act, 1994, on Report Stage.

I am re-entering amendment No. 88 on Report Stage.

As it is now 12.30 p.m. I am required to put the following question in accordance with the order of the Dáil of 25 February: "That amendment No. 56 and the amendments set down by the Minister for Finance to Chapters 3 and 4 of Part 1 of the Bill and not disposed are hereby made to the Bill and in respect of each of the sections not disposed of in the said Chapters other than section 35, that the section or, where appropriate, the section, as amended, is hereby agreed to".

Question put and declared carried.
Sitting suspended at 12.35 p.m. and resumed at 2 p.m.

This session shall conclude not later than 3 p.m. We shall deal with Chapters 5 and 6 of Part I, covering sections 61 to 63. It is proposed to group the following amendments for the purpose of debate: Nos. 93 to 96, inclusive. All other amendments which are not grouped will be discussed individually.

NEW SECTION.

I move amendment No. 91:

In page 132, before section 61, but in Chapter 5, to insert the following new section:

"61.-Section 128 of the Principal Act is hereby amended:

(a) by the insertion after subsection (2) of the following subsection:

'(2A) (i) In this subsection "original value" shall, in the case of a right to acquire shares, mean the product of the price at which the right is granted and the number of shares in respect of which the right is granted.

(ii) Where a person realises a gain by the exercise, or the assignment or release, of a right to acquire shares on or after the 1st day of January, 1999, as a director of a company or employee the person shall be charged to tax as follows for the year of assessment in which the gain is so realised:

(I) as to the gain arising on such of the original value as represented not more than 30% of the individual's emoluments from that employment in the year the right was granted, at the standard rate of income tax,

(II) as to the remainder of any gain under Schedule E.'.".

I welcome the sections where the Minister makes it easier for companies to offer share options. I discussed this at length on Second Stage. The way our economy is positioned now, there are very few instruments of policy left to a Minister for Finance or Government. Increasing and decreasing interest rates is a matter for Frankfurt. Monetary policy, as regards the exchange rate, is a matter for the European Central Bank. While the Minister is still responsible for fiscal policy, there are constraints arising from the stability and growth pact.

If there was a sudden sharp shock in the economy, jobs would be in the front line of defence. To ensure that a downturn in the Irish economy, resulting from a lack of competitiveness, does not result in major redundancies throughout the country, the next negotiations with the social partners will have to produce a sophisticated wage model where there are elements of remuneration other than pay and tax relief is included. It is important that workers should be given a share in the profits or share options in a company. To maintain the competitiveness of a company, as well as a basic wage increase, employees should take company paper which they can convert to cash in due course when the company is continuing to be profitable. This is worthwhile and I welcome these sections.

This is part of the American concept of personnel management. There is hardly an American company which does not offer share options to its employees. The practice is particularly strong in IT companies. We have seen that in Ireland as well when they come in.

I want to address the tax treatment of share options when they are redeemed. The Minister has introduced various employee share saving schemes. Many businesses want to promote employee participation to retain staff or competitiveness or to overcome skill shortages. For many people the options are currently taxed at the income tax rate of 46 per cent. This amendment would allow people who exercise share options up to 30 per cent of their gross salary to have gains taxed at the standard rate of income tax. It would also promote employee participation and it would help employers to deal with the skill shortages.

The Minister made strong statements this morning about the taxation of assets and property. During our debate on the amendment on IDA Ireland's acquisition of sites he said he firmly believed in a capital gains regime of 20 per cent and that he would consider extending it further. Does it not logically follow that if property in the form of shares cannot be taxed as a capital gain at 20 per cent it should at least be taxed at the standard rate of income tax? Regardless of how the Minister allows companies to offer shares, the reason they will not be as successful here as they are in the United States is they are not treated as a capital gain but as income and are taxed at the marginal rate. The attraction of the package is significantly reduced when they are taxed at 46 per cent.

I know the Minister's advisers will be strongly opposed to this proposal. Most public servants are opposed to share options because they know that whatever else happens, the Minister will not float the Department of Finance and allow the staff part of the shares.

I may consider it.

That will not happen in our time. The Minister must be true to his colours, stand on his own feet and make this one of the 45 per cent of decisions he makes while ignoring the advice of his officials. If he believes that property should be taxed at 20 per cent, this is an ideal opportunity where employers can give employees a stake in the company in the form of shares. The current regime is too high.

I do not want senior employees to be given a minimum wage and the rest of their remuneration in share options. That is why I included a condition that this tax would only apply up to 30 per cent of gross remuneration and anything beyond that would be taxed at the marginal rate. That was the reason I opted for the standard rate of income tax rather than switching it to capital gains tax because there should be a cut-off point to ensure that people are not paid share options rather than a salary. The area of profit sharing and share options must be freed up. We must have a system which is analogous to best practice elsewhere, which does not have a 46 per cent penalty on someone exercising the share option.

In response to the Deputy's proposed amendments, I remind the committee that in my Budget Statement and Second Stage speech on the Finance Bill I made it clear there had been a number of calls for new profit sharing initiatives and that I was not opposed to reasonable proposals in this area. The criteria on which my approach to this area is based is that any profit sharing scheme should be open to all employees on similar terms, it should provide an opportunity for employees to acquire an equity stake in their firm and there should be a medium to longer-term aspect to profit sharing schemes in the form of the delivery of benefits in the future for efficiency improvements undertaken now. The committee will be aware that in section 61 I am providing for a new form of employee share incentive scheme called a SAYE share option scheme which satisfies this criteria. The savings required to fund these options will be tax free as will any gain on the exercise of the share option which must be Revenue approved.

The Deputy's amendment proposes concessions in relation to share options which are not controlled under any scheme. The Finance Act, 1986, provided a concessionary tax regime for share options granted under Revenue approved share option schemes. However, the scheme was repealed in 1992 as it was confined to directors and favoured employees. The generous treatment of the share options was difficult to justify to the vast bulk of ordinary taxpayers who did not benefit from them.

Having examined the Deputy's proposed amendment, I am not satisfied that it meets the criteria I have outlined. It is weighted towards the higher paid which would be tantamount to a return to the approved executive share options abolished in 1992. Given that such options are most likely granted at a discount and with capital gains tax currently at 20 per cent, there is no need for further tax concessions to retain their attractiveness to their targeted audience.

We had an attractive scheme of share options from 1986 to 1992. They were availed of by higher paid employees and directors for a variety of reasons. Consequently, they were abolished in the Finance Act, 1992. In the meantime thinking has moved on and a number of approved profit sharing schemes were introduced in the past few budgets. I have introduced a further one to the list known as the SAYE scheme. I do not claim it is an original idea as it is more or less copied from the United Kingdom.

Since the abolition of the old share option scheme in 1992 successive Ministers have grappled with two competing demands. One is the legitimate demand that with the change in work practices and operations, as outlined by Deputy Noonan, there is a need for approved profit sharing. An active association, led by Mr. Jack Fitzpatrick, has been to the forefront in pushing this issue for a number of years, long before politicians or their advisers thought about it. We have moved on in recent years by introducing such profit sharing arrangements. I accept Deputy Noonan's point that this issue will be a big feature of the next national agreement.

The understandable desire of the Minister and of all politicians is not to reward a certain group of employees to the detriment of other employees. The share option scheme which was in place until 1992 favoured one sector. There is considerable angst and disquiet among taxpayers that better off taxpayers seem to get all the breaks and that they do not permeate to their area.

I am aware of increasing demands in this area, particularly from employees of companies which are doing well. My idea of a profit sharing arrangement would be to encourage employees to take a greater part in the operation of their firm and to defer nominal wage increases for a larger stake in their firm. It is difficult to marry all these competing objectives together. I would encourage people to take out a share in the business in which they operate. The more equity they have, the more likely they are to be happy employees and everyone does well. It is difficult to set up a scheme to do that which at the same time does not allow the Exchequer to be ripped off, although that might be a strong term. Some employees are more advantaged than others.

I cannot accept the Deputy's amendment because it goes back to the 1986 scheme which was abandoned in 1992. The Deputy is correct in saying that public servants and advisers may not be the greatest enthusiasts for share option schemes. However, there is an increasing demand for them in the non-sheltered workplace. I introduced this new initiative this year, which is a copy of the United Kingdom scheme known as the SAYE scheme, and I am prepared to consider other schemes, if such can be devised, which will be equitable to everyone concerned. I look forward to receiving views on this from the social partners in the context of the next national agreement, from employers and particularly employees or their representatives. I will give the matter further thought in the context of those negotiations. I am not in a position to accept the Deputy's amendment on this occasion.

I do not disagree completely with the manner in which the Minister presents his case. Over the next few years, we will reach a stage of almost full employment, regardless of what the live register states, and there are already skills shortages. One of my colleagues, Deputy Stanton, said that one could not get people to fit tyres in his town at present. There are definitely skills shortages at higher levels. One reason for profit sharing and more sophisticated share options is to ensure people attracted to companies stay with them. The Americans describe this as the "golden handcuffs", where a very skilled person is hired by a company and is bound to it for four or five years, which gives the company certainty. The "golden handcuffs" are the share option schemes in the United States. A typical example is an employee obtaining a five year contract and being allocated 100 shares, a type of "hello money", when they arrive. At the beginning of the second year, they receive 150 shares, the same number in the third year and 200 in the fourth year. If they stay the full five years they receive 400 or 500 free shares altogether. On top of that, they are allowed use up to 12.5 per cent of their gross salary to buy shares at a price effectively fixed between personnel and management in the company. There is a buying date every year and the price is usually the average price for the first quarter with a certain deduction. This means employees obtain shares below the market quoted price, and there are conditions for holding them for a number of years. The purpose is to deal with the skills shortage problem and retain key workers.

There is an additional problem in Ireland in that few instruments of policy are left to us domestically, so that if we suffer a loss of competitiveness for some external reason, we will be faced with many redundancies. The Minister will have to formulate policy so there is a buffer between economic impact and jobs, which are the first line of defence. There are circumstances in which employees will take company paper instead of a wage increase, and that kind of flexibility will have to be built in, so that employees will take 2.5 per cent or 3 per cent of a pay rise instead of 5 per cent or 6 per cent, provided a share option scheme is in place.

What makes this an inefficient instrument of company policy is the application of the marginal rate of tax. In the United States, the companies which operate these sophisticated schemes apply them to all workers, the difference being that one receives more shares if one is a director than if one worked on the shop floor. However, everyone receives some shares. For lower and middle income workers, the capital gains taxation exemption limits are sufficient to allow much of the conversion to be tax free and great flexibility is allowed.

I understand why the Minister is not accepting the amendment, but he should reflect on what I have said because it is a view being put across strongly to me. There are reasons of national policy why the Minister should consider more sophisticated share option schemes, but I welcome what he has done already.

I do not wish to repeat what has been said, only to endorse what the Minister and Deputy Noonan said. The Minister's proposal meets most of what Deputy Noonan said. It is perhaps not appropriate for me to say that, but it seems to me that it does and the Minister probably has it about right in seeking to build in the safeguards in his scheme. It is a good start, but it will have to be reviewed having seen how it works over the next few years.

Profit sharing and share option schemes already exist, especially in American firms based here, which I assume are taxed at the marginal rate.

Will those schemes be able to opt into the new system the Minister proposes, or will they have to substantially change the way they operate? Has the Minister examined how these schemes operate, and would they fall within the SAYE scheme the Minister has set out?

Some American companies operate schemes similar to those to which Deputy Noonan referred, but they are taxed in the Irish tax regime, so they are not as attractive to employees here as to their American counterparts, for the reasons the Deputy outlined. The new scheme I am introducing in the Bill and which is built on the United Kingdom experience would not be in vogue here at present. This is a savings scheme - save as you earn - and if employees qualify under this new scheme, they receive certain tax benefits. Perhaps some of those companies will change their schemes to operate along similar lines to this new system, but they do not have to do so.

I should declare an interest before my conscience gets the better of me. My wife works for IBM and its scheme, although taxed at the marginal rate, is very similar to what the Minister proposes.

I understand Irish Life has an SAYE scheme without tax relief.

What will happen to existing schemes? I presume they will conform with what the Minister proposes.

They probably will. I understand that Irish Life and Guinness have similar schemes to the one I propose which have no tax relief. It is hard to find the correct balance in this area. I am willing to examine this area further in the context of the next national agreement negotiations. I am also conscious that trade unions generally may not favour as exclusive a scheme as both I and Deputy Noonan may favour. The trade union movement rightly points out that previous schemes tended to cherry pick workers, and it was higher paid workers and directors who benefited from them. The movement naturally wants to open schemes to all workers.

This is an evolving area. We currently enjoy a historically low level of unemployment and I hope it will be reduced further. Skills shortages are consequently emerging in certain areas of the labour market. To retain employees, profit sharing and share option schemes are the way forward, the "golden handcuffs" as they are known in the United States. I expect considerable developments in this area over the next five years. People who have taken up positions in the past on this area may be open to further movement. I do not have a closed mind on the matter. I do not consider that the additional scheme I am introducing is the answer to all the problems of profit sharing. I am also conscious of the fewer options available to future Administrations in the light of our membership of the euro system. We must find more innovative ways to deal with particular problems. I am willing to examine the matter. Thinking in this area is moving ahead apace and it may be possible to introduce a more adventurous scheme in the future.

I am sure the Minister is aware that the driving force behind silicon valley is the availability of venture capital and the opportunity employees have to take up share options.

It is a big area for those types of companies.

I agree. The provision was introduced in 1986 by the former Minister, my party leader, Deputy John Bruton. He also introduced the 1987 budget which changed the country but he did not receive any credit for it. The scheme was taken up by the Kerry Group and it was most successful.

A few lads walked off the pitch that day.

A few walked off before that.

I agree with the Minister that it may have suited one level of workers in the company. The scheme should have been revamped at the time and made more equitable rather than diluted. Nevertheless, people at all levels of management in the Kerry Group benefited considerably as a result. The company took the scheme in the right spirit and it was successful. The group is ahead of itself and is still showing the way to many other indigenous companies.

Regarding Deputy Noonan's point, giving workers more of a say in the running of the company is the way forward. It is similar to being a member of a team. If one is included, one is much more willing to participate than if one is a substitute or feels excluded. The Minister should consider creative and innovative ways to ensure greater worker participation and to provide greater incentives. This is how matters will develop and it is what workers want. The experience in Telecom Éireann shows that workers ultimately benefit considerably if they work hard for their company and it is successful.

It may be surprising to some people but the driving force behind the change in thinking is the prospect of the privatisation of State companies, to which the Deputy referred. This has influenced workers and in turn the trade union leadership. As I pointed out recently in the Dáil, the idea of an ACC/TSB flotation did not come from me. I am supposed to be a right wing Minister for Finance and I am expected to think in that way, but the idea came from the trade unions in the organisations concerned. They sold it to their members and received overwhelming support for it.

Deputy Noonan and I have been around long enough to remember times when if one had to pick trade union leaderships which were ensconced in the old ways, one would have chosen the unions in An Post and Telecom Éireann, or Post and Telegraphs as it was then, and the ESB. However, a change in attitude has come about in those unions in recent years. The Telecom Éireann unions negotiated a very good deal for their members and people may say in the future that it was exceptional. However, it was sparked by the workers thinking in this context. This type of thinking in the public sector will lead to greater changes in the area mentioned by Deputy Noonan. It is evolving.

If the Deputy said to me seven years ago that the trade union leadership in Telecom Éireann, the ACC or the TSB would advocate changes, I would have found it difficult to believe, but it happened in a short time. I expect that when Telecom Éireann has the IPO later this year and workers in other companies see the benefits, there will be greater interest.

That is why the Minister should put a good scheme in place. There will be demand for it.

I cannot rush too far ahead of the posse here, although I am inclined to do so in many areas.

The Minister may have to establish a board which will get all the State companies that want to privatise to form an orderly queue.

Many of them have changed their views. I am sure the Deputy agrees there has been a marked change in attitude in recent years. He would not have believed that was possible some years ago.

The 1992 election was fought on the issue of privatisation.

We should not lose the run of ourselves entirely on these matters. There is a distinct difference between a "save as you earn" or a profit sharing system for existing private companies where employees are asked to pay for shares and get part of their remuneration in shares and giving share options to workers in semi-State companies that are about to be privatised. The share options smooth the way towards privatisation. The motivation is different. If I worked for a semi-State company and I could read the political writing on the wall, I would want a piece of the action. The motivation is different from saving, contributing and being paid in shares as is the case in the private sector. We should not get too carried away.

I accept the Deputy's point that the two are not the same.

Amendment, by leave, withdrawn.

I move amendment No. 92:

In page 134, line 25, to delete "Acts, 1863 to 1989" and substitute "Act, 1989".

I thank the Deputy for tabling this drafting amendment, which I accept.

Amendment agreed to.
Section 61, as amended, agreed to.
SECTION 62.

Amendments Nos. 94, 95 and 96 are related to amendment No. 93 and all may be discussed together. Is that agreed? Agreed.

I move amendment No. 93:

In page 149, subsection (1)(a), between lines 32 and 33, to insert the following:

"(i) in section 510 by the insertion of the following after subsection (5):

'(5A) (a) This subsection shall apply where-

(i) the trustees of an approved profit sharing scheme make an appropriation of shares, to which section 510(3) applies, to a participant,

(ii) the shares concerned were transferred to the trustees of the approved scheme concerned by the trustees of an employee share ownership trust to which section 519 applies, and

(iii) the shares were transferred at a date later than that on which the shares could have first been transferred in accordance with the terms of the employee share ownership trust deed or any other document but, for whatever reason, were not transferred on that earlier date.

(b) Where this subsection applies, the appropriation to the participant concerned shall, for the purposes of capital gains tax, be deemed to have taken place on the day following the day on which those shares could have first been transferred by the trustees of the employee share ownership trust concerned, in accordance with the terms of the trust deed under which that trust was established or any other document.',".

The amendment changes the treatment for capital gains tax purposes of shares allocated to a participant of an approved profit sharing scheme, which is known as an APSS, which were previously being held in an employees' share ownership trust, known as an ESOP.

Under existing law, a participant in an approved profit sharing scheme who disposes of his or her shares is liable to capital gains tax on the gain accruing from the time the shares were appropriated to him or her. The amendment secures that where shares had been allowed to remain in an ESOP longer than necessary prior to being transferred to the approved profit sharing scheme for allocation to participants, the participants will be charged capital gains tax on the disposal from the time the shares could have been transferred to the approved profit sharing scheme. The amendment secures that where shares have been allowed to remain in an ESOT longer than necessary, prior to being transferred to the approved profit sharing scheme for allocation to participants, the participants will be charged with a CGT, on disposal, from the time the shares could have been transferred to the approved profit sharing scheme. As an ESOT is intended to be a warehouse for shares and not a holding company, the amendment secures that employees who leave their shares in the ESOT will have no advantage over the employees who are allocated their shares through the approved profit sharing scheme at the first opportunity. Deputies will agree it is very important that equal treatment is achieved in both these situations.

Amendments Nos. 94 and 95 bring into effect a matter I referred to on Second Stage on share schemes. Deputies will be aware that when commenting on features of the new SAYE scheme I said that the minimum service requirement for qualification under the SAYE could not exceed three years. I said I would, on Committee Stage, reduce the minimum service requirement for the other employee share schemes from five years to three. As a result of these two amendments affecting approved profit sharing schemes and employee share ownership trusts, employers can lay down a minimum service requirement that, in future, may not exceed three years. This three year period will now be standard across the share schemes.

Amendment No. 96 provides for consequential changes in the commencement provisions for section 62 of the Bill, consequent on the amendments now being put forward.

I understand that section 62 was introduced largely at the request of Telecom Éireann. I spoke to colleagues in the Communications Workers' Union some weeks ago but I am, nevertheless, confused. Some of the provisions appear to be generous to a point. Some circumstances of the Telecom Éireann ESOT are different, for example, how the money was acquired, mortgages and so on. However, I would like the matter to be spelled out. Have these provisions general effect or are they intended specifically for Telecom Éireann?

They have general effect but Deputy McDowell is correct in that many of these changes were introduced on foot of negotiations regarding the Telecom Éireann trust.

It seems that extending trusts to employees who have been gone as long as 15 years is extraordinarily generous.

The Telecom Éireann agreement regarding ESOTs is pretty generous. I will say no more than that. It is important to have a successful Telecom Éireann flotation.

Section 62 contains a number of amendments to the legislation in respect of both employee shared ownership trusts and approved profit sharing schemes. The main amendments are as follows. First, employees who leave a company during the first five years of the ESOT may remain as beneficiaries under that ESOT for a period of up to 15 years after the ESOT is established. The normal benefit period for former employees in ESOTs and APPSs is 18 months after leaving. Second, employees will be allowed to take up £30,000 in shares tax free in year ten or a later year.

Is that cumulative or must it be taken in one year?

It is a single £30,000. The reason for this amendment is to facilitate the situation where the ESOT has borrowed funds to acquire the shares and is not in a position to release the shares until all the borrowings are paid off. As I said on Second Stage, this once-off £30,000 limit will facilitate the Telecom Éireann ESOT, replacing the normal £10,000 annual limit, only in this one situation.

The Bill provides for capital gains tax exemption for the ESOT trustees on the proceeds of the disposal of shares if and to the extent that such proceeds are used to repay the borrowings used to acquire the shares.

I have a problem with the extension to 15 years although I will not oppose it. The purpose of an ESOT is to bind in - to use Deputy Noonan's phrase - individual employees in a company in terms of remuneration and loyalty. It is not intended to give a capital asset to someone who may have long since left the company or who may soon leave it, which he can retain indefinitely. I would like to see the 14.9 per cent being retained by current employees of the company if at all possible. Its retention by people who have long since left the company would diminish and dilute the value of the scheme.

If the Deputy wishes, we will go into private session and an official will give the background to the matter.

The committee went into private session at 2.5 p.m. and resumed in public session at 2.10 p.m.

I do not mind repeating whatI said on the record on Second Stage. I believe that giving enormous voluntary redundancy packages to employees of Telecom Éireann and, for that matter, the ESB who can quickly get equally well paid jobs with competitors is not the best way to proceed. In these circumstances, to provide for them to retain a capital asset for so long afterwards seems to be going in the wrong direction. It has been done in the case of Telecom Éireann but it is going too far.

Amendment agreed to.

I move amendment No. 94:

In page 153, between lines 2 and 3, to insert the following:

"(ii) in paragraph 4, by the substitution in subparagraph (1)(b) of '3 years' for '5 years',".

Amendment agreed to.

I move amendment No. 95:

In page 154, between lines 19 and 20, to insert the following:

"(III) by the substitution in subparagraph (5)(a) of '3 years' for '5 years',".

Amendment agreed to.

I move amendment No. 96:

In page 154, lines 37 to 44, to delete subsection (2) and substitute the following:

"(2) (a) Paragraphs (a)(i), (a)(ii) and (c)(iii) of subsection (1) shall apply as respects an appropriation of shares made by the trustees of an approved scheme (within the meaning of section 510(1) of the Principal Act) on or after the date of the passing of this Act.

(b) Paragraphs (b) and (d) of subsection (1) shall apply as respects employee share ownership trusts approved under paragraph 2 of Schedule 12 to the Principal Act on or after the date of the passing of this Act.

(c) Paragraph (c)(ii) of subsection (1) shall apply as respects profit sharing schemes approved of under Part 2 of Schedule 11 to the Principal Act on or after the date of the passing of this Act.".

Amendment agreed to.
Section 62, as amended, agreed to.
SECTION 63.

I move amendment No. 97:

In page 156, between lines 21 and 22, to insert the following:

"(d) in respect of the administrative counties of Cork, Galway, Limerick and Waterford, the council of the county concerned.".

I will speak about the situation in Limerick and Deputy Coveney will speak about Cork. What we will say applies equally to Galway and Waterford. This is an amendment to the section which provides tax relief for park and ride facilities. We welcome the section. The idea is worth trying because there is such traffic congestion in all urban areas.

Unless it is the Minister's intention that the destination of the ride element of the park and ride provision, rather than the location of the car park, is what triggers the tax relief, this will not work. The wrong local authorities are designated. Limerick Corporation is in charge of the core of the urban area, but there is no space to park there. If one can find a place to park, one has a park and walk rather than a park and ride facility. Parking facilities are needed beyond the suburbs which are in the administrative area of Limerick County Council. I am less familiar with Cork, Waterford and Galway but I would think there is very little scope for extensive parking within those urban areas which are administered by corporations.

If it is the Minister's intention that the destination of the ride element triggered the tax break, I am wrong in proposing this amendment. However, if the location of the parking facility triggered the tax break, the Minister's measure is a waste of time. My amendment proposes that counties rather than boroughs be given the tax relief. Parking facilities are beyond the outer suburbs which are in the administrative area of Limerick County Council. It will work if one parks and travels by bus into town. I am less familiar with Cork, Waterford and Galway, but I believe there is very little scope within the borough for parking facilities. The core is so small within the administrative area of the corporations that this would not work. I may be wrong if the Minister's intention is that the destination of the ride facilities will trigger tax breaks, but if the location of the parking facilities triggers the tax breaks, it is a waste of time in respect of Limerick. Therefore, I am proposing the amendment so that administrative counties will benefit from the relief, rather than the county borough.

The situation in Cork is similar to that outlined by Deputy Noonan. The only benefit a park and ride service would bring to Cork would be to prevent cars coming inside the city ring road, in other words, the city centre. A car park for a park and ride system should be outside that ring road if it is to be of benefit to traffic. All the land outside the ring road is owned by the county council rather than by the city corporation. I assume that this was an oversight, rather than a deliberate choice of city council over county. Perhaps the Minister is concentrating too much on inside the pale. It would be ridiculous to have the corporation choose a site for a car park when the need is outside the ring road in the county area. For example, the Lee tunnel will open in May and both sides of the tunnel will be in the county area as opposed to the corporation area. Therefore, I support Deputy Noonan's amendment.

I support the amendment, the purpose of which is to encourage people to use public transport rather than private cars. I come from east Cork where there are terrible problems with traffic congestion on the route into the city each morning and evening. Unless something is done to encourage park and ride facilities in the county area, what is proposed in the Bill will not ease the problem.

An old hobby horse of mine is the rail network from east Cork into the city. The railway line has not been in use for years and it would require only a small amount of funding to get it operational. However, nothing is forthcoming. The Minister might take note of this and try to ring-fence a project for the area.

Perhaps south Kilkenny should be included in the amendment because Waterford impinges in that area.

This argument seems to put forward a particular point of view, rather than an argument to straddle neighbouring local authorities. What is taking place in Cork is a prototype for the national project. This has worked effectively for a number of years and is contained inside the city. If this is to be expanded as per the Cork city programme and plans, a number of county council sites will be required. It would seem a logical step to apply this to neighbouring local authorities. Otherwise it would probably lead to bad planning decisions whereby Cork Corporation would try to ensure that sites which would be more suitably located outside the city boundary would be inside the boundary. A similar situation applies in Limerick and Clare. As a member of Cork Corporation, I believe there would be a temptation to try to force the parks to be contained within the city parameters. It seems logical to have a scheme in place which would apply to all local authorities.

The amendment proposes that the park and ride scheme should extend to county council areas of Cork, Galway, Limerick and Waterford. The Bill already makes provision for the scheme to apply in the Cork, Galway, Limerick and Waterford corporation areas, as well as in Dublin and in a number of counties bordering the greater Dublin area.

The scheme is new and is aimed at encouraging the establishment of park and ride facilities in larger urban areas. Provision is made for its application to all the larger urban areas in the State. These are the areas where need is greatest. Thousands of commuters are clogging up the main arteries to our cities as they drive to and from work on a daily basis. Focusing the scheme on these larger areas makes sense for a number of reasons. If the scheme is successful, it is likely to have a greater and more immediate pay-off in terms of removing more cars from our roads. The potential for success is better in larger urban areas because of the larger number of potential customers who can avail of a park and ride facility. The incentive to avail of an alternative to commuting by car is also likely to be greater in larger urban areas because of the more serious traffic congestion which is a feature of those areas.

I have considered the amendment proposed by Deputies Noonan, Deenihan and Coveney. I believe there is no point having a park and ride facility in Limerick given that a large number of people travel from Clare each day to work in Limerick.

With all due respect, what the Minister is saying is nonsensical; he is missing the point. There is no room for parking in the Limerick Corporation area. The only way to get into town is to park on the edge of the urban area.

I accept what the Deputy is saying because I know many people travel from Clare to work in Limerick city. I listen regularly to reports of traffic congestion in Limerick. Likewise a park and ride facility in Kilkenny would be beneficial to people travelling to work in Waterford. If Deputy Noonan withdraws his amendment, I will table an appropriate amendment on Report Stage that will cover more than the county council area to which the Deputy referred. Parts of Kilkenny, Wexford, Limerick, Tipperary and Clare must be included. This discrepancy, which was well spotted, has been discussed with the Department of the Environment and Local Government because the congestion occurs in corporation areas.

If one listens to AA Roadwatch in the morning, Raheen and Corbally are mentioned regularly. The Corbally congestion is caused by traffic coming across the bridge from Clare; Raheen is in County Limerick. The corporation never extended its boundary beyond Limerick city. The area between the regional hospital and the industrial estate, where 7,000 work in Dell, is in the county. Before Report Stage, the Minister might consider the possibility of park and ride facilities for certain industries such as Dell. There is massive congestion on the route to an industrial estate which must cater for 5,000 or 6,000 cars, and a further 3,000 to 4,000 jobs are being planned. It takes an hour to get to work in the estate. The Minister should consider park and ride facilities to service industrial estates, rather than park and ride facilities just to get into the middle of urban areas. The Minister should consider something along the lines of Disneyland which has excellent park and ride facilities.

I made the point about business parks. North Kildare has two large companies, Hewlett Packard and Intel, in the one area which will probably cause serious congestion in the future. I will table an appropriate amendment on Report Stage to address these issues.

In north Kildare, large parking facilities half a mile away, with easy access and shuttle buses operating regularly, would allow people to get to work on time.

I am interested in finding out where the demand has arisen for the inclusion of a certain amount of residential accommodation and park and ride facilities. I am familiar only with the Dublin area where few residential facilities are close to DART stations.

My hands are tied, but not with golden handcuffs. I am now required to put the following question in accordance with an order of the Dáil of 25 February: "That amendment No. 92 and the amendments set down by the Minister for Finance in Chapters 5 and 6 of Part I of the Bill not disposed of are hereby made to the Bill, and in respect of each of the sections not disposed of in the said chapter, that the section or, as appropriate, the section as amended be hereby agreed to."

Question put and declared carried.

I give notice that the following amendments are to be grouped together for debate: amendments Nos. 98 to 100, inclusive; Nos. 101 to 103, inclusive; Nos. 105 to 109, inclusive; and Nos. 110 to 115, inclusive. Other amendments not grouped are to be discussed individually.

Section 64 agreed to.
SECTION 65.
Question proposed: "That section 65 stand part of the Bill."

I made this point on Second Stage, but lest we be seen to put through these important provisions without dissent, there is a different way to reduce corporation tax. The better approach is the one provided for in section 65 rather than that in section 64. It would be better to progressively increase the threshold for the lower rate of corporation tax rather than to reduce the higher rate, as has been suggested. However, the argument is lost.

Question put and agreed to.
SECTION 66.

Amendments 98 to 100, inclusive, are related and may be discussed together by agreement.

I move amendment No. 98:

In page 175, to delete line 24.

I have been subject to a lot of lobbying on this point from the mining section of IBEC, who I am sure have also spoken to the Minister. The net point is that mining activities are not among those companies which pay corporation tax at 12.5 per cent, they would be taxed at 25 per cent. These amendments would bring them into the 12.5 per cent category. This amendment was tabled so that working minerals would be included in the Schedule to benefit from the proposed standard corporation tax rate of 12.5 per cent. The Minister may wish to abolish or reduce capital allowances if these companies are allowed pay corporation tax at the lower rate, but they will accept that.

These amendments seek to remove income from mining activities from the charge to the higher 25 per cent of corporation tax so as to allow such income to qualify for the phased reduction in the standard rate of corporation tax to 12.5 per cent. There are strong and cogent reasons for imposing a higher rate of corporation tax on income from activities such as mining and petroleum extraction. I accept the mining industry generates significant employment but it is not a typical industry. It involves the exploitation of the State's natural resources, which are finite, and once the resource is depleted there is no ongoing benefit to the State. It is only right, therefore, that the State should seek a reasonable tax return from mining profits.

In this regard, in 1995 the national minerals policy group, which included representatives of the industry, recommended that the rate of corporation tax on mineral extraction and processing be 25 per cent. In making this recommendation, the group had full regard of the need to keep Ireland competitive in terms of attracting mobile investment.

Also, for many years the mining sector has enjoyed special reliefs which are aimed at encouraging mineral exploration and extraction. The main incentives, which are not available to other sectors, are as follows. There are 100 per cent allowances for capital expenditure on exploration and mine development. Exploration expenditure incurred before trading commences may be written off for tax purposes after trading commences, and qualifies for an additional investment allowance of 20 per cent. In addition to normal capital allowances, an up-front investment allowance of 20 per cent is allowed in respect of the cost of plant and machinery used for the purposes of a mining trade. Allowances are granted for expenditure incurred on, or set aside for, rehabilitating the site of a mine. Where a person carrying on a trade of working a qualifying mine acquires deposits of scheduled minerals, the cost of the deposit may be written off for tax purposes over the life of the mine or over 20 years. With the availability of these reliefs, the mining industry would be doubly advantaged if it were to be granted the 12.5 per cent rate of corporation tax as well.

Amendment No. 103 in my name will ensure those mining operations which currently qualify as manufacturing for the purposes of the 10 per cent rate of corporation tax will continue to do so and, when entitlement to manufacturing relief expires in 2010, will qualify for the 12.5 per cent rate of corporation tax.

Like the Deputy, I too have met the mining industry in the past fortnight and we had a full and frank debate on the matter. As I said, the national mineral policy group, which included industry representatives, supported a 25 per cent rate in its 1995 report. What has changed in the meantime is that the Government has decided to set a single, low corporation tax rate of 12.5 per cent. Consequently and understandably, the mining industry wishes to avail of that rate.

In my discussions with the industry I pointed out its existing concessions, of which it was undoubtedly aware, namely, the allowances I mentioned. I made clear that if I was to consider the matter further, the industry could not have both the low rate and the allowances, only one or other. This Finance Bill is not the end of the matter as far as the industry is concerned. One reason for reducing the top rate of corporation tax from 32 per cent to 28 per cent in this year's budget was that I did not want to have three rates of corporation tax because I would have to define the activities that would be taxable at the middle rate of 25 per cent. By doing it this way I have almost a year in which to have further consultations with the mining industry, because the 25 per cent rate does not come into operation until 1 January next and there will be another budget before then.

I am not opposed to further discussions with the mining industry on this matter. I have pointed out its current allowances and that the industry cannot have it both ways. I would enter into negotiations with the industry on its qualification for the single low rate of 12.5 per cent only if there were changes to its current allowances regime. I put that to the industry as clearly as I could. I met them in the past fortnight and both sides are now thinking about it. I am sure we will have further negotiations between now and the end of the year when further discussions can take place. My mind is not totally closed on the matter. I remain to be convinced. There are strong and powerful reasons for having a corporation tax rate higher than 12.5 per cent for mining and exploration. If I was to consider moving away from that policy stance, I would only do so in the context of having major changes in the current allowances regime. The matter is not closed as we have from now until the next budget to further deliberate on it, but as of now I am not in a position to accept the amendment put forward by Deputy Noonan.

Does this increase in corporation tax apply to the quarrying industry, or does it solely apply to mining?

The Deputy or other Deputies may have received representations from ordinary sand and gravel companies as in the original Bill the section would have caught ordinary sand and gravel quarrying operations in the provision. Amendment No. 103 will get over this problem, as anything which constitutes manufacturing will be at the single lower rate of 12.5 per cent. Some of the quarrying companies to which the Deputy refers had wondered whether people who make bricks and mortar would be caught under the original drafting of the Bill.

How can one distinguish between open cast mining and quarrying? It is a matter of product differentiation?

I am told the definition on working a mine for minerals covers both open cast mining and underground mining.

I would have thought that from the point of view of the State it was more important to encourage exploration and to that extent the capital allowances were more in the State's interest than reducing tax on the income earned once the exploration had been done and the mining was taking place.

The capital allowances are given to the mining company which is advantaged by them.

I appreciate that. I am saying the State should encourage exploration by means of capital allowances.

We put that point quite forcefully to the industry when we met it. It must also be remembered that in the context of mining and exploration the State can get benefit through royalties. The attractiveness of capital allowances is in encouraging companies to explore further. Things have changed with the decision to move to a single low tax rate of 12.5 per cent. A 25 per cent rate for mining is quite attractive to a mining company vis-à-vis rates in other countries. However, it is not that attractive vis-à-vis a general rate of 12.5 per cent. The industry put forward strong arguments, but the incentive of capital allowances is one part of the equation. If I was to consider a 12.5 per cent rate for mining it would have to be at the expense of moving away from capital allowances - I am sure we could negotiate on the matter. However, both incentives could not exist and I am not prepared to negotiate on the basis of a new rate of 12.5 per cent with the maintenance of the existing capital allowances scheme.

I am approaching this from the perspective of the State. I understand why mining companies already operating might take the view that income on profits is more important than capital allowances on investments they have already made and benefitted from. We should examine the matter from the point of view of encouraging exploration.

This seems to be the only area coming under the definition of trading income that will still be subject to a corporation tax rate of 25 per cent. Does this come within the compass of the agreement with the Commission?

The areas concerned are mining, petroleum and rental income from land. When we decided to have a single low rate of 12.5 per cent and a rate of 25 per cent for certain types of other income, it was within our remit to decide what the other areas of income would be. The Deputy is correct to say mining is trading, but we have specifically decided to keep it at the 25 per cent rate.

The Minister does not consider that it needs to be encompassed explicitly in the agreement? My understanding of the agreement was that the 25 per cent rate was for non-trading income while it seems to me this income falls under the definition of trading income.

The agreement with the Commission relates to phasing out the 10 per cent rate, its replacement with the 12.5 per cent rate and how this will be done. The Commission was interested not in what our single new rate would be but in how we were to achieve it and what would happen to the 10 per cent rate.

We will have a single low rate which will specifically exclude income from mining and petroleum.

Yes. The synopsis of my Budget Statement outlined the areas which would be excluded from the 12.5 per cent rate, namely, mining, petroleum and land dealing. If I was to reconsider this in the context of mining, other considerations would come into play. The Deputy added to my argument by saying that from a sales point of view it is more beneficial to encourage investment in exploration in terms of capital allowances to encourage companies to take the chance to undertake mining to see if minerals are there. That policy consideration must also be borne in mind.

The debate is not over as there is a period in which I and the mining industry can further reflect on the matter. I said in discussions with the mining industry that if there was a change from 25 per cent to 12.5 per cent, it could not be an and/or situation. A special tax regime applies to mining since about 1973. In 1980 mining was excluded from the 10 per cent corporation tax rate for manufacturing. At that time we phased out the export sales relief scheme. Mining has always had a different tax regime. The Commission is primarily concerned about the special rates for certain activities, not a somewhat higher rate for a small number of activities. The mining industry would admit the mining sector is contributing a very small amount in corporation tax at present due to the build up of capital allowances over a number of years. Some mining companies may take the view that the low rate in Ireland suits them and others might prefer the capital allowances, but it can be discussed further.

Bearing in mind many mining companies are also charged a royalty based on sales revenue rather than profits, the combined 25 per cent plus royalties would be well in excess of 25 per cent. The royalty could be greater than the 12.5 per cent proposed corporation tax. Surely that should be a consideration in reducing from 25 per cent.

One can argue the point put forward that the way to deal with the mining industry is to amend royalties. However other countries also have royalties and corporation tax. I am prepared to revisit the matter because it is not immediate. I have another opportunity before the 25 per cent grade kicks in and I am prepared to meet the mining industry again and hear their views. We will discuss this area further. The argument put forward about royalties is legitimate. On the other hand, most countries have a royalty system and a corporate taxation regime and they must confirm their profits.

They probably have a different corporate tax regime to ours.

Yes, and it is much higher. The focus is on the new singular rate of 12.5 per cent. That is naturally an effective carrot for most big companies.

Our difficulty with Europe is deferred until next year and the Minister will make changes next year. Is that correct?

That is not the problem with Europe because we have signed off with Europe regarding how we get to the 12.5 per cent. We must have it in place by 1 January 2003.

Did they not enter into discussion about the areas of activity to which the 12.5 per cent would apply?

No. That is up to us. As I have stated on many occasions, the Commission is not interested in that debate. To be fair about this, there is a debate among member states about the Irish 12.5 per cent corporate tax regime, but that is a different matter. As far as the Commission is concerned, this arose from a protest about distortion of trade. It wants us to have a single corporate tax rate. That will not stop other member states talking about the Irish corporate tax regime.

Amendment, by leave, withdrawn.
Amendments Nos. 99 and 100 not moved.

Amendments Nos. 101, 102 and 103 are related and may discussed together by agreement.

I move amendment No. 101:

In page 176, line 28, to delete "carrying away, treating and converting" and substitute "carrying away and treating".

These amendments relate to section 66 of the Bill which inserts into the Taxes Consolidation Act, 1997 a new section 21A to provide the imposition, with effect from the financial year 2000, of a higher 25 per cent rate of corporation tax on the profits of companies. In line with the budget announcement, the Bill provides the 25 per cent rate applies to income from the exploitation of oil, gas and mineral resources. However the definition of "working" in relation to minerals has been found to be too wide for this purpose as it could be construed as covering various manufacturing operations involving the conversion of minerals, for example the manufacture of cement, bricks, road surfacing materials, roof tiling and plasterboard.

The amendments are designed to narrow the definition and ensure the higher rate of corporation tax will not apply to company income which qualifies for manufacturing relief, that is income qualifying for taxation at an effective rate of 10 per cent. The exclusion of such income from the higher rate of corporation tax will continue after the eligibility of that income for manufacturing relief has expired. I commend the amendments to the committee.

Amendment agreed to.

I move amendment No. 102:

In page 176, line 42, after "section 21," to insert "but subject to subsection (4),".

Amendment agreed to.

I move amendment No. 103:

In page 176, line 48, to delete "years.'." and substitute the following:

"years.

(4) This section shall not apply to the profits of a company for any accounting period to the extent that those profits consist of income from the sale of goods within the meaning of section 454.'.".

Amendment agreed to.
Section 66, as amended, agreed to.
Sections 67, 68 and 69 agreed to.
SECTION 70.
Question proposed: "That section 70 stand part of the Bill."

This section withdraws the corporation tax exemption granted to Bord Gáis in 1983. The company will now be liable for corporation tax with respect to accounting periods beginning on or after the passing of the Finance Act. This decision was taken following an inquiry from the European Commission as to the tax treatment of State enterprises and it is in line with Government and EU policy to ensure commercial State bodies operating in the marketplace are required to pay corporation tax on their profits.

Are there any other semi-State companies which currently have an exemption from corporation tax?

NET has an exemption which runs out at the end of this year. The Central Bank, National Lottery, NTMA and the Irish Horseracing Authority also have exemptions. My expert official thinks that is the end of the list but there may be others. We are talking only about commercial bodies.

Question put and agreed to.
SECTION 71.
Question proposed: "That section 71 stand part of the Bill."

This section amends the group relief provisions of the Taxes Consolidation Act, 1997. Under those provisions, a company which is a member of a group of companies can offset against its profits for an accounting period a loss incurred by another company which is a member of the group. Similarly, a loss incurred by a company owned by a consortium can be offset against profits of the member companies of the consortium. In addition, certain payments which might otherwise have to be paid on deduction of tax are payable without deduction of tax if they are made by a member company of a group to another member company of the group or by a company owned by a consortium to a member of the consortium.

The UK House of Lords referred a UK tax appeal case concerning ICI to the European Court of Justice. In that case the company had been denied group relief for losses incurred by a company owned by a consortium of which ICI was a member. The lost relief was denied because UK legislation requires all companies in the consortium to be tax resident in the UK. The Court of Justice found the UK law contravened article 52 of the EC Treaty.

Ireland's group and consortium relief provisions are similar to those in the UK. Our legislation requires that all companies involved in the group or consortium must be resident in the State. This section amends the group and consortium relief provisions so the requirement that all companies must be resident in the State is changed to a requirement that all companies must be resident in the EU. This would mean that in determining whether two companies are members of a group or that a consortium exists, all relevant companies in the EU can be taken into account. For example, if a company resident in France has two Irish subsidiaries the trading loss of one subsidiary could be set against the profits of the other subsidiary. However, it would not be possible to offset losses incurred by a non-resident company outside the State against Irish profits of a company. A similar amendment is made to the provision which allows member companies of a group to make certain payments, such as royalties, which are allowed as charges in income to each other without deduction of tax.

The section allows a loss incurred by an Irish branch of an EU resident company which is a member of a group of companies to be offset against profits of another company which is a member of the group. Again, it is not possible for a loss incurred by a non-resident company outside the State to be offset against Irish profits of a company.

Does this mean it is not possible, for example, for an American multinational which may make a trading loss in, say, the US to write that off against profits made in Ireland?

The implications of that could be considerable. Does the Minister anticipate any significant loss to the Exchequer in consequence?

I am told there may be a cost but it is not expected to be very large.

I am concerned about multinationals trading here which make a loss elsewhere in the EU and can write off those losses against their Irish profits.

I will ask my officials to comment.

Is that agreed? Agreed.

The committee went into private session at 3.32 p.m. and resumed in public session at 3.33 p.m.

The official's comments were not clear from the Minister's speaking notes. Perhaps I misunderstood them. It is the case that subsidiaries of a company within Ireland can write off against each other.

Or in the EU.

The committee went into private session at 3.34 p.m. and resumed in public session at 3.35 p.m.

Question put and agreed to.
Sections 72 and 73 agreed to.
SECTION 74.
Question proposed: "That section 74 stand part of the Bill."

Will the Minister explain this section?

This section amends Schedule 24 to the Taxes Consolidation Act, 1997, in a number of respects. Schedule 24 is a technical measure, which sets out the mechanics for determining the amount of credit against Irish income tax and corporation tax in respect of foreign tax paid on double tax income.

The first change concerns income gains from special investment policies. Where income is doubly taxed, first in the source country and, second, in Ireland because the recipient is an Irish resident, the taxpayer would generally be entitled, under a double taxation treaty, to set the foreign tax suffered against Irish tax on the income concerned. Where the foreign tax exceeds the Irish tax on the income, the credit is limited to the Irish tax.

For this purpose, Schedule 24 specifies that the Irish tax on a special investment fund of a life assurance company is 10 per cent of the income and gains of the fund. As the income and gains from such a fund would now be taxed at 20 per cent - this is provided for in section 25 of the Bill - it is necessary to change the reference in Schedule 24 from 10 to 20 per cent.

The second change concerns the exclusion from unilateral credit relief of tax suffered in tax treaty countries. The Finance Act, 1998, introduced unilateral credit relief under which a resident company which receives a dividend from a subsidiary company in a country with which Ireland does not have a treaty can get unilateral relief from the foreign tax paid. This relief does not apply, however, to tax paid in a treaty country because the relevant agreement already gives relief.

In certain cases the relief given under the treaty is less generous than under the unilateral provision. For example, in the case of some treaties, underlying corporation tax, that is foreign tax paid where there is a subsidiary and the profits from which the dividend is paid, will not be available for relief. The section rectifies this anomaly so that in respect of the types of taxes covered by the treaty, more generous treatment than in the treaty is to be unilaterally given.

The third change concerns double taxation relief for tax paid by subsidiaries of an Irish resident company. Under double taxation treaties, an Irish parent company which receives a dividend from its overseas subsidiary in a tax treaty country can have its corporation tax reduced by foreign tax paid in the treaty country by the subsidiary on the profits of a blind dividend.

The Irish parent cannot get relief under treaties, however, for tax paid by subsidiaries, at least those in third countries. The Finance Act, 1998, provided that credit would be given for foreign tax paid by subsidiaries by allowing companies to offset foreign tax on tiers of foreign subsidiary companies against the ultimate parent company's Irish liability.

To qualify for relief two tests have to be satisfied: first, 25 per cent of the ordinary share capital of the subsidiary must be owned by the subsidiary company and second, at least 10 per cent of the ordinary share capital of the subsidiary must be owned by the ultimate Irish parent company. An ordinary share capital requirement was used in the Act because it was considered to be easy to determine the relationship between two tiers of subsidiary companies. However, it is now considered that the requirement for holding share capital should be changed to one involving control of voting power.

What is the position with ordinary shares?

I am told by my officials that it is less easy to manipulate.

By means of creating preferential shares.

Question put and agreed to.
SECTION 75.

I move amendment No. 104:

In page 184, line 35, after "Communities," to insert "other than the State,".

The section as drafted appears to relate to companies, including Irish companies. This is a technical amendment.

Section 75 provides that, subject to a number of exceptions, a company which is incorporated in the State shall be regarded as resident in the State for tax purposes. One of the exceptions to this rule is that incorporation in the State will not mean residence in the State in the case of a company in respect of which tow conditions are satisfied: first, the company or related company must be trading in the State, and, second, the company must be ultimately controlled by the residents of a tax treaty country or a member state of the EU.

Consequently, a company which has the appropriate trading connection with Ireland and which is under the ultimate control of residents of EU member states will not be tax resident here unless it is managed or controlled here. As Ireland is an EU member state this means that a company with the appropriate trading connection which is ultimately controlled by Irish residents will not be treated as Irish resident simply because the company is incorporated in the State. If, however, the company is managed and controlled in the State it will be treated as resident here.

Deputy McDowell's amendment seeks to ensure that an Irish resident company which is under the ultimate control of Irish residents should always be regarded as resident in the State for tax purposes, whether it is managed or controlled here. The purpose of section 75 is to address the problems caused internationally by the misuse of Irish incorporated companies for undesirable purposes. The companies identified as causing problems were controlled by non-Irish residents and had no connection with Ireland apart from being incorporated here. This is the focus of the section.

That is not to say there are not certain Irish individuals or Irish controlled companies which are avoiding tax, and perhaps these are using Irish incorporated companies managed and controlled outside Ireland as part of their avoidance scheme. The avoidance activities of these companies were not the focus of section 75. Other legislation, including measures in this Bill, should be more effective in dealing with tax avoidance for such companies.

The approach adopted in providing exceptions to the general rule in section 75 that incorporation in the State equates to tax residence in the State was to exclude from the provision companies ultimately controlled in EU member states and tax treaty companies. In the context of international discussions on tax competition, it was considered preferable that the exclusion provisions should not focus solely on non-residents but should apply across the board to include both Irish and other EU controlled companies.

I appreciate the motivation behind the Deputy's amendment and have some sympathy for what he would like to do. However, on balance, I am not inclined to accept it.

Amendment, by leave, withdrawn.

Amendments Nos. 106 and 108 are cognate with amendment No. 105 and amendments Nos. 107 and 109 are related and these may be taken together by agreement. Agreed.

I move amendment No. 105:

In page 185, subsection (1), line 4, to delete "51" and substitute "50".

These amendments change the test to be applied to determine whether companies are related for the purposes of section 75. Section 75 deals with IRNR companies and provides that subject to certain exceptions companies which are incorporated in the State will be regarded as resident in the State for tax purposes. Among the exceptions are where the company or a related company carries on a trade in the State and certain other criteria are satisfied and where a related company is a quoted company. Section 75 requires that for one company to be related to another one must hold more than 51 per cent of the ordinary share capital of the other. The term "51 per cent subsidiary" is defined in this way in the Taxes Consolidation Act, 1997. Because certain projects carried out in the State are done by way of joint ventures involving two companies which may be IRNRs each holding 50 per cent of an operating company, it is considered that the requirement to hold more than 50 per cent of share capital should be changed to a requirement to hold not less than 50 per cent of the share capital. Accordingly, the requirement to be a 51 per cent subsidiary is being changed to one of a 60 per cent subsidiary. It is necessary to set the new clause to specify what is a 51 per cent subsidiary because such a concept is not already defined in the Taxes Consolidation Act, 1997. The final amendment is a drafting one to provide clarity that the only deletion of section 411(1)(c) is subparagraph (iii). It is considered that the existing text may be ambiguous. I commend the amendments to the committee.

Is the Minister saying that this relates to where a company has two shares both of which are owned by other non-resident companies?

My official, will give his expert opinion on this issue.

The committee went into private session at 15.42 p.m. and resumed public session at 15.44 p.m.

It applies from 1 October next to all companies currently incorporated. It strikes me that a huge number of companies do not comply with this requirement.

The purpose of the Bill is to give time to such companies to regulate themselves. The Registrar of Companies engages in a major programme of striking off.

Will these companies will be notified of the new law and their requirement to comply with it or told to go away if they do not?

The company formation agents are aware of these provisions and should inform their clients of the new requirements.

Amendment agreed to.

I move amendment No. 106:

In page 185, subsection (1), line 6, to delete "51" and substitute "50".

Amendment agreed to.

I move amendment No. 107:

In page 185, subsection (1), between lines 8 and 9, to insert the following:

"(II) a company shall be a 50 per cent subsidiary of another company if and so long as not less than 50 per cent of its ordinary share capital is owned directly or indirectly by that other company, and".

Amendment agreed to.

I move amendment No. 108:

In page 185, subsection (1), line 13, to delete "51" and substitute "50".

Amendment agreed to.

I move amendment No. 109:

In page 185, subsection (1), line 17, to delete "section 411(1)(c)(iii) and substitute "subparagraph (iii) of section 411(1)(c)".

Amendment agreed to.
Question proposed: "That section 75, as amended, stand part of the Bill".

Is this provision similar to the British one?

Yes. The difference is that we do not apply this across the board; multinationals are exempted.

Question put and agreed to.
SECTION 76.

Amendments Nos. 110 to 115, inclusive, form a composite drafting proposal and may be taken together by agreement. Agreed.

I move amendment No. 110:

In page 186, subsection (1), line 26, to delete "(a)" and substitute "(i)".

These are purely drafting amendments. Amendments Nos. 110 to 114, inclusive, correct the numbering of paragraphs and subparagraphs in the definition of "ultimate beneficial owner" in section 76. Amendment No. 115 corrects a minor drafting error in section 76. Paragraph (c) in the definition of "ultimate beneficial owner" should have been drafted as paragraph (b) of subsection (1) of the revised section 882. This change is being implemented by way of the proposed amendments.

Amendment agreed to.

I move amendment No. 111:

In page 186, subsection (1), line 28, to delete "(b)" and substitute "(ii)".

Amendment agreed to.

I move amendment No. 112:

In page 186, subsection (1), line 35, to delete "(i)" and substitute "(I)".

Amendment agreed to.

I move amendment No. 113:

In page 186, subsection (1), line 36, to delete "(ii)" and substitute "(II)".

Amendment agreed to.

I move amendment No. 114:

In page 186, subsection (1), line 41, to delete "(iii)" and substitute "(III)".

Amendment agreed to.

I move amendment No. 115:

In page 187, line 1, to delete "(c)" and substitute "(b)".

Amendment agreed to.

I move amendment No. 116:

In page 187, subsection (1), to delete line 45 and in page 188, to delete lines 1 and 2, and substitute the following:

"of section 23A-

(A) if the company is controlled by another company the principal class of the shares of which is substantially and regularly traded on one or more than one recognised stock exchange in a relevant territory (within the meaning of section 23A) or territories, the name of the other company and the address of its registered office, and

(B) in any other case, the name and address of the individuals who are the ultimate beneficial owners of the company,".

Section 76 contains a revised section 882 of the Taxes Consolidation Act which requires companies to supply certain information to the Revenue Commissioners.

Among the information required is the name and address of the ultimate beneficial owners of certain companies. In some cases a company may be controlled by a quoted company. It may be problematic to look through the quoted company to identify all of the beneficial owners. Accordingly, the amendment provides that, if the company is controlled by a quoted company, it will be sufficient to state the name of the quoted company and the address of its registered office. This applies, however, only where the controlling company is a genuine quoted company - a company whose shares are substantially and regularly traded on a recognised stock exchange in an EU member state or in a country with which Ireland has a tax treaty.

I commend the amendment to the committee.

Amendment agreed to.
Section 76, as amended, agreed to.
NEW SECTION.

I move amendment No. 117:

In page 188, before section 77, to insert the following new section:

77.-(1) The Principal Act is hereby amended in Chapter 2 of Part 47-

(a) in section 1071 by the insertion after subsection (2) of the following subsection:

'(2A) (a) Where at any time not earlier than 3 months after the time at which a return is required to be delivered by a company in accordance with section 884, the company has failed to pay any penalty to which it is liable under subsection (1)(a) or (2) for failing to deliver the return, the secretary of the company shall, in addition to any penalty to which the secretary is liable under this section, be liable to pay such amount of any penalty to which the company is so liable as is not paid by the company.

(b) Where in accordance with paragraph (a) the secretary of a company pays any amount of a penalty to which the company is liable, the secretary shall be entitled to recover a sum equal to that amount from the company.',

(b) by the substitution for section 1073 of the following section:

'1073.-(1) Where a company fails to deliver a statement which it is required to deliver under section 882-

(a) the company shall be liable to a penalty of £500 and, if the failure continues after judgment has been given by the court before which proceedings for the penalty have been commenced, to a further penalty of £50 for each day on which the failure so continues, and

(b) the secretary of the company shall be liable to a separate penalty of £100.

(2) (a) Where at any time not earlier than 3 months after the time at which a statement is required to be delivered by a company in accordance with section 882, the company has failed to pay any penalty to which it is liable under subsection (1)(a) for failing to deliver the statement, the secretary of the company shall, in addition to any penalty to which the secretary is liable under subsection (1)(b), be liable to pay such amount of any penalty to which the company is so liable as is not paid by the company.

(b) Where in accordance with paragraph (a) the secretary of a company pays any amount of a penalty to which thecompany is liable, the secretary shall be entitled to recover a sum equal to that amount from the company.',

and

(c) in section 1076-

(i) by the substitution for subsection (1) of the following subsection:

'(1) In this Chapter, "secretary" includes-

(a) persons mentioned in section 1044(2) and, in the case of a company which is not resident in the State, the agent, manager, factor or other representative of the company, and

(b) in the case of a company the secretary (within the meaning of section 175 of the Companies Act, 1963) of which is not an individual resident in the State, an individual resident in the State who is a director of the company.'.

(2) This section shall apply as on and from the 1st day of March 1999.".

This amendment inserts a new section 77 into the Bill. The new section relates to the actions being taken to prevent the use of IRNR companies for undesirable purposes. Section 75 provides that, subject to a number of exceptions, companies which are incorporated in the State will be treated as being resident here for tax purposes and, consequently, liable to tax here on their world income. Section 76 obliges all companies, including IRNR companies, to furnish information about their affairs to the Revenue Commissioners.

Under existing law a company which fails to furnish such information is liable to a penalty of £500 and £50 per day for each day on which such failure continues after judgment is given by the court. The secretary is also liable to a once-off penalty of £100. Where a company fails to make a return of its profits, the company and the secretary become liable to similar penalties.

The amendment provides that where a company fails to pay any penalty to which it becomes liable for failure to either provide information to the Revenue Commissioners or make a return of its profits, the secretary of the company will become liable to pay the company's penalties. The provision also enables the secretary to recover from the company a sum equal to the amount of the penalty so paid.

The amendment also provides that, where the company secretary is not an individual resident in the State, the penalties may be recovered from a director of the company who is so resident. The purpose of this amendment is to ensure there is a person in the State accountable for any failure by the company to fulfil its information and return filing obligations. I commend the amendment to the committee.

Clearly the issue here is enforcement and the capacity of the Companies Registration Office in that regard. When the issue of IRNRs was discussed six or eight months' ago there was a strong feeling that the Companies Registration Office was not in a position to police the information requirements which then existed. Has anything been done in the meantime to improve its capacity to police this, if the information is not available to it?

I was going to suggest the penalties provided for are relatively low, but I am anticipating the Minister's response, in that he is likely to say it is in keeping with similar type fines for defaults of other information which should be provided. It is important we are in a position to ensure this information is provided. The measure of penalty is not a sufficient disincentive.

I am imposing tax penalties here. Companies can be prosecuted under tax legislation. There is an upcoming companies Bill which will incorporate other measures relating to IRNR companies and will be dealt with by the Companies Registration Office. Deputy McDowell and others referred to this in the past. Furthermore, the Deputy will be aware that the Tánaiste, Deputy Harney, set up a group on company law enforcements under the chairmanship of senior counsel, Mr. Michael McDowell, and its recommendations will be announced in due course. IRNR companies are dealt with under three headings - tax changes, company law changes and possible criminal justice changes. We are now dealing with the tax changes in the Finance Bill. When I announced the Bill I referred to the company law changes which would be a corollary to the tax changes in IRNRs. I am not aware of any criminal law changes which will be brought about, but this is the way it is being progressed. These fines and penalties will be imposed by the tax authorities.

I presume there is some measure of sharing information here. Will the Companies Registration Office, for example, have a list of the companies which have made returns in terms of their tax residency to the Revenue Commissioners?

There is a provision in Section 76(3) which allows the Revenue Commissioners to communicate that type of information to the Companies Registration Office. It states: "Where a company fails to deliver a statement which it is required to deliver under this section then, notwithstanding any obligations as to secrecy or other restriction upon disclosure of information imposed by, or under any statute or otherwise, the Revenue Commissioners may give a notice in writing to the registrar of companies (within the meaning of the Companies Act, 1963) stating that the company has so failed to deliver a statement under this section.".

Presumably, the Revenue Commissioners get the list of companies on the register from the CRO. On examining it they will be aware what companies have not provided a submission on tax residency. Is it the case that if some companies have not provided a submission, the Revenue Commissioners can inform the CRO?

After a company is formed, it receives a letter from the central office of the Revenue Commissioners for its director's place of trade, etc. That has been in force for some time. There is no point in asking for such information from IRNR companies because they will not reply. Letters were forwarded to them but, of course, replies were not received from the majority of them because they are Irish registered non-resident companies. On a number of the provisions, there is a mark within the State to pursue the director or secretary of the company. There will be a provision to strike off a company if it fails to make its tax returns.

Amendment agreed to.
Sections 77 and 78 agreed to.
NEW SECTIONS.

Amendment No. 118 is out of order as it involves a potential charge on the people.

Amendment No. 118 not moved.

I move amendment No. 119:

In page 190, before section 79, but in Chapter 8, to insert the following new section:

79.-A gain arising on or after the passing of this Act on the inter vivos gift or deemed chargeable disposal by trustees pursuant to section 15 of the Capital Gains Tax Act, 1975, of heritage property (within the meaning of section 39 of the Finance Act, 1978, and section 55 of the Capital Acquisitions Tax Act) shall not be liable to capital gains tax if the circumstances of the disposal are such that no liability to capital acquisitions tax would arise.”.

The amendment speaks for itself. It deals essentially with circumstances where, at present, there is no liability for capital acquisition tax, but there is a liability for capital gains tax. The Law Society proposes that this is anomalous and it would be fair in the circumstances, rather than treating it as a disposal for one tax and not the other.

There are capital acquisitions tax exemptions where heritage property passes by way of gift or inheritance. Capital acquisitions tax is a tax on the person who receives property. This exemption is in respect of property which, in the opinion of the Revenue Commissioners, is of national, scientific, historic or artistic interest and which is available for public viewing.

Capital gains tax is a tax on the person who disposes of the property. There is no charge where any property, including heritage property, passes on death. In the 1997 Finance Act a charge to capital gains tax was removed on the death of a person with a life interest in property of a trust where it was a heritage property, so long as the property remained trust property. The object of these measures is to ensure, within reason, the heritage property remains in the State. However, other factors, such as equity, must be considered. Consequently, I do not consider tax exemptions should be further extended on heritage property.

Will the Minister explain the point about property remaining in the State?

The object of these measures is to ensure, within reason that heritage property remains in the State. I have been informed by my official that a house cannot be moved, but a picture can.

I will bow to the official's superior knowledge in this matter.

The committee went into private session at 4 p.m. and resumed public session at 4.2 p.m.

The Law Society of Ireland originally made the point because it is exempt from CAT and that is also a policy issue. It seems logical that it should also be exempt from CGT. I take the point made by the Department and I do not intend to press it but this seems to be an anomalous situation. Why is there an initial exemption from CAT?

; I have a speaking note about the background to this issue. Certain assets known as heritage property are exempt from capital acquisitions tax when transferred either by way of gift or inheritance. In general, these are assets which in the opinion of the Revenue Commissioners are of national, scientific, historic or artistic interest. Such assets must also be reasonably accessible for the public to view them. This measure reflects the desire of the State to do what it can to keep together collections of such property without requiring its piecemeal disposal to pay inheritance, etc.

Capital gains tax is different because it is only levied on disposal. However, property passed from one person on that person's death to another person is not a disposal for CGT purposes and, therefore, no CGT is due to be paid. The CGT treatment of property settled on a trust is contained within sections 574 to 577, inclusive, of the Tax Consolidation Act, 1997 which was originally section 15 of the Capital Gains Tax Act, 1975.

Section 75 of the Finance Act, 1997 provided for an exemption from CGT where a life interest in heritage property as defined for capital acquisitions tax purposes settled on a trust and passed from one person to another before the assets remaining settled on the trust. Such an event might occur on the death of a person with the original life interest. In these circumstances the CGT treatment is aligned with the CAT treatment.

We are talking about circumstances where a heritage property increases in value. Tax will be levied on the increasing value if it is given as a gift to someone but a person will not be taxed on the initial value. If I own something that costs £1 million, no matter how I acquired it, and I give it as a gift to my son or daughter in five years' time when it is worth £1.5 million will I as the owner be liable for CAT or CGT charges on the additional £0.5 million valuation?

The committee went into private session at 4.8 p.m. and resumed public session at 4.10 p.m.

The purpose of the section was to ensure that the transfer of heritage property would be exempt from CAT.

The committee went into private session at 4.11 p.m. and resumed public session at 4.12 p.m.

Deputy McDowell asked if the value of a property increased from £1 million to £1.5 million and a transfer took place is it also exempt from CAT? What about CGT?

The committee went into private session at 4.13 p.m. and resumed public session at 4.14 p.m.

When will CGT be levied on that asset?

The committee went into private session at 4.15 p.m. and resumed public session at 4.16 p.m.

It seems unfair that the beneficiary of that gift gets it tax free and the benefactor has to pay tax on an increasing value since he acquired it. This is an anomaly.

I will consider this amendment before Report Stage because this is an anomalous situation.

The committee went into private session at 4.17 p.m. and resumed public session at 4.18 p.m.

Would that be a gift in itself?

With regard to Deputy McDowell's point, is it exempt from CAT?

The committee went into private session at 4.18 p.m. and resumed public session at 4.19 p.m.

Is there a charge on a gift inter vivos?

I would like to consider this matter further before Report Stage.

I cannot imagine this provision affects many people.

In light of recent events it might be possible. I have not had any personal representations about this issue.

I received representations from the incorporated Law Society of Ireland.

Amendment, by leave, withdrawn.
Section 79 agreed to.
SECTION 80.
Question proposed: "That section 80 stand part of the Bill."

On Second Stage the Minister mentioned situations he thought were arising and it was intended that this section would deal with them. If we went into private session I could hear more about it.

We can get expert advice later if we need it. This section inserts seven new sections in the Tax and Consolidation Act. All the sections are concerned with trusts, mainly offshore trusts and trusts which migrate offshore. In general, the ability to tax the income and gains of a trust depends on where the trustees of the trust are located. If the trustees are located abroad the trust is then an offshore trust and, therefore, is not subject to Irish tax. However, offshore trusts can be used in tax planning to avoid or defer liability to Irish tax that otherwise would arise for an individual in the State. These new sections counter such attempts to avoid or defer tax. I would not claim that they provide the full solution and this area may have to be revisited in lateryears.

Section 579A allows a capital gains of an offshore trust to be attributed to beneficiaries of the trust who are domiciled and either resident or nearly resident in the State. Other sections provide that the capital gains of the offshore trust are accumulated from year to year. They also provide that when a capital payment is received by a beneficiary out of that accumulated amount the beneficiary is charged CGT.

What is an offshore trust?

Offshore trusts refer to where trustees are resident offshore.

Section 579B imposes an exit charge to CGT where a resident trust migrates offshore. This could be achieved by Irish based trustees resigning in favour of foreign based trustees. The exit charge is similar to that provided in the Finance Act, 1997, in respect of companies moving offshore. The CGT charges are imposed on the increasing value of the trust assets from the time of their acquisition to the time of their migration.

Sections 579C and 579D are related to section 579B. It could happen that the residents of a trust change for no other reason than the trustee dies. Section 579C provides that if that happens and the trust subsequently reverts to its original resident status within six months of such a death the imposition of the exit charges is limited to certain assets.

Where a trust migrates offshore and an exit charge applies certain persons who were trustees before the migration have a secondary liability to pay the tax arising. This is provided for in 579D and is necessary since it would be very difficult to enforce a tax debt against persons outside the State.

Section 579E has a similar effect on the exit charge imposed by section 579B when a trust goes offshore. This section applies to a trust which in accordance with domestic tax provisions is liable to Irish capital gains tax through its trustees but will escape such tax because of provisions in a double taxation agreement with another country.

Under this section if any assets of an Irish resident trust would at a time fall out of charge to Irish tax on its disposal because of the provisions of a double taxation agreement, the increase in value of that asset is charged for capital gains tax at that time.

The last of the new sections, section 579(F), refers back to section 579(A) which dealt with the attribution of gains of an offshore trust to Irish beneficiaries who receive capital gains out of the trust. The section addresses how capital payments received by a beneficiary before a trust migrates offshore are to be dealt with. It also addresses how offshore trust gains for a year of assessment prior to it coming offshore are to be attributed to Irish beneficiaries.

Are we talking about trustees based in Ireland or is that relevant?

The Department's officials will give their expert advice on this.

The committee went into private session at 4.11 p.m. and resumed in public session at 4.15 p.m.

Question put and agreed to.
Sections 81 to 83, inclusive, agreed to.
NEW SECTION.

I move amendment No. 120:

In page 211, before section 84, but in Part 1, to insert the following new section:

"84.-Schedule 15 to the Principal Act is hereby amended in Part 1 by the insertion of the following paragraph after paragraph 32:

'33. National Rehabilitation Board.'.".

This section provides a capital gains tax exemption for disposals made by the National Rehabilitation Board.

The NRB is a statutory agency established in 1967 by an order of the Minister for Health. Its functions include advising the Minister on the needs of people with disabilities. It also provides a number of services to people with disabilities and administers, on behalf of the Department of Health and Children, a number of schemes and initiatives for the training and employment of people with disabilities.

However, following the Government decision to dissolve the NRB, its assets are to be transferred to various other bodies which will take over the functions of NRB, including two new bodies, the National Disability Authority and Comhairle. The training function will be transferred to the Department of Enterprise, Trade and Employment.

Amendment agreed to.
Section 84 agreed to.

As the committee has concluded its consideration of sections 64 to 84, inclusive, I am obliged to put the following question: "That the amendments set down by the Minister for Finance in Part 1 of the Bill are hereby made to the Bill and that the section, as amended, is hereby agreed to".

Question put.

As there are fewer than 15 members present, under Standing Orders we are obliged to wait eight minutes or until the full membership is present before proceeding to take the division.

There is no vote as all the sections have been agreed. We will now proceed to the next section.

What is the procedure? I understood there would not be a vote until 6 p.m.

Not later than 6 p.m.

To what section are we proceeding?

We are proceeding to Parts 2 and 3, sections 84 to 125, inclusive, on which a vote will be taken not later than 11 a.m. tomorrow.

I do not want the game plan to change. We should all sing from the same hymn sheet.

If Parts 2 and 3, sections 84 to 125, inclusive, are completed before 6 p.m., there could be a vote. The debate can continue until 11 a.m. tomorrow. The Deputy should not go home. We now proceed to amendments Nos. 120 to 133, inclusive. It is proposed to group the following amendments for the purposes of debate: amendments Nos. 121 and 122. All other amendments which are not grouped will be discussed individually.

What is the purpose of this chapter? Section 84 deals with the definitions only.

The purpose of the chapter is to consolidate and modernise hydrocarbon oil excise legislation to make it more accessible to users. Oil legislation, which dates back to the 1930s, has been supplemented and amended over time to the extent that it has become fragmented and disjointed. There are approximately 47 Finance Acts involved which are a morass of amendments and cross-references. The language used is sometimes archaic and no longer applies to modern day trading practices.

Consolidation and modernisation will result in a streamlining and simplification of the legislation which will make it more accessible and manageable for the business community and administrators. All the excise law on minerals oils will be in one place. It will no longer be necessary to track a provision from its original enactment through a sequence of Finance Act amendments. The consolidated law will be easier to read and interpret as all aspects are packaged together leaving it less likely to overlook an important provision.

The chapter does not introduce any new duties on mineral oils or increase existing rates. The opportunity is taken, however, to harmonise repayment procedures in cases where reliefs or lower rates apply and to tighten up offences provisions.

May I take that there is no new law or policy changes in sections 84 to 99, inclusive?

I am informed that there is no new law.

The Minister said the opportunity is being taken to tighten up offences provisions. Will he elaborate further?

I am informed that essentially this provides for the harmonisation of penalties. I am totally in the hands of my officials on this matter.

Will new penalties be applied to some of the offences? Is that part of the harmonisation process?

Section 92 refers to this. This section clarifies and updates the position on offences provisions. Under the terms of the section, it is an offence to fail to comply with provisions of the chapter and regulations made under section 94. An initial provision was made for offences concerning the use and sale of low rate mineral oil for automotive use and the unlicensed production or sale of mineral oils. These offences attract a fine of £1,000.

Provision is also made for the imposition of a custodial sentence of up to 12 months on summary conviction either instead of or in addition to the existing penalty of £1,000 where the offence concerns any involvement or removal of markers or other substances from mineral oil or disguising the presence of such markers or substances.

In a case of conviction on indictment for such offences concerning markers, provision is also made for a fine of £10,000 or imprisonment for a term of up to five years or both. Any mineral oil or in certain circumstances the vehicle involved in an offence will be liable to forfeiture, as will laundering equipment.

The provisions of the section, for the most part, reflect existing law. In addition, fines will be standardised at the level of £1,000, which is the level of fine applying at present to most oil offences. Also the possibility of vehicle forfeiture is provided for in case of first offences where the person concerned has no permanent residence in this State.

The possibility of conviction on indictment and the higher penalties that go with such convictions will be extended to all the more serious commercial type oil offences.

So there are some new penalties?

I am told that subsection (2) refers to the harmonisation area. It provides for a fine of £1,000 on summary conviction where a person is guilty of an offence under subsection (1). It is proposed that all penalties be standarised at £1,000. Certain LPT offences at present carry a penalty of £500 and other penalties are £1,000.

Can I take it that, apart from applying increased penalties to certain offences, there are no other changes?

My officials inform me there are minor changes throughout the chapter, but they are technical in nature. There are definitional changes and changes to update wording. I can go through the changes on the various sections as we come to deal with them.

We need not spend too much time dealing with sections 84 to 99. That is why I sought clarification on the chapter. As we come to deal with the sections we can comment on them.

Sections 85 and 86 agreed to.
SECTION 87.
Question proposed: "That section 87 stand part of the Bill.

Does the Minister have a note on the definition of the standard rate?

This section defines standard rates and allows rates lower than standard rates to be applied to certain mineral oil products by means of repayment or remissions subject to certain conditions. Standard rates apply to automotive fuels. Lower rates apply to other taxable uses. No change of substance is involved.

Question put and agreed to.
SECTION 88.
Question proposed: "That section 88 stand part of the Bill."

Will the consolidation of this section have any EU implications for the horticulture industry?

There is no change of scope in the relief and I am informed the consolidation of this section will not have any EU implications. The section provides for the continued application of a low rate of mineral oil tax on heavy oil and liquidified petroleum gas used in glasshouses, horticultural production and in the cultivation of mushrooms. There is no change of substance in the level of relief or eligibility conditions where payment procedures have been altered to harmonise with those applying to other reliefs, such as in the field of passenger transport.

I take it that in the first instance EU permission was required because this is an aid to industry although there is a variable rate in respect of excise?

This will apply for some years to come, but there was an EU dimension to this in the first instance. The Deputy asked if there was an EU dimension to this when the relief was introduced. If it was an aid to industry, there would have been an EU dimension to it.

As this section is being consolidated, will the Minister have to seek formal permission, given that this is an aid to industry?

Question put and agreed to.
Sections 89 and 90 agreed to.
SECTION 91.
Question proposed: "That section 91 stand part of the Bill."

Will the Minister elaborate on this section, particularly as it relates to production?

This section provides for a general mineral oil licence to be taken out by every person who produces, sells, delivers or deals in, on any premises, any mineral oil used for use as a propellant . Under the old legislation an authorisation was required for biofuels and there were different licences for different varieties of mineral oils. There is now one licence covering mineral oils. The cost of the licence is the same as before, but one licence type, the refiner's licence, has been reduced from £150 to a standard charge of £30. That covers petrol, diesel, etc.

Are they mineral oils?

That is the EU term for all these products.

I had a different notion of mineral oil.

I would have had a different one too.

What is the purpose of this licence and of a refiner's licence costing £30?

It is a control mechanism to enable us know who is selling these products. Since they are high tax products the State wants to know who is selling them.

What is the position concerning airline fuel? Are talks still ongoing at EU level on an agreed tax on airline fuel?

Under international conventions airline fuel is exempt. The EU would like to tax airline fuel and there have been proposals in that regard for some time.

It is very much in favour of green taxes.

A study related to this issue is being carried out by the Commission. Ireland is opposed to such taxation. Some other member states are also opposed to it, but some of the Nordic states favour it.

Have we opposed it?

If I remember correctly, this has not been visited for some time, but some of the countries with a strong Green Party presence want the Commission to impose further taxation in this area. I read some documents in the Department a long time ago about the theory behind this policy, which I do not understand. It is claimed that such a policy would reduce aviation travel. This has been a Green Party proposal for some time.

It is not part of the package of proposals of the Department of the Environment and Local Government.

No. Some people consider aviation travel is very bad. My official, Mr. Bradshaw, is an expert on this area and he might elaborate on this.

The committee went into private session at 4.38 p.m. and resumed in public session at 4.42 p.m.

Question put and agreed to.
SECTION 92.
Question proposed: "That section 92 stand part of the Bill."

What discretion have the Revenue Commissioners if they want to waive or mitigate penalties relating to excise duties? If my constituent, whose son leaves the car empty of petrol in the yard, uses red diesel because he has to take his wife to the church for the first Friday, and he is caught, how would the Revenue Commissioners treat him?

The Revenue Commissioners have full powers of mitigation. However, this is a serious area, and I do not think such powers are frequently exercised. I have probably made representations over the years for the class of constituent of which the Deputy speaks. I remember some mitigation. Most cases are settled by a fine rather than by prosecution. The Revenue Commissioners may mitigate the penalty.

We need more than that. The law is transparent when we enact it. If penalties are to be mitigated subsequently, we need more than to be told it is a serious matter and that it will be looked after. We need more information on procedures and in what circumstances a penalty may be mitigated.

The committee went into private session at 4.44 p.m. and resumed in public session at 4.48 p.m.

Question put and agreed to.
Section 93 agreed to.
SECTION 94.
Question proposed: "That section 94 stand part of the Bill."

This section empowers the Revenue Commissioners to make regulations to administer the provisions of the chapter. It sets out particular matters which are to be the subject of regulations. Regulations will be put in place in due course by the commissioners. No change of substance is involved.

The power to regulate is vested in the Revenue Commissioners, and the power to commence is vested in the Minister. Is that the case?

Question put and agreed to.
Sections 95 to 97, inclusive, agreed to.
SECTION 98.
Question proposed: "That section 98 stand part of the Bill."

Is this a change? Is there in implication here that mineral oil tax was not within the management and control of the Revenue Commissioners up to now?

This section places mineral oil tax under the care and management of the Revenue Commissioners. This is a standard provision. Deputy Noonan asked the reason it was necessary to do that now.

Is it just re-enactment?

I am told it is old taxation in a new tax form. That is the reason it is necessary to state it again.

Old wine in new bottles.

There is no change in the substance.

Question put and agreed to.
Sections 99 and 100 agreed to.
SECTION 101.
Question proposed: "That section 101 stand part of the Bill."

Why only 5p?

That decision was taken by me in the context of the overall budgetary framework. It was necessary to claw back money from the taxpayers and I felt that 5p on a packet of cigarettes was appropriate in the circumstances.

It is fair to say that in recent years Ministers for Finance tried to raise the excise duty on tobacco, partly as a health promotion exercise and also so as not to significantly damage the excise take. In general the experience has been that the excise take has increased, notwithstanding the fact that the consumption of tobacco has not diminished to such an extent that it would reduce the excise take by virtue of increasing the price. There is an argument that there should be significant increases in excise on tobacco for health reasons. I know the lobby group ASH has made a persuasive argument in that regard. The 5p increase is a good deal less than the typical increase in the past four or five budgets, which I believe was 10p.

Part of my deliberations on the budget were to do with the increase on cigarettes. I was influenced by the major impact an increase on cigarettes has on the consumer price index. A 5 per cent increase had a minimal effect on the consumer price index - 0.077 per cent. If I had allowed a bigger increase it would have had a greater impact on the consumer price index. That weighed on my mind in the context of inflationary pressures in the economy, the run up to a national wage agreement and other such matters which I had to take into account.

I know why the Minister did that at this time but are consumer price index considerations not becoming an increasing pressure on policy? It appears the Minister deliberately decided on a 5 per cent increase on 20 cigarettes because of CPI pressure and that he effectively set aside all the strong health arguments for increasing tobacco prices. The Minister will be familiar with Commissioner Flynn's initiative in Europe to ban advertising of tobacco products in newspapers and magazines which cross national boundaries to ensure people, particularly young people, would not be seduced by clever advertising into smoking at an early age. A counter view which would be expressed by authorities in the United Kingdom is that price has a bigger influence on consumption patterns than advertising. I understand the price of a standard packet of 20 cigarettes in the United Kingdom is £3.85 as against £3.15 here. That price differential reflects the difference in policy which is a health driven issue.

There was another consequence of the Minister's decision not to put a further increase on cigarettes. It left him in a position where he still took in between £4 million and £50 million but he put it on VRT.

Not targeted at people on a low income.

He deliberately selected VRT because——

We are straying from the subject matter.

We are not. It is not included in the items which make up the CPI. I am talking about excise on cigarettes and I am teasing out the Minister's thought process before he made the decision. It is clear to me that a consequence of his decision to apply only a 5 per cent increase on cigarettes was his decision to apply increases in VRT because those increases did not impact on the CPI. In effect he dressed up the VRT increases as a "green" tax, which they demonstrably are not, and he now finds himself in some difficulty.

We have discussed the VRT matter but I made it clear at the time there was a combination of two factors in those increases - first, an Exchequer contribution of £42 million and, second, the environmental aspect. That matter was put to us forcibly by the Department of the Environment and Local Government. I have never said anything other than there were two elements to the package. I never denied there was a revenue raising element for the Exchequer in the VRT increases but there was an environmental aspect.

The Minister did not highlight the CPI considerations. He should have made that clear.

I did not say it was primarily a CPI consideration. In the run up to the budget each year, I would make overall strategy decisions taking a number of factors into account. In dealing with indirect taxes I would consider all the matters the Deputy has raised, the effect on the consumer price index being one of those. The Deputy raised the question of health considerations in terms of smoking which also come into the picture.

With respect, they do not appear to come into the picture in this case and the Minister said as much in his initial response.

In the lead up to a budget there are a number of competing considerations on a wide variety of areas. These matters are always considered by the Minister for Finance as increases in direct taxation and increases in other taxation areas also as against reductions in taxation which I have been able to allow for in my two budgets. This is all part of a wider package considered by me. All the points raised by the Deputy and others were considered by me in my two budgets to date in terms of how I would approach the question of indirect taxation. The effect on the consumer price index is one of those considerations in this particular budget. It may not be as strong a consideration in future budgets because other considerations may come into play.

Over the years, when considering excise duties on tobacco and other products, the main consideration of Ministers for Finance had little to do with health, the consumer price index or anything else. They were concerned with raising money for the Exchequer to make up for whatever concessions they were giving in other areas. In the two budgets I presented I took all these matters into account and then made my decision. I could have approached them in various ways but I decided to take the approach I felt was best.

Propositions are often put to me which I rule out while there are others I bring forward. I would point out to Deputies that Ireland has the third highest tax content in the price of cigarettes in the European Union. The order is the United Kingdom, Sweden and Ireland.

Question put and agreed to.
NEW SECTION.

Amendment No. 121 is in the name of Deputy Farrelly. Amendment No. 122 is related so it is proposed to take Nos. 121 and 122 together, by agreement. I call Deputy Noonan to move the amendment.

I move amendment No. 121:

In page 226, before section 102, to insert the following new section:

"102.-As respects duty to be charged, levied and paid on and from a day which the Minister for Finance appoints by order, section 90 of the Finance Act, 1992, is hereby amended by the insertion after subsection (2) of the following proviso:

'Provided that the rate of excise payable on beer produced and sold is based on the level of production of beer in an Approved Warehouse in the previous year that was liable for excise in that previous year according to the following table-

Size of Brewer (Production Liable for Excise in Previous Year)

OutputExcise Rate0 - 10,000 hl per annum50% of the base rate

10,001 to 20,000 hl per annum

55% of the base rate

20,001 to 30,000 hl per annum

60% of the base rate

30,001 to 40,000 hl per annum

65% of the base rate

40,001 to 50,000 hl per annum

70% of the base rate

50,001 to 60,000 hl per annum

75% of the base rate

60,001 to 100,000 hl per annum

80% of the base rate

the "base rate" being the rate as imposed by this section.'.".

We are all familiar with the products of the main breweries but, increasingly, micro-breweries are putting small quantities of local beers on the market. This has been the practice in the UK for a long time where it adds to the variety of social life and is a further attraction for the tourism industry.

This amendment seeks to allow for lower levels of excise duty on the production of beer to breweries that produce small quantities of local beers. A schedule setting out the percentage of the total which would apply at different levels of production is attached to the section. The industry, which is expanding, is quite interesting because there are small quantities involved and because of the method of production. It is very labour intensive and some of the industries tend to be located in poorer parts of cities or in rural Ireland. This relief will not impact to any great extent on the sales of larger breweries but it will introduce a variety to a market that is becoming increasingly generic. There is a lack of variety in the products of bigger breweries. In the United Kingdom different towns have local breweries and it is possible to get the local beer in the local pubs. A variety of ales and beers are available.

The thrust of my amendment is similar and motivated by the same reasons. The essential point is that micro breweries are not in any serious sense in competition with larger multinational companies which produce almost all the beer consumed in this country. There is no sense in which the multinationals will be seriously affected by the imposition of a lower rate of excise on the production of beer in micro breweries. They have an attraction for the tourism industry which should be encouraged. They employ 50 or 60 people at the moment, but they are capable of employing larger numbers given the stimulus the Minister has within his power.

They may be small in number but they are very effective in their lobbying given that I answered parliamentary questions on the matter on 9, 16 and 23 February.

I oppose the amendments. The effect would be to introduce lower rates of excise duty on beer brewed in small scale breweries. Deputies will recall that this issue was raised in the Dáil on a number of occasions and I announced I had no plans to introduce a zero, low or staggered system of excise duty on beer brewed in such small scale breweries.

Irish excise duties do not discriminate between large and small breweries and the tax system is not a source of competitive distortion. Excise duty from beer is an important source of revenue and amounted to £365 million in 1998. Furthermore, excise on beer was last increased in the January 1994 budget. The share of price represented by total tax, including VAT, has declined from 37.6 per cent in 1994 to 35.1 per cent in 1998. All breweries have accordingly been advantaged by a relative decline in the share of price attributable to tax. In addition, relatively high priced premium craft beers bear no extra duty compared to the same-strength mass produced beers. The proportion of price represented by tax is, accordingly, less for such premium beers.

Finally, there is no guarantee that a reduction in the rate of excise duty will be passed on to the consumer.

At present Austria, Belgium, Germany, Denmark, Finland, Luxembourg and the Netherlands avail of the provisions of Article 4.1 of the directive which allows differentiation. The United Kingdom does not have differentiation.

Most of those countries where beer is drunk in reasonably large quantities have a staggered rate. The Mediterranean countries and the UK seem to be missing from the list.

The Minister is being excessively rigid in dealing with this issue. The argument is that the levels of production referred to are such that there will be no distortionary effects from the point of view of competition. The production of 10,000 or 20,000 hectolitres per annum will make no difference to companies such as Guinness or Heineken, but it could make a significant difference to a small but growing industry, and one which attracts a fair amount of public support. The Minister gave no reasonable explanation why this should not be done, other than the fact that excise duty has not been increased for a number of years.

Has the Minister any estimate of a yield that might be foregone?

At present 13 micro breweries are approved by the Revenue Commissioners. The total amount of beer brewed was 15,000 hl in 1998. The estimated cost of granting the lower excise rate based on 0.25 per cent share of the market is £500,000 in a full year. If the market share increases to 0.5 per cent, it will cost the Exchequer £1 million per year.

What is the take from excise duty on beer?

Some £365 million in 1998.

That is approximately 0.3 of 1 per cent of the total take.

Is the amendment being pressed?

Amendment put and declared lost.
Deputies Deenihan, Noonan, Coveney and McDowell dissented.

Amendment No. 122 has already been discussed with amendment No. 121.

I move amendment No. 122:

In page 226, before section 102, to insert the following new section:

"102.-(1) As respects duty to be charged, levied and paid on and from a day which the Minister for Finance appoints by order, Section 90 of the Finance Act, 1992 is hereby amended by the insertion after subsection (2) of the following:

'Provided that the rate of excise payable on beer produced and sold is based on the level of production of beer in an Approved Warehouse in the previous year that was liable for excise in that previous year according to the following table-

Size of Brewer (Product - Liable for Excise in previous year)

OutputExcise Rate0 - 2,000 hlexcise free2,001 - 3,000 hl1% of the base rate3,001 - 4,000 hl2% of the base rate

and for each additional 1,000 hl of production after 4,000 hl, the excise rate shall increase in increments of 1% of the base rate, subject to an upper limit of 100% of the base rate.'.

(2) Subject to the provisions of this chapter, a rebate of 3% of the total excise paid in respect of beer produced in a microbrewery shall be allowed subject to compliance with such conditions as the Revenue Commissioners may think fit to impose.".

Under Article 4.1 of Council Directive 92/83/EEC, member states may apply reduced rates of duty, which may be differentiated in accordance with the annual production of the breweries concerned, to beer brewed by independent small breweries within the following limits. Reduced rates shall not be applied to undertakings producing more than 200,000 hectolitres of beer per year. The reduced rates, which may fall below the minimum rate, cannot be set more than 50 per cent below the standard national rate of excise duty. Accordingly, the greater reductions proposed in amendment No. 122 would not be permitted by the directive.

Amendment, by leave, withdrawn.
Section 102 agreed to.
NEW SECTION.

I move amendment No. 123:

In page 227, before section 103, to insert the following new section:

103.-(1) Chapter II of Part II of the Finance Act, 1995, is hereby amended-

(a) in section 85, by the insertion of the following definitions after the definition of 'excisable products':

"fuel tank" has the meaning assigned to it by section 84 of the Finance Act, 1999;

"mineral oil" has the meaning assigned to it by section 84 of the Finance Act, 1999;',

(b) in section 86-

(i) in paragraph (b) of subsection (1) by the substitution for 'of any fuel' of ', under section 86A, of any mineral oil',

(ii) in paragraph (a) of subsection (4) by the substitution for 'any fuel' of 'any mineral oil',

(c) by the insertion of the following section after section 86:

86A.-(1) An officer, on production of the authorisation of the officer if so requested by any person affected, or a member of the Garda Síochána may-

(a) examine and take such samples of any mineral oil in any fuel tank or otherwise present on or in any vehicle, or anything attached to any vehicle, for use or capable of being used for combustion in the engine of the vehicle, whether or not the vehicle is attended,

(b) examine or inspect any vehicle or anything attached to any vehicle for the purposes of paragraph (a),

(c) require——

(i) the owner of any vehicle,

(ii) any person who for the time being stands registered as the owner of any vehicle in the register established under section 131 of the Finance Act, 1992, or the Roads Act, 1920,

(iii) any director, manager or principal officer of such owner where the registered owner is not one or more individuals, or

(iv) the person in charge of any vehicle, to furnish to such officer or member-

(I) evidence of payment of tax imposed by section 85 of the Finance Act, 1999, at the rate applicable for use in a fuel tank, on any such mineral oil,

(II) any other information in relation to such mineral oil as may reasonably be required and which is in the possession or procurement of the person,

(d) enter and inspect any premises or other place (other than a dwelling) at any reasonable time for the purposes of this section and bring onto those premises any vehicle being used in the course of his or her duties,

(e) make such search and investigation of such premises or place as he or she may think proper.

(2) Any person who resists, obstructs or impedes an officer or a member of the Garda Síochána in the exercise of any power conferred on the officer or member by this section, or who fails or refuses to furnish any information required under subsection (1), or who gives any such information which is false or misleading shall be guilty of an offence and shall be liable on summary conviction to a fine of £1,000.',

(d) by the insertion of the following section after section 87A:

87B.-An officer or a member of the Garda Síochána may arrest without warrant a person whom he or she has reasonable grounds to suspect is committing or has committed an offence under section 92(3) of the Finance Act, 1999.'.

(2) This section shall come into operation on such day as the Minister for Finance may appoint by order.".

This section replaces section 103 in order to improve the presentation of the text. The corrected typographical error will make it clear that the Revenue Commissioners may examine any vehicle for the purposes of taking samples of mineral oils. Chapter 2 of Part II of the Finance Act, 1995, provides for powers for Revenue officers and in some instances the gardaí in relation to products subject to exercise duty. As part of the consolidation and modernisation of excise legislation in Chapter 1, this section amends the 1995 Finance Act in order to provide for a simplified and modernised legal basis for existing powers to take samples and question persons in relation to mineral oil in vehicles and for the existing power of arrest for certain offences in this area. No change of substance is involved.

Is the Minister giving any new powers to either the Garda or the Revenue?

I am not giving new powers to anybody.

Is the Minister suggesting they did not have the powers they had been exercising heretofore?

No. This is part of the consolidation process.

Amendment agreed to.
Section 103 deleted.
Section 104 agreed to.
NEW SECTIONS.

I move amendment No. 124:

In page 229, before section 105, to insert the following new section:

"105.-Section 130 of the Finance Act, 1992, is hereby amended by the substitution of the following definition for the definition of 'ambulance':

' "ambulance" means a vehicle which is specifically designed, constructed or adapted, and is primarily used following registration, for the conveyance of injured or seriously ill persons to a hospital on a stretcher and which is permanently fitted to accommodate and hold in position one or more standard stretchers;' "

This section amends section 130 of the Finance Act, 1992, which is the interpretation section in relation to Vehicle Registration Tax - VRT - and which contains a number of definitions of words and phrases used in that Act in relation to VRT. The amendment amends the definition of "ambulance" for VRT purposes.

The existing VRT definition of an ambulance, which dates from 1992 requires that an ambulance be fitted with at least two stretchers. Such vehicles are classified as category D vehicles and are exempt from payment of VRT. The purpose of the amendment is to broaden the definition in order to accommodate modern ambulance design and technology, by allowing single stretcher ambulances to benefit from VRT exemptions instead of being liable to VRT at the highest category A rate which applies to private cars.

This section has effect from the date of passing of the Act.

I thought we were trying to stop the people using old ambulances for registration tax purposes?

This section is to get over the difficulty of the change in ambulance designs since 1992. The current VRT definition of an "ambulance" in section 130 of the Finance Act, 1992,d means "a vehicle which is specially designed, constructed or adapted for the conveyance of injured or seriously ill persons to a hospital on stretchers and which is permanently fitted to accommodate and hold in position two or more standard stretchers". That definition would agree with a layperson's perception of what would comprise an ambulance and has served well for VRT purposes since VRT was introduced in January 1993. Any ambulance that meets that definition qualifies as a category D vehicle for exemption from VRT.

However, ambulance design has evolved considerably since that definition was drafted in 1992. Certain types of ambulances, such as rapid response and cardiac ambulances for example, increasingly tend to be designed for only one stretchered patient and therefore do not meet the requirements of the present definition which stipulates a minimum of two stretchers. Thus, these hi-tech and advanced vehicles fall outside the present VRT definition of an ambulance and are consequently charged VRT at the highest category A rate, now 30 per cent, instead of being exempt from VRT as with traditional two stretcher vehicles.

Amendment agreed to.

I move amendment No. 125:

In page 229, before section 105, to insert the following new section:

"105.-Section 92(1)(ii) of the Finance Act, 1989 (as amended by section 124 of the Finance Act, 1991) is hereby amended by the insertion after 'passenger,' of 'where the person is a person with a visual disability or'."

This deals with the tax concessions as currently given to disabled drivers and people with a disability. It is intended to extend the definition of disability which at the moment is entirely restricted to physical disability so as to include those who have a visual impairment - partially or totally blind.

The amendment, if carried, would have the effect of restricting the tax relief available under the disabled drivers and passengers scheme exclusively to those passengers with a visual disability. I presume this is not the intention but instead that the amendment is intended to broaden the scheme so that persons with a visual disability can also avail of the tax concessions provided by the scheme.

The scheme, as presently constituted, targets tax reliefs at those persons who are severely and permanently disabled with regard to physical mobility. Many medical conditions, such as visual impairment, although disabling in themselves, do not compromise the physical mobility of the person concerned to a serious degree. Extension of the scheme to admit persons with visual impairment or similar non-qualifying disabilities would have to be considered in the context of the cost to the Exchequer as it currently stands. This has been rising steadily and is estimated to cost £16.5 million in 1999. The cost of extending the scheme would be considerable given that admitting the visually impaired would make it impossible to restrict entry to other groups whose disability may equally not be directly mobility related.

Finally, Deputies will be aware that the disabled drivers and passenger scheme is currently being examined by an interdepartmental group under the chairmanship of the Department of Justice, Equality and Law Reform. The group's terms of reference include considering the possible extension of the scheme to other forms of disability. A report has not yet been prepared by the group.

Surely the argument is that people who have a visual disability, for instance, the blind, do have a mobility related disability in so far as obviously they have some difficulty moving from one place to another or they cannot do it in the same way as you or I can and would therefore benefit from the use of a motor vehicle of one kind or another.

This matter has been around now for some time. New guidelines were drawn up in 1994 which were to be put into effect after were agreed between a number of groups including various Departments. As a result of the scheme being very attractive we are under increasing pressure from other groups to extend the criteria even further. I have been closely involved with an organisation representing people with disabilities and I have every sympathy for them. One of my closest friends is a person who has been suffering from a major physical disability for some time.

While the scheme is in great demand, it is also very costly. This matter has been debated among disability groups and also by various parliamentary parties, including my own. The criteria could be extended but the cost will be enormous. Other countries which do not have schemes as attractive as ours have other ways of addressing this problem. The original purpose behind the scheme when it was introduced was to deal with people with physical disability. It was considered a good tax concession to give people, for instance, those confined to wheelchairs, a break. It is estimated that there are 350,000 persons in Ireland who could be regarded as disabled to some degree.

I have received representations from various groups to change the scheme but it is very difficult to defend one category of disability against another. Every group can justify its own case and I have every sympathy with each group but if I was to extend the scheme to a wide degree the cost factor would be very high.

When a predecessor of Deputy Noonan suggested that the scheme be constrained because measures like allowing a person to change their motor vehicle every two years was considered very attractive, all hell broke loose. Deputy O'Hanlon might have been Minister for Health at the time. There was also a suggestion that we might restrict the two year rule and not make the scheme as attractive. It is a difficult area to address. There is an interdepartmental group working on it and I will await their report.

I have to say that the attractive element of the scheme whereby it allows a major VRT break for the disabled person is very expensive. If it was extended to all categories of disabled persons the cost to the Exchequer including loss of revenue would be great. For that reason I cannot accept your amendment. The cost of this scheme has gone up fourfold in the last five years.

Is that because of greater use of cars or changes in the rules?

There has been no change in the regulation. Four years ago the cost was £4 million and now it is £16 million.

I do not know that the take from VRT has been over the same period but I would wager that is gone up by a fair measure as well.

The reply to the Adjournment Debate on 2 March on disabled drivers reads:

The principal issue of concern expressed in connection with the relief is in relation to the medical criteria. Arguably, the pressure to extend the scheme is driven by its valuable reliefs, giving access to tax free cars and fuel, essentially for life. The scheme cannot be extended to all and every person who suffers from some form of disablement or disability - however deserving each group considers its case to be. Requests are continually made for the medical criteria to be relaxed so as to extend the range of qualifying disabilities to include other categories, notably those suffering from, among other ailments, cystic fibrosis, rheumatoid arthritis, osteoporosis, the effects of stroke, heart conditions, cerebral palsy and epilepsy, renal failure, diabetes, spina bifida, club foot and foot drop, mental illness, Downs syndrome and visual impairment.

In addition, there are demands to allow persons not fully meeting the current criteria relating to the loss of limbs to be admitted. The number of potential beneficiaries is unclear but, according to lobbyists for the disabled, there are up to 350,000 persons in Ireland who could be regarded as disabled to some degree.

All the disabilities described are serious disabilities.

I would like the Deputy to assist me in drawing up the criteria as to what categories should be included.

I am sure I could do that. I accept the general principle that it must be mobility related but all the disabilities listed would have a fairly chronic effect on one's capacity to get from one place to another. Since we are talking about VRT on cars it seems reasonable that people suffering from those disabilities should be able to avail of this. Does the Minister have figures for the total take from VRT over that period?

The VRT in 1997 was £395.8 million, £353 million in 1996.

You said it had gone up fourfold in 1998.

The projected yield for 1998 is about £4 million.

What are the figures for 1993 and 1994?

The figure for VRT excise in 1993 was £222 million and in 1994 £295 million.

So it has roughly doubled since. The VRT has gone up by £200 million.

As far as I am aware research undertaken in the past showed that Ireland is the only country with such a concession for motor vehicles. It is very attractive. If we were starting from scratch perhaps that is not the route we would take. We might decide to address it by means of an Exchequer grant but any consideration of that matter is a political no no. It would not be politically possible for a Minister for Finance to withdraw this concession - all hell would break loose. This scheme is in existence since 1988-89 and I have no intention of withdrawing it. Since extension of the scheme is costly, the matter would have to be considered further. It is invidious to differentiate between people with different forms of disability because for the person concerned——

That is precisely what the current specifications effectively do.

We could not possibly have an open-ended scheme as it would be too costly.

I accept I cannot reasonably expect the Minister to accept an amendment dealing purely with visual impairment without consideration of the other cases being put to him. I am not sympathetic to the argument as I cannot see that 350,000 people could possibly be entitled to a concession based on the type of disabilities that he listed. The figure must be far more reasonable than that.

I would like to point out that the 350,000 people would not all be drivers.

Based on the list he gave us, can the Minister give us some indication of the numbers of disabled people whom he would reasonably expect to receive applications?

I do not have that information. I have endeavoured as Minister for Finance to come to grips with this problem because I have been lobbied intensively from people on my own side apart altogether from colleagues in Government along with the Minister and Minister of State at the Department of Health with responsibilities in the area. Concern has also been expressed by the wider group of the Parliamentary party. In recent times there has been a concerted lobbying campaign on behalf of disability groups who have highlighted their concerns. We have also highlighted these matters in the last few days. I do not have any problem with the lobbying groups. Their campaigns have started from the time we came into office and I have been lobbied from within my own party since that time. My difficulty lies in making some changes in this area.

Will the Minister have a review or is this the end of the matter?

A new criterion was laid down in 1994 by an interdepartmental group. At present there is an interdepartmental group under the chairmanship of the Department of Justice, Equality and Law Reform which has criteria that are not very different from the previous criteria.

If he does make some changes, he might like to differentiate between cases where the disabled person is the car driver as against the passenger. If a family member makes the application in respect of a disabled person who will only be a passenger it is a much wider issue than if the disabled person is the driver.

The matter raised by Deputy Noonan has been considered in the Department and will be considered by the interdepartmental group chaired by the Department of Justice, Equality and Law Reform. I have pointed out the difficulties in making changes. We cannot step back and that is a major problem. If we were to being again we would deal with this differently.

It is anomalous. Many disabled people regard these regulations as discriminatory and they cannot understand why some are entitled to concessions and others are not. The Minister said lobbyists had been involved but we have all come across cases where it is difficult to understand why some have been denied while others were not. I will not push the amendment but we need a response.

It is not going to go away.

No. How many applications for this concession has there been in the past year?

Perhaps we could go into private session to allow an official to give the details.

The committee went into private session at 5.31 p.m. and resumed in public session at 5.33 p.m.

Amendment, by leave, withdrawn.

I move amendment No. 126:

In page 229, before section 105, to insert the following new section:

"105.-As respects vehicle registration tax charged, levied and paid, as on and from the 1st day of January, 1999, section 132 of the Finance Act, 1992, is hereby amended, in subsection (3), by the substitution of the following paragraphs for paragraph (a) (inserted by the Finance (No. 2) Act, 1992):

'(a) in case the vehicle the subject of the registration or declaration concerned is a category A vehicle which has an engine of a cylinder capacity exceeding 2,000 cubic centimetres, at the rate of an amount equal to 30 per cent of the value of the vehicle or £250, whichever is the greater, except where such vehicle is propelled by gaseous hydrocarbons in liquid form, where a rate of an amount equal to 22.5 per cent of the value of the vehicle or £250, whichever is the greater, shall apply,

(aa) in case the vehicle the subject of the registration or declaration concerned is a category A vehicle which has an engine of a cylinder capacity exceeding 1,400 cubic centimetres, but not exceeding 2,000 cubic centimetres, at a rate of an amount equal to 25 per cent of the value of the vehicle or £250, whichever is the greater, except where such vehicle is propelled by gaseous hydrocarbons in liquid form, where the rate of an amount equal to 22.5 per cent of the value of the vehicle or £250, whichever is the greater, shall apply,'.".

When introducing the changes to VRT on budget day, the Minister said that in penalising the use of larger capacity cars he wanted to achieve a cleaner environment, unpolluted by emissions from vehicles. Be that as it may, other people will have views on the merits of what he did to follow that agenda. This amendment proposes that the reduced rate of VRT, 22.5 per cent, would apply to all cars regardless running on LPG of engine size. This is a focused green tax and I ask the Minister to accept it. This is a straightforward matter. If the Minister's motivations on VRT are driven by environmental considerations, this is a better way to do what he wants to do. It is not an alternative but an additional proposal.

The effect of the amendment would be to apply the lowest VRT category A rate of 22.5 per cent to all vehicles proposed by auto-LPG regardless of the engine size of the vehicle. Higher VRT rates of 25 per cent and 30 per cent apply to vehicles with an engine of a cylinder capacity of 1,401 cc to 2,000 cc and above 2,000 cc, respectively. I have already made the use of auto-LPG more attractive by means of the budget reduction in the rate of excise duty. When VAT is included the reduction amounts to almost 1.8 pence per litre and is expected to cost the Exchequer approximately £100,000 in a full year. The VRT system may not be the most appropriate mechanism for providing incentives for the use of auto-LPG. For example, the once-off nature of payment at the point of registration would present problems in ensuring LPG continued to be used following registration of the vehicle.

What is the estimated cost of the amendment?

A low number of cars use LPG. I am willing to look further at the matter because the cost to the Exchequer is not inordinate and I want to encourage people to become environmentally friendly. It is part of my new politically correct approach and the new image I want to portray. I will shortly start talking like people of the left and use words like "inclusivity" - I have a book with all these phrases. I will look at this before Report Stage but if I do not change the provision I will give it further consideration before next year's budget.

Why not do it on Report Stage? It will not cost much and if we are to focus on the green agenda we may have to introduce environmental taxes.

There is a technical difficulty in that all these cars also use petrol. Perhaps we could go into private session for an explanation.

The committee went into private session at 5.37 p.m. and resumed in public session at 5.38 p.m.

I am glad the Minister will look at it between now and next year, and if he is a more confident eco-warrior he might move in this direction.

When I start swinging from the trees around Straffan I will get back to the Deputy.

Amendment, by leave, withdrawn.
SECTION 105.

I move amendment No. 127:

In page 230, to delete lines 7 to 13.

This amendment would broaden the lower VRT band of 22.5 per cent to cover vehicles with engines smaller than two litres rather than engines smaller than 1.4 litres. On Second Stage I outlined the reasons for this amendment. The increase in VRT discriminates against certain vulnerable sectors of the community. The standard family car of a normal, PAYE, middle income earner has an engine of 1.4 litres to 1.6 litres. Any concession given to such families in the budget is diluted if not wiped out by the increase of 3.3 per cent in the cost of the car. Most people change their cars on a regular basis. The provision is an attack on family cars.

We should also consider the rural population. Since January, 64 four per cent of all cars sold outside Dublin contained diesel engines ranging in capacity from 1.4 litres to 2 litres. At present, farmers are finding it difficult to survive. Most of them own cars with 1.9 litre engines - the smallest capacity diesel engine is the 1.7 litre. Therefore, the farming population is being directly affected by this increase.

It is acknowledged that cars with 1.6 litre engines are the workhorses of the nation, that is, all commercial fleets use these types of cars. Therefore, the increase in VRT could fuel inflation because companies will pass on to the consumer the costs incurred by their commercial fleets. There is no doubt that it will also eat into the savings they will make from the restructuring of corporation tax. The level at which benefit in kind is paid by workers will also rise as a result of the increase in VRT.

The Minister referred to the environment but I see this as an anti-environment measure because he is trying to discourage people from buying new cars and encouraging them to retain their old ones. I accept that at present people are buying large numbers of new cars but the opposite could happen in the long-term. It now takes 30 new cars to produce the same level of emission produced by one new car five years ago. This provision is an attack on cars with diesel engines but the Minister is aware that diesel engines give off fewer emissions than their petrol burning counterparts. We are also encouraging people who are changing their cars to purchase second-hand imported cars. Last year we imported 40,000 cars while we exported none. That is due to VRT and the cost of cost of purchasing cars. The increase under discussion will make us even less competitive in respect of the import of cars.

The Minister is seeking to obtain £43 million from this provision - as already stated, I am not concerned about cars with engines larger than 2 litres - and he will gain £15 million from sales of cars. He has already gone some way towards obtaining that £15 million, given the scale of sales to date. He has also gained considerable revenue from the increase in VRT on cars with 1.4 to 2 litre engines because the industry is buoyant and, because of that buoyancy, he will obtain the £43 million he is seeking.

If the Minister accepts the amendment it will be welcomed by the car industry and he will not lose any revenue. It will create the possibility of selling more cars in Ireland in the future and reducing the number of cars we import. If the economy takes a downturn the Minister or his successor will not be able to reduce VRT. At present, because of buoyancy in the economy, etc., he has the opportunity to keep VRT at an acceptable level.

A staggering 61 per cent of the pre-tax price of a standard family car goes on taxation, including VRT and VAT, which is a major consideration. Generally speaking, the price of cars in Ireland is 25 per cent above the European average. I understand the Minister stated that Ireland is not moving towards tax harmonisation but the EU has stated that we do so. The fact that the price of cars in Ireland is 25 per cent above the European average is hardly a step in the right direction.

The amendment would have the effect of abolishing the new VRT rate band for category A vehicles, which I introduced in December 1993 budget, and reverting to the original two band structure. The band of 1,401cc to 2,000cc cars chargeable at 25 per cent would be abolished, leaving two bands of 0 to 2,000ccs and over 2,000ccs chargeable at 22.5 per cent and 30 per cent respectively.

As stated previously, the new three band structure for VRT was introduced to raise revenue and to begin to tackle the environmental damage being caused by the motoring sector. It is designed in a way that favours the purchase of smaller-engined cars while discouraging the purchase of larger-engined cars. I consider that the new three band structure will be more effective in influencing the size of vehicle purchased, avoiding a harsh transition between bands and rates and allowing buyers to opt for lower powered vehicles in a given vehicle class. The new structure can be further built on and refined in the future if so desired.

These particular cc bands have been chosen because they are considered to best approximate to small, medium and large-engined cars and also because there appears to be a natural divide in the car market at around these cut-off points between competing marques and models. I consider that this relationship is not present in the two band structure proposed by the Deputy. Furthermore, I believe that the difference between the two tax rates of 22.5 per cent and 30 per cent is too steep and is likely to cause excessive distortion between vehicle models.

Although we are still at an early stage, the figures for new car registrations for January 1999 show that VRT restructuring has been effective. The volume of sales has not been adversely affected, as widely predicted by opponents of the restructuring. In fact, new car registrations for January 1999 were up by 21 per cent on those for January 1998. In addition, and as was intended by the restructuring, the introduction of the three band structure would appear to have caused a shift in the cc profile of new cars registered in January in favour of cars below 1,401ccs. It is estimated that the registration of new car sales in February is up by 27 per cent. It is fortunate that I did not listen to the prophets of doom from all parties, including my own, who predicted that the car market would collapse.

The Minister is missing my point.

Representations on this matter were made to me from many quarters.

If the Minister is going to obtain this money as a result of buoyancy in the market, why is there a need to increase the tax at a time when we are trying to reduce tax? The Minister is reducing corporation tax and he is trying to reduce income tax. Why is he increasing VRT? That seems to be a complete contradiction of his policy. The increase will only affect people who own family cars with 1.9 litre engines and farmers who own diesel engine cars, which are only available in capacities of 1.7 litres or greater. I am not as concerned about the increase as the perceived need for it. I never predicted a collapse in sales but this provision is very unfair on people buying cars.

Deputy Deenihan's comments summarised what I intended to say. I agree with the Minister that, in current circumstances, there was never a likelihood that the market would collapse or that sales of cars would decrease. That has not happened and I do not believe it will in the foreseeable future.

We represent the people, we are not here on behalf of the motor industry.

It is difficult to find a persuasive case for increasing the motor taxation regime for motor vehicles at a time when the Exchequer is awash with money and when there is apparent argument in favour of raising revenue. The Green arguments, which were offered at the time, do not stand up.

Are we in difficulty here? We are not the only country with a registration tax, but it flies in the face of the arguments in favour of the Single Market when the price of cars in most other EU countries is a good deal lower than here, primarily because of the tax. The Commission will one day soon consider the tax and we may find ourselves in difficulty.

The Minister will not alter his position. He will return to it on Report Stage.

Amendment put and declared lost.
Deputies Deenihan, Noonan, McGinley and McDowell dissented.

I move amendment No. 128:

In page 230, between lines 13 and 14, to insert the following subsection:

"(2) Section 130 of the Finance Act, 1992 (as amended by the Finance (No. 2) Act, 1992) is hereby amended by the addition of the definition of 'category D vehicle' of the following words:

'or any vehicle which has an engine of a cylinder capacity of 30 cubic centimetres or less'.".

This is a relatively minor amendment in terms of the cost to the Exchequer. Will the Minister provide an estimate of the cost? Acceptance would have employment implications for my constituency. The provision in the Bill refers to motorised conveyances, but these are more like the collapsible tricycles we knew as children. They are about 23 cc or 24 cc and are an American invention. The European demand is met by a production centre in the Donegal Gaeltacht which employs half a dozen people entirely for the European market. In this country they are subject to VRT, which adds £40 to £50 to each. The engine would be similar to that used for the strimmer or a small lawn mower. If the amendment was accepted it would give a great boost to the production centre. They are not produced for this country probably because they are subject to VRT and the price is excessive.

This would enhance the Chairman's park and ride proposals. The purpose of these gopeds, if they are not used for leisure, is to enable individuals having parked their cars to remove them from the boot and travel on them in the areas of high traffic density.

According to a letter from the firm, the Revenue Commissioners determined that, based on detailed literature it submitted in May 1998, the goped is a motorised conveyance which is classified for VRT purposes as being a motor cycle. The classification was upheld on appeal. The level of VRT being charged is £2 per cc. The power of the gopeds is 22.5 cc. This results in a £45 charge which is added to the price, making them uncompetitive

The measure proposed in this amendment will not break the bank or the Exchequer and has no implications in the way it is drafted. To keep the goodwill he has generated during the debate, will the Minister concede to Deputy McGinley's request?

I received representations from Deputies in Donegal, including Deputy McGinley's colleagues, and I have also answered parliamentary questions on this. The effect of the amendment would be to include in the VRT category D definition any vehicle with an engine of a cylinder capacity up to and including 30 ccs and to exempt such vehicles from payment of VRT. It is not clear from the amendment what type of vehicle the Deputy has in mind. Category D vehicles which are exempt from payment of VRT include refuse carts, sweeping machines, road cleansing machines, ambulances and fire engines. Such vehicles are in the nature of public service vehicles and it is appropriate that they be favourably treated for VRT purposes. It would not be appropriate in the absence of further information to include all vehicles up to and including 30 ccs in this definition.

I have a photograph of these vehicles and before I start to exempt them from VRT I would like further information. Other aspects need also to be considered, for example, will there be a flux of them around the streets of Dublin? What are the insurance requirements? Is road tax applicable?

I understand they are subject to insurance and road tax in this country, however, I am not sure they are used here.

According to the secretary to the chairman of the Revenue Commissioners, the payment of the annual road tax in respect of the vehicles in question will be a matter for the Minister for the Environment and Local Government.

If they are subject to road tax.

There is nothing in the motor bike market under 50 cc. The engine in these approximates to that contained in a hedge clipper.

I will consider this matter again, although like Deputy Noonan, I would not like to see a hedge clipper on the road.

The Minister is borrowing heavily from the advertisements for a bank in his use of imagery.

In deference to Deputy McGinley's representations and amendment I will give this matter further consideration between now and the next Finance Bill. Apart from exempting them from VRT other aspects need to be considered.

Would the Minister accept the amendment on Report Stage on the understanding that the matter will be considered if they give any difficulty?

I will do it the other way, in the interests of the Deputy's safety and the safety of others.

The Minister is treating the matter as if it was an invasion by aliens. It could help traffic congestion.

Some 60 people are employed at the production facility without any vehicles being sold in this country.

I will have the matter further investigated by a number of Departments between now and the next Finance Bill but I will not accept the amendment at this stage.

Amendment put and declared lost.
Deputies Deenihan, Noonan and McGinley dissented.
Section 105 agreed to.
The Select Committee adjourned at 6.05 p.m. until 10.30 a.m. on Thursday, 4 March 1999.