SELECT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Wednesday, 20 Feb 2008

Finance Bill 2008: Committee Stage (Resumed).

Chairman

Apologies have been received from Deputy Terence Flanagan. I welcome the Minister for Finance, Deputy Brian Cowen, and his officials. The purpose of this meeting is to resume consideration of the Finance Bill 2008. The Bill was referred to the select committee by Dáil Éireann on 6 February 2008 and the committee is required by the Dáil to report the completion of its consideration of the Bill not later than Thursday, 21 February 2008.

The times by which the committee must complete its consideration of specific groups of sections and the amendments addressed to those sections are determined by an allocation of time order made by the Dáil on 14 February 2008. The order further provides that any division claimed on the proceedings of the Bill must be postponed until immediately before the time set for the relevant guillotine or, if proceedings conclude before the time for the guillotine is reached, on completion of those proceedings. The putting of any question contingent on a proposal must similarly be postponed.

SECTION 42.

Chairman

As amendments Nos. 52 and 55 are related, they will be discussed together.

Minister for Finance (Deputy Brian Cowen)

I move amendment No. 52:

In page 70, to delete lines 31 and 32 and substitute the following:

" ‘relevant period' means the period commencing on the date on which the first order is made under subsection (4) and ending 3 years after that date;".

I will discuss amendments Nos. 52 and 55 together. I do not intend to move amendment No. 55. Section 42 introduces a new incentive that will run for three years to provide for accelerated capital allowances in respect of expenditure incurred by companies on certain energy efficient equipment bought for their businesses. Every product eligible under the scheme will be published on a list that will be drawn up by the Minister for Communications, Energy and Natural Resources and approved by me. The section is subject to a commencement order because clearance from the EU Commission is needed for state aid reasons. The legislation as published provides that the incentive will run from 31 January 2008 to 31 December 2010.

A provision was included to allow for expenditure incurred on energy efficient equipment before the list was set up to be covered by the scheme in certain circumstances. For example, if the list was established in April 2008 and a company bought energy efficient equipment in February 2008 which would have been on the list if the list had been available in February, then the expenditure incurred in February would qualify under the new provision. Amendment No. 52 proposes that the section be amended, so that the scheme will run for three years from the date the first order establishing the list of energy efficient equipment is made. This amendment results from representations made to make the scheme more business friendly. It will increase certainty for companies buying energy efficient equipment for their businesses.

Amendment No. 55, which I will withdraw, was a technical consequence of amendment No. 52. Essentially, I proposed to move the three year period forward to start later than 31 January. As part of this, I removed the provision relating to energy efficient equipment bought in the interim period. It has now been suggested that this provision should stand, to facilitate companies purchasing highly energy efficient equipment before the list is established. This is a reasonable request, and I will withdraw the amendment to give effect to it. I commend amendment No. 52 to the committee and withdraw amendment No. 55.

Amendment agreed to.

Chairman

Amendment No. 54 is related to amendment No. 53. Amendments Nos. 53 and 54 will be discussed together.

Deputy Richard Bruton

I move amendment No. 53:

In page 70, line 42, after "company" to insert "or a business which is taxed under Schedule D".

The purpose of this amendment is to extend the incentive scheme for energy efficient equipment beyond companies to include businesses that would be established under Schedule D, that is, the self-employed, partnerships and so forth. It is difficult to understand why there is merit in expanding the use of energy efficient equipment only in businesses that happen to be incorporated as a company. It appears fair and reasonable that anyone operating and who is in good standing with the Revenue Commissioners should have the opportunity to avail of this concession.

In general, I welcome the concession. It is a good idea. I also welcome the three year rule. Schemes of this nature should have a sunset clause clearly stated at the outset. Has the Minister established a baseline usage of equipment of this nature? One of the constant issues with tax relief is the concern about dead weight; in other words, people will buy these items anyway so the question is whether we are genuinely generating additional application of energy efficiency or simply providing a subsidy for something that would happen anyway. If the latter is the case, the justification of the tax relief would fall. Before introducing a relief of this nature we should establish some type of baseline for the take-up of this equipment and attempt to ensure there is genuine additionality from the scheme being put in place. That should be anticipated now. We could, for example, look at the level of sales for this type of equipment in recent years to assess whether there will be a genuine bounce from the tax relief and whether people are encouraged to take it up who would not otherwise.

We do not apply the same rigour to the introduction of a tax relief as to the introduction of a subsidy. If this was a subsidy to businesses for energy efficient equipment, the Minister's officials would undoubtedly crawl all over the Department sponsoring the subsidy in an effort to be assured that it was good value for money and that it would generate genuine additionality. We should apply the same rigour when using taxpayers' money as a tax relief. In many ways, subsidies are a more attractive way to deal with this. Businesses do not generally like subsidies because they are obliged to fill application forms and so forth but in the context of husbanding the taxpayers' resource, one can achieve a more targeted scheme with subsidies. When we choose the option of tax relief over a subsidy we should make an effort to ensure that we are doing it for good reasons and are confident that there will be additionality that will genuinely start to address emissions problems. Have the Department's officials, Sustainable Energy Ireland or whoever is sponsoring this scheme carried out studies to establish that tax relief is the correct incentive, that it will yield significant additionality and that there are reasonable grounds for anticipating that at the end of the trial three years there will be solid achievement for the effort?

The main purpose of the amendment is to extend the relief from companies to the self-employed, partnerships and other concerns taxed under Schedule D.

Deputy Kieran O’Donnell

I support the amendment. On Second Stage, Chairman, you raised the issue of extending this relief to individuals taxed under Schedule D. As the section is drafted, it is currently confined to companies. The key issue is to ensure that there is a take-up of what is being put forward and that it is not restrictive. Extending it to everybody taxed under Schedule D would include the self-employed and partnerships. The Minister has set minimum amounts that must be spent before qualifying for accelerated capital allowances — motors and drives, €1,000; lighting, €3,000; building energy management systems, €5,000. What is the reason for the limits and would the Minister consider lowering them so that people would take up the scheme across a range of businesses, not just companies? I welcome the measure but, rather than waiting another year when there is little take-up, it could be expanded to include people taxed under Schedule D and the limits for the level of expenditure that qualifies could be lowered.

Deputy Seán Barrett

In my capacity as Chairman of the Committee on Climate Change and Energy Security, I welcome this proposal.

Chairman

We will get an expert opinion on it.

Deputy Seán Barrett

I note that the list will be established and amended by order of the Minister for Communications, Energy and Natural Resources, and Sustainable Energy Ireland will be responsible for maintaining the list. Who devises and approves the list? If Oireachtas committees are to be meaningful, this section should provide that the matter will be referred to the Joint Committee on Climate Change and Energy Security. The list should be approved by that committee and maintained by Sustainable Energy Ireland. I mean no disrespect to that body but there should be an input from Members of the Oireachtas into a list of what equipment is and is not suitable. Will the Minister include a reference to the climate change committee in the section? We will examine the list carefully. I welcome the provision.

Deputy Brian Cowen

This proposal is a pump-priming exercise of limited duration. The Exchequer gets a bang for its buck by providing the incentives for the corporate sector rather than the non-corporate sector because of the marginal tax rates involved. Obviously, there would be a far greater and more significant spend if it were open to everybody. I am attempting a pump-priming exercise. Indecon Consultants compiled a report on this issue for Sustainable Energy Ireland and suggested that the tax system is the best way to do it. I am open to looking at matters again in the future but in the context of providing an incentive at present, I am limiting it to people on the 12.5% tax rate.

The scheme can and will be monitored. Many products will be considered for inclusion on the list. While it will be difficult to establish a baseline, we will monitor the list of products to satisfy ourselves it is working and to determine what possible further use it could have. This is a targeted measure I am not anxious to expand until we have seen how it develops.

To respond to Deputy Barrett, the list will be drawn up by the Minister for Communications, Energy and Natural Resources and must be approved by my Department. It will be open to the Joint Committee on Climate Change and Energy Security to invite in the Minister for a discussion on the items it believes should be considered for inclusion in the product list. It is normal practice to make a legislative provision of this nature subject to the approval of Oireachtas committees. The Government must make a decision to provide in law what it determines should be the scope of the Bill. In terms of input it will be open to the joint committee to discuss the matter with the line Minister before he finalises his arrangements and submits them to me.

Deputy Seán Barrett

I do not see any harm in my proposal, which is not made because I am Chairman of the Joint Committee on Climate Change and Energy Security. Who will draw up the list and on what basis? If someone wishes to have a product included in the list, it should be possible to make a case to the joint committee. The role of the joint committee should be proactive, rather than being confined to inviting in the relevant Minister and asking for a copy of the list.

Many matters require approval. This finance committee is performing an important function in taking Committee Stage of the Finance Bill. What is wrong with a committee examining and approving a list? Ultimately, the Department of Finance, as always, will have the final say in the matter. There is nothing wrong with developing the role of committees, just as this and other select committees deal with Committee Stage of Bills. I do not want to sit on committees that are talking shops. People take this issue seriously and it would be a small effort to demonstrate that committees are held in respect and have a purpose. Why should a departmental official draw up a list with no input from anyone else and then send it to the Department of Finance? The Minister will leave the Department when he becomes leader of the Fianna Fáil Party.

Chairman

The Deputy should stick to the amendment.

Deputy Seán Barrett

I am discussing facts. It would not be a major problem to include the joint committee in the process of approving the list.

Deputy Brian Cowen

I am not precluding the committee of which Deputy Barrett is Chairman from having an input, I am simply pointing out that it would not be relevant to make legislative provision for such an input. As a matter of practice, I am sure the Minister for Communications, Energy and Natural Resources would be interested to hear the views of Joint Committee on Climate Change and Energy Security and discuss with it his plans and what other issues should be considered. The same applies as regards Sustainable Energy Ireland which has produced a report on this issue. SEI indicated what would be the minimum spend required to impact most effectively on energy efficiency and what would be administratively efficient. The thresholds are based on its advice. We did not devise this measure ourselves.

As I stated, responsibility for drawing up the list of approved items under this scheme should reside with the Minister and his Department. If Deputy Barrett was the Minister, he would reserve this decision to himself. It is a ministerial decision. Obviously the Minister should listen to advices, whether from the committee of which Deputy Barrett is the Chairman, Sustainable Energy Ireland or others, on which products meet the criterion of improving energy efficiency and should feature on the list. I am sure he will be pleased to do so.

Deputy Seán Barrett

The Minister is indicating that Sustainable Energy Ireland is more important than an Oireachtas committee. If the former has an input in this matter, why should the latter not also have an input? I do not see what is wrong with my proposal. Let us cut out the bureaucracy and give elected public representatives a say for a change.

Deputy Brian Cowen

Exactly, let us cut out the bureaucracy by avoiding a process that would delay implementation of the measure.

Deputy Seán Barrett

That is not the case.

Deputy Brian Cowen

Let us be clear about this matter. Sustainable Energy Ireland is an agency answerable to the Minister for Communications, Energy and Natural Resources on these matters. It has a remit. There is nothing wrong with the joint committee being a talking shop. As a Deputy pointed out in the House yesterday, we are not engaged in armed struggle, although perhaps that depends on who is here. In general, however, the House teases out the issues.

I will bring to the attention of the Minister for Communications, Energy and Natural Resources, Deputy Eamon Ryan, the avid interest of Deputy Barrett's committee in the drawing up of the product list and ensure he consults the committee before the list is finalised.

Deputy Seán Barrett

That is the reason I do not see anything wrong with inserting a phrase providing that the matter should be considered by the Joint Committee on Climate Change and Energy Security. Every day in the House Deputies complain that they are unable to obtain replies to parliamentary questions, the HSE has become a monster and so forth. All options giving those who have been elected by the people an input and a say are being removed. We should not have to go cap in hand to Ministers asking them at a committee meeting to include a product on a list. Deputies go cap in hand to Ministers every day in the Chamber, as everybody knows. This may be a minor issue but it is important to raise it. Making the provision I propose in the legislation will not create a major blockage. It will simply acknowledge that a process is in place.

Deputy Richard Bruton

I understand the Minister's point that someone paying tax at the top rate would receive 42% relief, which is much more expensive. However, elsewhere in the tax code we have opted for standard rate provisions where the same rate is applied irrespective of whether the recipient is on a high or low income or is an incorporated or a small business. The Department could decide to cap relief at the standard rate or at a rate of 12.5% or whatever. The issue is that the Minister is introducing a concession for the major players, those who have access to accountants who will play the rules and squeeze everything possible from the measure, and excluding smaller operators who are less likely to take up energy efficient equipment and at whom, arguably, State incentives would be better directed.

If tax relief is considered a worthwhile approach to leverage greater change in this area, the corollary is that one should cast the net wide to ensure it extends to those who are less well organised, have less access to energy audits or other options used to support companies in making energy efficient changes and are, therefore, slower on the uptake. The step the Minister is taking is administratively convenient and I understand the reason Revenue would argue for it as it caps one's costs to 12.5%. By implication, however, he is making it less effective as a vehicle for doing what he says is worthwhile, namely, sponsoring energy efficiency.

I did not see the report done by Indecon stating the reason it believed a tax relief was preferable to another approach. Given that the tax relief is confined to companies, it targets the cream rather than where change is most needed.

On the implementation date, I presume the European Union will be more sympathetic to giving quick clearance to the state aid application. Has the Minister had any preliminary discussions with the EU to determine whether the scheme will be given a quick nod? Did he indicate that the provision would be retrospective in the sense that the cost of equipment purchased during 2008 will be eligible, provided that it subsequently features on the list? From the point of view of certainty about what people are getting, the sooner the Minister can clarify the position, the better.

I am sympathetic to Deputy Barrett's points. I presume that by now Sustainable Energy Ireland has already got a hit list of things that ought to be in this. Even if he is not willing to introduce a legislative provision, perhaps the Minister could direct that Sustainable Energy Ireland provide an Oireachtas committee with a list of equipment that ought to be in this. The time until EU approval could be fruitfully used by Deputy Barrett's committee to have a look at the list and make appropriate observations before it enters the next phase.

Deputy Kieran O’Donnell

Will the Minister please clarify whether a claim for allowances is retrospective or if it applies three years from the date EU clearance is obtained?

Deputy Brian Cowen

It applies from January this year.

Deputy Kieran O’Donnell

Therefore, it is three years from the date of the order and it reverts to the start of the year as well.

Deputy Brian Cowen

It is three years from the time the list is published and anything before that after January as well.

Deputy Kieran O’Donnell

When will the list be ready? Deputy Bruton already pointed out that this measure may not come in until the 2009 budget, which seems ridiculous. How quickly does the Minister expect us to get clearance from the EU?

Deputy Brian Cowen

The fact is that EU approval is required for all these schemes nowadays. We cannot operate independently of Single Market rules, so we must deal with these issues based on regional aid and so on. The list will be drawn up over the coming months. I will bring to Mr. Ryan's attention the interest we have in participating in that process. The list will be decided by the Minister at the end of the day, but SEI will maintain such a list. It can be a moveable feast so not everything will be based on what is on the first list. The Minister can move the list around as he sees fit. We are not talking about energy saving bulbs, but rather energy efficiency systems that might help the SME sector and the corporate sector. We are trying to be more competitive and be energy efficient for its own sake.

This is a pump-priming exercise and it will be monitored. Deputy Bruton made the point that I should extend it to all businesses at 12.5%. I will reflect on that, but I am conscious that I want to——

Deputy Kieran O’Donnell

They are already getting it at 12.5%.

Deputy Brian Cowen

Looking at the work being done by SEI, it is directing its efforts towards the corporate and SME sector. It is not just dealing with energy saving bulbs. We are talking about energy efficiency systems, which are quite costly. Maybe we should let the thing get up and get going. I do not have a closed mind on the issue.

Deputy Kieran O’Donnell

Would the Minister consider it at the standard rate? He also made a point about thresholds. Would he consider reducing the thresholds?

Deputy Brian Cowen

No, I have already explained why I will not reduce the thresholds. They have been given to me based on the expert advice on the minimum expenditure available to involve an energy efficiency output. It is not a question of whether we can move the threshold up or down. I do not spend that much time on the provisions and I use the expert advice given to me over the 130 sections of this Bill.

Deputy Kieran O’Donnell

Would the Minister consider the standard rate for Schedule D? I think 12.5% is of no great benefit because—

Deputy Brian Cowen

I have to avoid the downgrade effects as well. We all broadly support the direction in which we are going. I am going with what I have been asked to do, which is a pump-priming exercise. The argument could be broadened, but I would like to go with what I have and on the basis of monitoring it, see how I can assist thereafter. There is 100% accelerated capital allowances on this in year one.

Deputy Martin Mansergh

I support this provision and I feel it is quite generous. I do not know where anybody got the idea that one has to be a bigger player to have an accountant. It seems that practically any Schedule D tax payer or partnership has an accountant. The tax forms are much too complicated to fill in oneself, unless one—

Deputy Kieran O’Donnell

They cannot benefit from this measure.

Deputy Martin Mansergh

I am coming to that point. The argument could be made that if the incentive only applies to an incorporated business, one should consider with one's accountant the case for incorporation. There is also an argument about the tax relief versus the subsidy. The problem with a subsidy is that it imposes an extra bureaucratic burden on businesses. A tax relief is much simpler to administer and I thought we were trying to relieve the burden on small businesses. There are more than enough forms to be filled in and a subsidy is a much more cumbersome way to apply an incentive.

To get back to Deputy Barrett's point, it seems to me that any Oireachtas committee can make representations to the Department of Finance at any time.

Deputy Richard Bruton

Deputy Mansergh misunderstands the point I am making. If a business is not incorporated, the Minister is excluding it altogether. Deputy Mansergh suggests that such businesses can consider incorporation, but that would represent a step up in their scale of operation. In his justification of this idea, I did not hear why he wants to exclude businesses that are not incorporated.

Deputy Martin Mansergh

The Minister made the point that he is applying a certain cost to this. He wants to see how it works.

Deputy Richard Bruton

The Minister is willing to include a standard rate, whereas Deputy Mansergh seems to be closing his mind to it.

Deputy Martin Mansergh

If we include businesses as well as companies, then we are stepping up the scale and the cost is quite considerable.

Deputy Richard Bruton

We think it is worthwhile and that by giving this, we will leverage some new activity. The point I am making is that the businesses that will be more reluctant to take up energy saving equipment are likely to be those that are not incorporated. These are the businesses to which we should provide the incentive. I did not make the case necessarily for using subsidies, but I made the point that tax relief is just as costly to us. If we believed the subsidy route would be more targeted, we should listen to Enterprise Ireland, which refuses to give out money to businesses willy-nilly and only provides support in the context of business plans and so on, because it believes that the only way it gets a bang for its buck is by requiring businesses to come up to the mark. That is bureaucracy, but from the Enterprise Ireland point of view, it is using the money available in a targeted way to get the maximum return. It all depends on the case.

Deputy Mansergh rather facetiously said that we are all about reducing burdens. We are certainly in favour of reducing burdens on small businesses, but one way to do this is to allow them to apply for the relief, which is what we want to do. Here we are excluding them from the opportunity, so——

Deputy Martin Mansergh

If the relief—

Chairman

Deputy Mansergh, without interruption.

Deputy Richard Bruton

The Chairman is not entitled to stop me in mid-sentence.

Chairman

I am sorry. I thought the Deputy had concluded.

Deputy Richard Bruton

I had not concluded. It is just that Deputy Mansergh interrupted me. I do not mind being interrupted either. If Sustainable Energy Ireland decides in two years and 11 months' time that certain equipment is eligible are we, effectively, saying that would be retrospective to 1 January three years earlier?

Deputy Brian Cowen

No, I am not saying that. We are generous but not to the point of recklessness.

Deputy Kieran O’Donnell

Deputy Mansergh made the point that businesses can go away and incorporate. Revenue is currently getting much more income tax from an unincorporated business. Suddenly we could have a situation where businesses will be forced to incorporate and the tax take will be reduced. The Minister is just looking for a measure that is inclusive, the cost of which to the Exchequer may not be prohibitive. Most small businesses set up as unincorporated businesses, they set up as sole traders. They only become limited companies when they are making significant profits to justify it. The measure being proposed may possibility reduce the tax take. Perhaps it would be worth considering.

Deputy Brian Cowen

Every tax relief scheme I introduce will reduce the tax rate.

Deputy Kieran O’Donnell

I am aware of that.

Deputy Brian Cowen

I know. I have listened to what members have had to say. I am worried about widening the base of eligibility for the reasons given by Deputy Mansergh since I am pump-priming without knowing exactly what might emerge.

Deputy Kieran O’Donnell

The Minister could introduce it at a lower rate.

Deputy Brian Cowen

I am aware of all that, so I will go and reflect on the matter.

Deputy Kieran O’Donnell

Good.

Deputy Brian Cowen

I ask the Deputy not to raise his expectations.

Chairman

Is the amendment being pressed?

Deputy Richard Bruton

In the likely expectation of the products of the Minister's thinking I will withdraw the amendment and reconsider it on Report Stage.

Amendment, by leave, withdrawn.

Amendment No. 54 not moved.

Deputy Brian Cowen

I move amendment No. 55:

In page 71, to delete lines 34 to 43 and in page 72, to delete lines 1 to 4 and substitute the following:

"(7) Subsection (2) shall not apply in respect of expenditure incurred on the provision of equipment where that expenditure is not incurred in the relevant period.".

Amendment agreed to.

Amendment No. 56 not moved.

Section 42, as amended, agreed to.

Sections 43 and 44 agreed to.

SECTION 45.

Chairman

Amendments Nos. 57 and 58 are related and may be discussed together.

Deputy Brian Cowen

I move amendment No. 57:

In page 75, lines 12 and 13, to delete "in that territory" and substitute "outside the State".

These are two technical amendments to section 45. The section amends Schedule 24 to the Taxes Consolidation Act 1997, which deals with removal of double taxation of foreign income by giving a credit against Irish tax on foreign income for foreign taxes on that income. Amendment No. 57 corrects a drafting error.

Amendment No. 58 makes a change to the commencement date for subsection (1)(a). This provision relates to a formula that I introduced in the Finance Act 2006 where there is a payment from which foreign tax is deducted. The formula calculates the amount of doubly taxed income that is taken into account in the calculation of the double tax credit. As it was not intended to apply the rule to income of foreign branches of an Irish resident company I amended the provision in the Bill, as initiated, to take foreign branch profits out of the scope of the formula. This means that the actual profits of a foreign branch would continue to be taken as a measure of the doubly taxed income.

Under the Bill, as initiated, the change applies from 1 January 2006, the date of introduction of the original provision. In some cases, commencement from that date could be disadvantageous to a company. The commencement provision is being changed by the amendment so as to bring the revised rule into effect from 31 January 2008. The amendment will allow companies to choose to have the provision commence from 1 January 2006, the date from which the problem being rectified arises.

Deputy Richard Bruton

I am not sure whether it is on this amendment or on section 18, but an issue was raised with me that while we are changing the tax treatment of certain taxes that are foreign sourced, we are not doing so in respect of all taxes, whereas the issue of capital gains tax is being excluded. This seems to be on foot of an opinion from the EU and not something we received since we discussed section 18. Is it the case that on foot of an opinion we are changing the tax treatment of foreign-based earnings but only doing it on some taxes rather than on all the taxes to which the same principles might apply?

Deputy Brian Cowen

Perhaps Revenue will discuss the issue with Deputy Bruton later to clarify the matter.

Chairman

We have the opportunity to go into private session if the Minister wishes.

Deputy Brian Cowen

No. We will just use time available.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 58:

In page 76, to delete lines 1 and 2 and substitute the following:

"(2) (a) (i) Subject to subparagraph (ii), subsection (1) applies as on and from 31 January 2008.

(ii) Subsection (1) shall be deemed to have applied as respects any company as on and from 1 January 2006, if an election in writing is made by the company to the Revenue Commissioners to that effect.”.

Amendment agreed to.

Section 45, as amended, agreed to.

SECTION 46.

Amendment No. 59 not moved.

Question proposed: "That section 46 stand part of the Bill."

Deputy Richard Bruton

As I understand it, 2003 is being reinstated as the baseline for research and development, so this is the issue of additionality. I am sympathetic to the approach the Minister is taking. I do not think we can throw the baby out altogether and say that anything that passes as research and development would be tax allowable. The additionality idea is good in that we are trying to leverage extra activity rather than simply support what is already being done.

I am aware that the alternative point of view has been put to the Minister and I wonder what independent assessment has been carried out on the success of this section. Perhaps the Minister can give the committee a brief on the amount of take-up and how it compares with the original hopes for the relief when it was introduced? I would like to know if it is operating successfully.

I am sure this is one of the issues the Commission on Taxation will be reassessing but maybe Indecon, which seems to be doing much advisory work, has carried out some assessment for the Minister. I am interested to hear how successful this has been and whether we need to look afresh at it in any shape or form.

Deputy Brian Cowen

We introduced the scheme in 2004. Given that it is only three or four years old, in research and development terms it is hard to pass a definitive judgment on its success or failure. It was reviewed in consultation with industry prior to the 2007 budget and is kept under ongoing review in my Department. We may consider having an external review of the scheme undertaken this year to establish the progress being made towards its objectives. If that happens, the report of any review will be published by my Department.

The scheme is being used on an increasing basis since its introduction with 73 claims for tax credits, worth about €70 million in 2004, rising to 135 claims, costing €65 million, in 2005, the latest year for which full information is available. It is a question of protecting the additionality idea and combining it with the need for a time horizon for its application that is helpful in the high-tech and pharmaceutical areas specifically to ensure an increased and important research and development component is established as part of our effort to see that type of industry located here.

There is a further aspect to this. From time to time I have the opportunity to meet CEOs involved in this area. There is a trend away from separating research and development from manufacturing plants. In the past there was the idea of manufacturing at the lowest cost location and doing research and development wherever a return was available according to the usual assessment of independent cost centres. There is a growing belief among CEOs and corporate culture generally that one can be penny wise and pound foolish, and lose the cross-fertilisation of ideas. Co-location of research and development and manufacturing plants is becoming more fashionable again because of an understanding of how the research and manufacturing processes interact. The benefits of working collectively in one location are gaining credence against the idea that it is more economically feasible to separate the processes by distances of thousands of miles. That provides us with an opportunity to be more hopeful about the location of research and development here, because it is about the future development of products and services, and increasing the possibility of locating manufacturing as a result. That is a trend. I do not say it is a determining factor but it is an interesting additional insight into the thinking of these multinationals and is different from our traditional understanding of where they were coming from.

Deputy Richard Bruton

I welcome the Minister's suggestion that it might be timely to do a review and I hope he will do so, although he left it in the "may" category. I am sure the Minister is correct about co-location if that is what he is hearing. We need to revisit our existing strategy on landing research and development here. We are putting much more into research spending at university level. I do not yet see payback in commercialising that or the arrival of more research and development here. It would repay a bit of study of this area by the Minister and other players in the field. While we have put in some of the money I am not sure we are getting bang for our buck in research and development spending and it is timely to examine ways we can make the transfer from the university campus spend to the companies doing it. We may need to rethink our Science Foundation Ireland approach to try to build stronger centres of excellence around well established figures. There is a belief that one needs big names to attract and build a core. The centre of excellence idea needs to be further developed.

We need to examine our continuing failings at second level. Much of that stems from the lack of good physics and chemistry graduates entering teaching. They all go elsewhere. If we believe our future is wrapped up with science, including chemistry and physics, we need to get the best people into teaching and pay them more if need be. That is an issue.

We need to rethink our approach to the knowledge economy. We have had discussions on the disappointment with the e-government initiative. There is a case for a serious strategic plan aimed at all these sections of research and development and knowledge development, and it must be driven rather than left to chance. It is often left to chance. The Department of Education and Science produces a nice booklet talking about what it would like to achieve and it does not happen. Somebody else produces the e-government strategy but it does not happen. We all sit back and give reasons it did not happen, but we need to step out of the box and ensure some of these plans happen. The Minister is correct that we will have to compete in this area, but I would not like to think we are depending on our existing manufacturing base as the lure. That could be leaning on a reed. Many of these manufacturing bases are under pressure.

Chairman

I ask that mobile telephones be turned off and not just switched to silent as they interfere with the sound recording equipment.

Deputy Kieran O’Donnell

I welcome this research and development measure. We are facing an era when we have to be a knowledge-led economy. We have been too dependent on the construction sector in recent years. In the Minister's speech under the national pay talks he said we must follow the export-led route. It is a policy I put forward. It is important that all foreign companies located here have a research element and are not purely for assembly. That would guarantee jobs. It is important that a study be done to ascertain the level of research and development in our foreign multinational companies, which bring vital jobs to the economy across a spectrum of areas. For jobs to be sustainable there must be a large research and development element. The co-location the Minister described should be the norm. Research and development should be inherent in any business locating in Ireland if we are to have sustainable jobs. I look forward to the report. I welcome the measure but it should be kept under review. We have to make our mark in this area and get back up to the export growth level of 20% per annum we registered in past years but which has been lowered to approximately 5% to 6% in recent years. For a small, open economy it is not sustainable and we need to increase export levels.

Deputy Martin Mansergh

I support Deputy O'Donnell. I welcome the announcement in the past 24 hours that the Tipperary Institute is developing a research and development facility at Ballingarrane outside Clonmel, which will be in association with a technology park being developed there.

Deputy Brian Cowen

Deputy Bruton is a little too pessimistic on our research and development efforts. I do not look at this research and development scheme in isolation from the other initiatives the Government has been involved in since we came into office in the past ten years. We put in place a well recognised and internationally respected structure with Science Foundation Ireland and other such organisations. This tax credit scheme, which is important in itself, is one of a series of initiatives forming part of the Government's commitment to building a knowledge economy. The Minister for Enterprise, Trade and Employment, Deputy Martin, announced a revised and simplified research and development grant scheme which will make €500 million available to companies across all sectors of the economy.

The reference by Deputy Mansergh to his local situation forms part of phase 2 of the strategic innovation fund disbursement. In improving campus-type research into commercial activity the scheme has an important criterion for eligibility, namely, that a collaborative approach is required between the institutes and the universities to avoid the silo effect, whereby each individual campus builds research capability on its own without reference to a Republic of Ireland or an all-island approach. That also forms part of our North-South dialogue with the Executive and the Northern Ireland Assembly where the academic community is showing much interest in trying to maximise critical mass, given that we are a long way behind in terms of what world leaders are doing at university level because of their access to private funding, as well as the disbursement of public funds.

We have done much work in this area in the past decade but there is no room for complacency or self-congratulation. It would be wrong to suggest this is the only scheme we have and that we had better monitor it to see whether it will make the mark. It must be located in the context of many initiatives across Departments and Government strategies that are funded and which will, because of the way they are structured, give us a better prospect of an outcome of commercial activity. There is pure research and applied research. Pure research is denigrated by some, but it is that exact pure research, outside the box thinking, that often creates something new, whether it is nano technology or something else, that creates a paradigm shift in our understanding of the usage of the services and products we currently use. Doubling our PhD capacity and attracting people of international stature to do their research in Ireland are part of the effort to position the country to be conducive to investment that will provide us with the next step forward in our industrial future.

I take the points being made. The Deputy mentioned that the Commission on Taxation might be involved in this. We have yet to see how it organises its work, collates its thinking and proceeds with its terms of reference. I agree that we should monitor this and evaluate it on an ongoing basis but since it was introduced only in 2004 and given the length of time research takes before coming to product lines, next year is probably the earliest one could give an evaluation of whether this money is providing the outcomes for which we hope.

Question put and agreed to.

NEW SECTION.

Deputy Brian Cowen

I move amendment No. 59a:

In page 76, before section 47, to insert the following new section:

47.—(1) The Principal Act is amended by inserting the following after section 591—

"591A.—(1) For the purposes of this section, a dividend paid, or a distribution made, by a company to a person in respect of shares or securities of the company in connection with a disposal of shares in the company shall be treated as being abnormal if the amount or value of the dividend, or as the case may be the distribution, exceeds the amount that could reasonably have been expected to be paid, or as the case may be made, in respect of the shares or securities of the company if there were no such disposal of the shares or securities.

(2) Where, in connection with the disposal by a person of any shares or securities of a company, there exists any scheme, arrangement or understanding by virtue of which, either directly or indirectly, an abnormal dividend is paid, or an abnormal distribution is made—

(a) where the person is a company, to that person or to any company connected (within the meaning of section 10) with that person, and

(b) where the person is not a company, to any company connected (within the meaning of section 10) with the person,

then, for the purposes of the Capital Gains Tax Acts, the amount or value of the dividend paid, or distribution made, to the person or, as the case may be, to the connected person, shall be treated as consideration received by the person for the disposal of the shares or securities, and shall be ignored for the purposes of the Tax Acts.

(3) Subsection (2) does not apply if it is shown that the scheme, arrangement or understanding is effected for bona fide commercial reasons and is not, or does not form part of, any scheme, arrangement or understanding of which the main purpose or one of the main purposes is avoidance of liability to tax.".

(2) This section applies as respects a dividend paid, or a distribution made, on or after 19 February 2008.".

This amendment inserts a new section into the Bill. The new section prevents the avoidance of capital gains tax on certain disposals by a company of shares in another company. The capital gains tax is avoided by the payment by the company, the shares of which are being sold, of an abnormal dividend in connection with the disposal of the shares. That dividend is exempt in the hands of the receiving company because it is a dividend paid by an Irish resident company to a company within the charge to corporation tax. As a result of the payment of the dividend, a much smaller amount is payable for the shares, thus reducing the capital gains tax on the transaction.

Where a company disposes of shares in another company, the company disposing of the shares will realise a gain or loss on the disposal of the shares. In the normal course, any gain arising might be expected to be subject to capital gains tax. However, where the company selling the shares meets the conditions of section 626B of the Taxes Consolidation Act, the capital gain on the shares is exempt from tax. That section provided for an exemption of a gain on the disposal of shares where the company selling the shares had a minimum 5% shareholding in the other company, and the group of companies concerned, taken as a whole, carried on a trade or trades. One exclusion from that exemption is where the shares being sold derive a greater part of their value from land in the State. A gain arising on the disposal of such land is not exempt from capital gains tax.

The new section being inserted into the Bill provides that where there is an abnormal dividend paid to a company in connection with the disposal of shares in a company, the amount of the dividend is to be treated for tax purposes as proceeds for the disposal of the shares rather than a dividend. This ensures the gain arising will be subject to capital gains tax.

Deputy Richard Bruton

It is difficult to absorb all that has been said on this section. I take it this is an anti-avoidance provision to prevent people paying out dividends instead of realising a capital gain that would be taxable. I accept on faith what the Minister says. It seems reasonable to close off that loophole.

Deputy Kieran O’Donnell

The Minister has made the point that a dividend shall be treated as being abnormal if the amount or value of the dividend exceeds the amount that could reasonably have been expected to be paid. How will the Minister determine what could reasonably have been expected to be paid?

Deputy Brian Cowen

One looks at the pattern of dividends during the years to see whether they are hyping it a little.

Deputy Kieran O’Donnell

The determination would be specific to individual companies and one would look at the pattern in the previous years.

Deputy Brian Cowen

Yes.

Amendment agreed to.

Section 47 agreed to.

NEW SECTIONS.

Deputy Brian Cowen

I move amendment No. 60:

In page 76, before section 48, but in Chapter 4, to insert the following new section:

48.—(1) Section 448 of the Principal Act is amended—

(a) by substituting the following for paragraph (b) of subsection (3):

"(b) then deducting from the relevant sum any amounts allowed under sections 243A, 396A or 420A against the company’s income for the relevant accounting period from the sale of those goods.”,

and

(b) by substituting the following for subsection (5A):

"(5A) Where any part of the profits of an accounting period of a company is charged to corporation tax in accordance with section 21A, then for the purposes of this section, the relevant corporation tax shall be reduced by an amount determined by the formula--

R X S

100

where——

R is the rate per cent specified in section 21A(3) in relation to the accounting period, and

S is an amount equal to so much of the profits of the company for the accounting period as are charged to tax in accordance with section 21A.

(5B) Notwithstanding section 4(4)(b), the income of a company, referred to in the expression ’total income brought into charge to corporation tax’, for the accounting period for the purposes of subsection (2) shall be the sum determined by section 4(4)(b) for that period reduced—

(a) by any amounts allowed under sections 243A, 396A or 420A, and

(b) by an amount equal to so much of the profits of the company for the accounting period as are charged to tax in accordance with section 21A.”.

(2) (a) Subsection (1)

(a) has effect for accounting periods ending on or after 18 February 2008. (b) Subsection (1)

(b) shall be deemed to have had effect for accounting periods ending on or after 31 January 2007.".

This amendment inserts a new section into the Bill. The new section deals with technical issues in relation to the 10% rate of corporation tax, which rate applies to a company's income from the sale of goods manufactured by it. Such income is actually taxed at the 12.5% corporation tax rate but the tax on the income is reduced by manufacturing relief in order to achieve an effective corporation tax rate of 10%. The calculation of manufacturing relief is dealt with in section 448 of the Taxes Consolidation Act, which section reduces tax charged at the standard rate of corporation tax, 12.5%, on income from manufacturing by a fraction that results in an effective 10% rate.

A company may have a variety of income sources such as investment income, income from property, manufacturing income and other trading income. A company with income from various sources is only entitled to the relief in respect of income from the sale of goods it manufactures. Section 448 sets out the technical rules to calculate the amount of corporation tax for which manufacturing relief is available. The amendments to the section are technical in nature and ensure the numerator and denominator in the fraction are correct. Their purpose is to ensure the correct amount of relief is given to companies in all cases.

Deputy Martin Mansergh

I must declare an interest in that I am in a farm partnership but have no intention of being involved in its dissolution. Is there a reason that relief is time limited to the end of 2013 rather than being indefinite in nature?

Amendment agreed to.

Deputy Richard Bruton

I move amendment No. 61:

In page 76, before section 48, but in Chapter 5, to insert the following new section:

48.—The Principal Act is amended in Section 556 subsection (6)(a) by inserting after the words ”2003“ the following ”and including 2008 and each subsequent year of assessment”.”.

In 2003, the Minister for Finance ended indexation of capital gains. Indexation was traditionally there to make sure the tax was genuinely on a gain and not merely a money increase in value. The Minister introduced this measure at a time when he was bringing down rates and I suppose it included a revenue recovery element at a time when tax rates were reducing. We cannot continue indefinitely with a capital gains tax system that does not have indexation. The lack of indexation relief creates a distortion in the marketplace and favours the quick buck rather than long term investments by taxing the mere increase in the paper value of capital.

The 2003 measure alters the basis of the capital gains tax, as initially introduced. People could understand very clearly that capital gains were real gains and not just paper gains. We should, at some point, reconsider the approach adopted by the former Minister for Finance, Mr. McCreevy. The Minister may say we are not yet at the point where this should done. However, I would be interested to hear his view on long term capital gains tax with no indexation. It certainly alters investment choices if they are to be taxed merely on paper values as opposed to genuine gains.

Deputy Kieran O’Donnell

I support Deputy Bruton's amendment. Indexation of capital gains was removed from 31 December 2002 onwards. If a tax is to be progressive it should be based on increases, in terms of inflation. In recent years we have had reasonably high rates of inflation. This should be taken into account in capital gains tax. I look forward to hearing the Minister's views on this matter.

Deputy Martin Mansergh

I ask the Minister the question I asked on the previous section. Why is the relief on dissolution of farm partnerships limited to 2013 instead of being indefinite? On the point raised by Deputies Bruton and O'Donnell, on the whole, asset prices are falling at present. Is there need to reduce revenue by indexation? Indexation was got rid of in the context of capital gains tax being halved to 20%. While there has been some appreciation, it is cooling off on many types of assets. Whether there is a case for forgoing revenue when the budgetary situation is quite tight is a moot point.

Deputy Brian Cowen

To answer Deputy Mansergh's first point, I have introduced a sunset clause. It is open to being renewed. Without the sunset clause one could argue that the relief should be spread beyond the type of partnerships affected by it at present. There is a stay of execution until 2013. I am trying to limit the expectation that it would apply to all partnerships. I recognise that some farmers are in partnerships as a result of circumstances beyond their control, such as inheritance. The measure allows them to exit and regularise their position. People entering or remaining in partnerships will know the consequences of so doing from here on. It is in the nature of a sunset clause that it will be revisited at that time.

The amendment seeks to reintroduce indexation relief for capital gains tax purposes for the tax year 2008 and subsequent tax years. The decision to end indexation relief for the disposal of assets after the tax year 2002 was announced in the 2003 Budget Statement and enacted in the Finance Act 2003. It had been introduced in 1978, at a time when there was high inflation on capital gains tax rates. At the time, these factors were a major deterrent for persons considering disposing of assets. As Deputy Mansergh said, now that the capital gains tax rate has been reduced to 20% and we have far more consistently low inflation there is no reason to have indexation relief in the capital gains tax code.

Internationally, most countries do not apply indexation relief to the taxation of capital gains, including the United Kingdom, Australia, the United States of America, New Zealand, Germany, the Netherlands, Iceland, Norway, the Czech Republic and Spain. In 2006, the OECD, as part of its tax policy studies series, produced a document entitled, Taxation of Capital Gains of Individuals: Policy Considerations and Approaches. The UK Treasury proposes to taper relief with effect from 6 April next. The issue is moving out of the system rather than being re-introduced internationally by those whom we would have looked to as having good taxation codes. Most countries do not apply indexation relief in the taxation of capital gains.

Having a broad tax base is the price that must be paid for a low rate of direct taxation. With regard to capital gains tax, this has been achieved by streamlining measures, such as the abolition of indexation relief. The reintroduction of indexation relief would have the effect of reducing the capital gains tax base at a time when tax receipts, generally, are falling.

For those reasons — international practice, the rationale for the original introduction of relief and the general issue of the tax base and its simplification — the amendment should not be accepted.

Deputy Richard Bruton

My intuitive belief is that real gains ought to be taxed and not paper gains. I accept the Minister's point. He has, obviously, studied other tax codes and found that everyone else is doing the same. There was equity in the original tax, which was designed in the 1970s. We have probably had 20% inflation since the relief was ended and under my proposal tax relief would be granted on that 20%. The base price at which property or equities were purchased would be marked up by that percentage and relief would be granted as a result. That seems an equitable way to treat capital gains. However, I do not intend to delay the committee on this issue.

Deputy Martin Mansergh

Needless to say, the less well-off do not pay capital gains tax.

Deputy Kieran O’Donnell

Rollover relief in the business area was abolished. That was a good measure. I was surprised, at the time, that a threshold was not placed on roll-over relief so that it would apply only below a certain limit. A person who is selling an asset to acquire another asset has no room for inflation and the consequent increase in the cost of the asset they must buy. Furthermore, the person has no form of rollover relief.

Deputy Bruton makes a reasonable point. We have seen a 20% rate of inflation since 2002. The proposal is an equitable measure and should be given consideration. The reduction of the capital gains tax rate to 20% is not the only factor to be considered.

Deputy Richard Bruton

I would point out to Deputy Mansergh that capital gains tax would apply to a gain of €1,000. Admittedly, the family home is exempt. People who purchased Eircom shares would be liable for capital gains tax. It is not solely the preserve of the wealthy.

Deputy Brian Cowen

Capital gains tax was introduced in 1975. Rollover relief was introduced in 1978. Therefore, it was not a feature or integral part of the introduction of the capital gains tax code. Our high inflation economy at the time required us to introduce indexation relief. We have all been moved to a point where we are trying to simplify the tax system. Ireland is now a low inflation economy in comparative terms. Therefore, rollover relief was introduced in circumstances which no longer apply. Apart from the international argument, one could use this logic to say it should not be reintroduced.

On the other point raised by Deputy Bruton, it is true that if indexation relief was still in place, people would get relief at the rate of 20%. However, the tax code has progressed in terms of what is being done in respect of income tax. The percentage of capital taxes of total tax take in 1997 when the Government first took office was 4%. Up to last year or the previous year, it was 11%. We have increased the take from capital gains taxes as part of the rebalancing of the burden on income. If one reduces the burden on income, by definition, in terms of the overall tax take, the burden must be borne elsewhere. The halving of absolute rates has resulted in increased transactional activity and an increase in the overall tax take.

The matrix is moving all the time. We cannot look at this from a static or ten year look-back perspective and suggest we are now at a disadvantage because indexation relief was abolished. We must look at the income generated in the economy and the tax treatment of that income through the widening of bands and reductions in rates, an ongoing means of generating income as distinct from capital gains tax which results from the disposal of a particular asset at a particular time. There is no question but that this is more conducive to the generation of enterprise, activity and growth.

The same applies to roll-over relief. Previously CGT rollover relief applied to all disposals made on or after 4 December 2002. It was applied by deferring some or all of the tax chargeable on the disposal of business or farming assets where the proceeds or some of them were reinvested in replacement assets for use in the trade, business or profession. The relief was abolished by means of widening the CGT tax base following a halving of the rate from 40% to 20%. It is always the way that when one addresses a structural problem by way of the simplification of measures such as abolishing support relief to try to ameliorate the punitive aspect of the rate in the first instance, people tend to forget that the rate was reduced from 40% or 20% and seek the introduction of rollover relief. That is the nature of human expectation.

Deputy Kieran O’Donnell

I am speaking about roll-over relief for the small business sector.

Deputy Brian Cowen

I have made specific responses. For example, I have used the stamp duty exemption mechanism as a means to assist the consolidation of farms because it is an objective I would like to see achieved. This does not mean, however, that I must reintroduce rollover relief. If I were to do so in the case of farming, I would have to do it in all other areas. What is the purpose of reform in the first instance if one then has to introduce further——

Deputy Kieran O’Donnell

The Minister stated the reform was introduced as a revenue collection measure.

Deputy Brian Cowen

I did not say that.

Deputy Kieran O’Donnell

The Minister did say it.

Deputy Brian Cowen

No, I did not. It was introduced as a means to increase transactions. We all know that tax reductions in rates have resulted in greater levels of activity and revenues. That is the beauty of this. That is not to suggest, however, that one is a flatliner and should not keep going. One reaches the point where reform has been effected.

Deputies O'Donnell and Bruton are seeking in the amendment the reintroduction of indexation relief. While Deputy Bruton makes a good case for its reintroduction, taking everything into account, the balance lies in not reintroducing it.

Deputy Kieran O’Donnell

I am speaking, in particular, about small start-up businesses which are trying to expand. They are under a great deal of pressure. We are finding, across a range of areas, that the accelerated capital allowances for energy efficiency equipment, with which I generally agree, do not apply in the case of start up businesses which are the lifeblood of the economy and should be assisted. I am not seeking the reintroduction of full but partial rollover relief to ensure small businesses, when they expand, do not lose 20% of whatever appreciation in value they have gained.

Deputy Brian Cowen

As a result of good management of the economy, the value of their businesses has being greatly increased. The capital gain is excellent.

Deputy Martin Mansergh

Many will remember the political and financial debates of the 1980s when we had miserable yields of capital and corporation taxes, an issue about which the Left was always complaining. The reforms introduced since have been a tremendous success. They have not alone multiplied revenues from capital and corporate taxes — the Minister gave us the figures for the past ten years — by several thousand per cent during that period and provided financing for schools, hospitals, roads and so on, but have also been consistent in stimulating buoyant economic activity. We should not lose sight of the fact that this is, from the point of view of tax rates, capital and corporate taxes and social insurance, one of the best countries in the world in which to do business. The suggestion was made that the tax system is oppressive; it is not. We have achieved the right balance in generating massive increases of revenue while reducing the burden on income.

I recall a conversation the Taoiseach had with the late Donald Dewar, the former First Minister in Scotland, in respect of increases in capital gains tax. It went against all his instincts that halving the rate could more than double revenue. However, that is what happened. The Government has been a little unfairly criticised by the European Commission in its annual economic report as we are conducting our finances safely and prudently. We need revenue from those who can afford to contribute. The 20% capital gains tax rate without indexation at a time of lower inflation is not in any sense oppressive.

Deputy Seán Barrett

I am reminded of the horrible days of the 1980s when we were forced into having high rates of taxation, direct and indirect, following the horrible mistakes made in the late 1970s based on weird economic policies. I am glad we were able to eventually move from that situation but it took us a long time to do so. We learned a lesson in the horrible days of the 1980s when we halved betting tax, with the result that we received more revenue. That means just one thing — that when there is a proper tax rate, people become more honest. We all know what was happening with betting tax — most large bets were made under the counter. The same happened with capital gains tax. When it was halved people became more honest and stopped getting involved in avoidance schemes. That will only last for so long, however, and without some indexation, as Deputy Bruton said, the real rate becomes similar to what it was in those days.

It is a false notion for people to believe they are better off just because the rate is lower because, in real terms, they are paying as much as when the tax rate was higher. It is the same with personal taxation. Unless bands are indexed, even if the rate is reduced, people end up paying more tax. We must face this issue from the point of view of the system. Deputy Bruton's amendment is a very wise one in so far as it makes us realise we cannot forever refuse to face the reality that we must tax real gains. This is a worthwhile debate and future Ministers will be faced with the choice of either reducing the rate or reintroducing indexation, as well as many other choices one has to make in politics.

Deputy Brian Cowen

On the question of the absence of indexation increasing the burden in overall terms, it could be argued that an asset will have appreciated during the period in question at a cumulative rate of 20%, which is well in excess of inflation and that is because of the way the taxation system has been structured. If I wanted to get the tax on the real amount of the gain I should increase the rate rather than halve it.

Deputy Seán Barrett

It depends on what assets the Minister is talking about.

Deputy Brian Cowen

The bottom line is that the position is much better now than previously. Given that assets have become so valuable, one is in a much better position to get rid of something now and pay tax at 20% than one was in 1978, when an asset was worth 10% of today's value and a person could claim a few percentage points back in indexation relief.

Deputy Martin Mansergh

Who is deterred from getting rid of an asset by a 20% capital gains tax rate?

Amendment put and declared lost.

Sections 48 to 50, inclusive, agreed to.

NEW SECTIONS.

Amendment No. 62 not moved.

Chairman

Amendments Nos. 63 to 65, inclusive, will be discussed together.

Deputy Richard Bruton

I move amendment No. 63:

In page 78, before section 51, but in Part 2, to insert the following new section:

51.—A new vehicle registered in the State and subject to the emissions based VRT regime shall not in that respect be treated less favourably than a second hand vehicle not already registered in the State which is brought into the State.".

The intention of this amendment is to ensure the VRT regime does not treat a new vehicle as favourably as a second-hand vehicle not already registered in the State.

Deputy Brian Cowen

Vehicle registration tax is charged at the time of registration in the State. Under the revised VRT system, the VRT rate applicable to both new cars and new imported cars registered on or after 1 July 2008 will be determined by the CO2 emission rating of the car and will no longer be related to engine size. In so far as pre-owned used cars imported after 1 July are concerned, CO2 emissions of a car presented for registration in the State will have to be declared to the Revenue Commissioners on form VRT4, which is a declaration for registration of a used vehicle by the person registering the vehicle at the time of registration. A declaration will be required to be supported by documentary evidence as to the CO2 emissions of the car. Acceptable documentary evidence will include a certificate of conformity for the particular model, a previous registration certificate, a certificate from the manufacturer or distributor or a certificate from an organisation approved by the Revenue Commissioners to provide such certificates. Where a certificate or a measurement confirming CO2 levels for a vehicle is not available or does not satisfy the Revenue Commissioners, VRT will be charged on registration at the maximum rate allowable, which is 36%. Such a VRT rating will be open to appeal to the VRT appeals system. Second-hand imported vehicles will therefore be subject to a similarly rigorous evaluation of carbon dioxide emissions and subsequent classification for the purposes of VRT and motor tax as a new vehicle presented for registration in the State and will not be treated more favourably than new cars.

Amendment No. 65 relates to cars brought into the State for periods of more than 42 days. As a general rule all vehicles imported permanently into the State must register for VRT purposes within seven days of arrival. This rule applies equally to vehicles imported by EU and non-EU persons. An EU Council directive provides for tax exemptions within the community for means of transport temporarily imported into one member state from another. The purpose of that directive is to ensure the proper functioning of the internal market. National legislation must conform with EU legislation and section 135A of the Finance Act 1992 permits a European or other foreign registered vehicle which is temporarily brought into the State by a person established outside the State to be exempted from the requirement to register for vehicle registration tax purposes for a period normally not exceeding 12 months from the date on which the vehicle concerned was brought into the State.

These provisions are in line with Article 39 of the EU treaty, which provides for the free movement of people within the EU, and reciprocal arrangements are in place for our own State residents and those of fellow member states. Compliance with the provisions of the road traffic Acts regarding insurance and driver licensing is not required by the directive to qualify for the exemption. The imposition of requirements on citizens of other states which are not imposed on our citizens would almost certainly be contrary to the freedom of movement provisions in the treaties.

There is no legislative requirement to have insurance prior to registering a vehicle. However, in accordance with section 56 of the Road Traffic Act 1961, as amended, no mechanically propelled vehicle may be used in a public place without motor insurance, to cover the cost of compensation for injury to persons or property.

On enforcement activity in the State, the Revenue mobile units and the Garda Síochána continue to monitor both Irish and foreign registered vehicles on our roads. Last year the mobile units challenged 15,470 vehicles. Of these, 10,325 satisfied the Revenue officials that the registration status was in order at the time. Some 2,313 were registered for VRT purposes as a direct consequence of these investigations. In the remaining cases, prosecution, seizures, granting of temporary exemptions or transfer of residence, vehicle exportations or scrappage took place on foot of Revenue enforcement activity. Matters relating to road tax, driver licensing and insurance fall under the remit of the Department of the Environment, Heritage and Local Government and the Department of Transport.

As to the future, the issue of managing the national vehicle fleet is a complex area involving a multiplicity of agencies: the Road Safety Authority; the Departments of Transport and the Environment Heritage and Local Government; local authorities; the Garda Síochána and the Revenue. There are complex and often competing issues such as road safety and EU principles of the free movement of goods and people within the EU. Any measures we take must respect the rules with regard to vehicle testing in other member states and recognise reciprocal arrangements that are in place in respect of our citizens' rights to drive their vehicles in other member states. There are also complicating issues in relation to cross-Border workers who live in Northern Ireland and work in the Republic.

I am concerned, as much as others, about the road safety implications resulting from substandard vehicles being driven on the roads. This is an area that requires a concerted cross-Government approach. Officials from the relevant agencies are currently working together to see where improvements can be made in both the legislative and enforcement framework in relation to the management of the vehicle fleet. I would expect the review of these issues to be completed quickly and appropriate action will then be taken.

Deputy Joan Burton

I apologise for my absence. I had to represent the Labour Party on the Order of Business because the leader, Deputy Gilmore, had to attend a funeral.

This issue has been debated in this committee and in the Dáil. There is major concern about the prevalence of foreign vehicles on our roads. We recognise the right of freedom to travel as a consequence of being in the EU. People generally support that but, given the accident rate and the changes made in respect of emissions, is this not an opportunity to address the matter?

There is a high number of foreign vehicles in my constituency. Unfortunately, a number of them have been involved in accidents, some of which were minor, some of which were major. It is galling for people to see that foreign vehicles do not appear to be required to comply with the NCT. A local person who purchases a car in Ireland must have the car tested regularly, which is quite expensive but is good in terms of road safety and car condition. Imported cars are not required to do this and some are not much above banger level. Local residents have considerable difficulty understanding why they are subject to stringent regulation to promote road safety, to ensure cars on the road are good quality and to ensure people are properly entitled to drive. It seems that cars can be brought in and, while Revenue officials have increased the number of checks, in areas such as Dublin West it is not having a serious effect.

Practically every roundabout is decorated by those who sell cars, many of which are imported. They come for a day or two and then go. Nobody knows the history of the cars and whether they have been crashed. During walkabouts in west Dublin, people raise this issue all the time. Because we are entering the new structure of emissions, registration fees and VRT, is this not an opportunity to take some action so that compliant motorists who pay a lot in terms of road tax and vehicle duties do not see substandard vehicles on the road?

This refers to cars but another area of concern is licences. We appear to have many lorries on the road, most of which are Irish and may be second-hand. Nobody is clear about the driving qualifications of many of the lorry drivers, some of whom have been involved in very serious accidents. This is an area crying out to be addressed, with the aim of improving road safety and reducing the number of road deaths.

Deputy Brian Cowen

Regarding the first amendment there will be no preferential treatment for imported cars over existing cars. The problem arises when imported cars use the temporary provisions even though they are on the road more than 12 months. This 12-month period is a generous provision. Our national law must comply with a directive which has, as its main focus, the free movement of persons. This is almost a sacrosanct principle in how the EU approaches matters, often at the expense of making it difficult to provide practical enforcement. We must live with that in the context of the new phenomenon of people coming to the country and an increase in the number of vehicles entering the country in this way.

As a result of the phenomenon, officials from the relevant agencies, namely, local authorities, Departments, the Garda Síochána, the Revenue Commissioners and the Road Safety Authority, are working to see where improvements can be made in the legislative and enforcement framework regarding the management of the vehicle fleet. This is due to the new challenge that has arisen and I must leave it to that process, which is expected to be completed quickly. Appropriate action will be taken after consideration of all the issues by these agencies in terms of their responsibilities for enforcement and monitoring of the vehicle fleet in terms of road traffic Acts and road safety.

Deputy Richard Bruton

I am heartened to hear the Minister state that the group will work on this matter quickly. However, the issue has been around for quite some time. It is an irritant that is doing damage to the confidence of people in the system. The work needs to be accelerated and, as we can seek EU approval of state aid, if we seek to enforce laws that are entirely valid for public safety, we should not be unreasonably inhibited in doing so. I do not detect the same sense of urgency that the Minister implies in suggesting this is imminent. This matter has been raised time and again in the other House but we have not made much progress.

Deputy Seán Barrett

I support the two previous speakers. This is an issue of safety and I urge the group examining the matter to do so as quickly as possible. I fail to see how the EU could object to changes we might propose if they are made in the interests of road safety.

Deputy Joan Burton

It is important that when the changes come into effect it should be possible for people, other than gardaí, to see at a glance that a car is compliant with the requirements. Many older people are used to the current system and there has been little information about what the new system means and designating cars as meeting the requirements of the new system. That is the reason I proposed some form of public information campaign whereby people who take an interest in cars would be able to see at a glance that a car is compliant, whether it is Irish or foreign. In areas with high numbers of these cars it is a serious cause of unease.

This is where difficulties arise between new and older communities. People feel that something is fundamentally unfair when they are doing what is right and other people are able, in a way, to give the two fingers to the law and nothing can be done about it. That becomes even more acute when people are visibly operating motoring businesses in housing estates and routinely have cars for sale at places such as crossroads and roundabouts. One need not be an expert on cars to have a good idea that these cars are unlikely to be premium quality. They look as if they have been brought into the country and local legend has it that they are wrecks that are tidied up and sold on to people who are probably hoping for the best.

Deputy Seán Barrett

That could be done through the emissions rating. The emissions rating should be clearly identified on the windscreen and that should apply to every vehicle on the road. We are trying to deal with the emissions issue. If cars display an NCT disc, they should also display their emissions rating. That is the manner in which one could deal with all these issues.

Deputy Brian Cowen

I will ask my officials to note the suggestions and ideas Deputies have put forward and bring them to the attention of the cross-agency group that is examining these matters with a view to finding a way to improve compliance with our standards. One of the problems is that there are reciprocal arrangements in place under this directive whereby we do not cause a problem in terms of the maintenance of standards in other member states due to the quality of the vehicles we drive, while people might come here from other countries with less ability to comply with the standards we have. That causes problems and then we are into questions of enforcement and uniformity of enforcement.

Deputy Joan Burton

Many immigrants have told me they are offended by some of the bangers one sees that are so dangerous. They tell me that in their home countries strong and immediate action would be taken, but they say it is easy to get away with the law in Ireland. This is said in particular by people from eastern Europe, of whom there are many in this country. The injury and death rate for immigrants as a result of road accidents is enormous. Many people in immigrant communities are conscious of this and I believe they would be co-operative if a campaign in this regard was launched.

Amendment, by leave, withdrawn.

Chairman

Amendment No. 64 is out of order. It is outside the scope of the Bill and is also declaratory in nature.

Amendments Nos. 64 and 65 not moved.

Sections 51 to 61, inclusive, agreed to.

SECTION 62.

Question proposed: "That section 62 stand part of the Bill."

Deputy Joan Burton

I have a general query on the section. In the long term, will this electricity tax be applied to households? They are exempt now but what is likely to happen in the long term? This is the first direct energy emissions tax but it is applied in this case to industry.

Deputy Seán Barrett

Are we getting into another situation as arose with water charges on schools? Will electricity be the next campaign we must face, given that this has been introduced as a result of an EU directive?

Deputy Brian Cowen

This arises due to the excise duty on electricity as required under the EU energy tax directive. In accordance with that directive, the tax is charged to the operator who supplies the electricity to the consumer. The rates of tax, which are the minimum rates specified in the directive, will apply to supplies made on or after 1 October. Household use of electricity is exempt and certain industrial users of electricity are exempt, as is electricity from renewable sources and from environmentally friendly heat and power generation. Due to these exemptions and because the energy tax directive also requires that mineral oil used to generate electricity is exempt from mineral oil tax, the yield from this tax will not be significant in 2009. The tax applies to those who supply electricity. It is a requirement to comply with an energy tax directive that does not have major revenue implications. It is marginal.

Deputy Joan Burton

The explanatory memorandum states that household use of electricity is exempt from the new tax. Does that mean that public users for the public good, such as schools and hospitals, will be part of the structure that will have to bear the new taxes? Presumably, the producer will inevitably pass these taxes on to the consumer.

Deputy Brian Cowen

Yes, but the way it works is that the minimum rates specified in the directive are the ones we are applying. The actual impact is marginal. It only applies to those who supply electricity.

Deputy Joan Burton

Yes.

Deputy Brian Cowen

If one has a CHP plant and one is supplying electricity to an industry, group, home or whatever, that is exempt. A private household is exempt and certain industrial uses are exempt. We must comply with—

Deputy Seán Barrett

Will the suppliers pay this out of their profits?

Deputy Brian Cowen

If they pass it on, the impact will be marginal. It is 50 cent per megawatt hour for business use and €1 per megawatt hour for non-business use. I am informed that the impact is marginal.

Deputy Joan Burton

Is this based on the polluter pays principle?

Deputy Brian Cowen

No, it is based on imposing a tax on those who supply electricity. It is part of the energy tax directive. If one is a supplier of electricity, the directive sets out various gradients of tax. There is a minimum threshold and we are applying it. We do not want this to be a major imposition. We must comply with the directive and there is sufficient room for us to do so without it causing a problem.

Deputy Joan Burton

I shall rephrase my question. The objective of this measure is obviously to impose a tax on electricity generated from emission-producing sources.

Deputy Brian Cowen

Yes.

Deputy Joan Burton

If, for instance, as is the case of Ireland, we lack energy production from renewables, an area in which we have done very little—

Deputy Brian Cowen

We are building on it significantly.

Deputy Joan Burton

Compared with most European countries—

Deputy Brian Cowen

We are meeting our targets. We are doing well in that area.

Deputy Joan Burton

—we are lagging far behind.

Deputy Brian Cowen

With the exception of Denmark, we are up there with the rest of them. The current figure for renewables is 11%.

Deputy Richard Bruton

Of the electricity produced here, 11% is not from renewable sources.

Deputy Joan Burton

Renewables do not account for 11% of electricity.

Deputy Brian Cowen

The overall mix of fuels used in generation in 2006 was gas, 50%; coal, 19%; oil, 9%; peat, 7%; CHP, 4%; and renewables, 11%.

Deputy Richard Bruton

Those figures do not refer to electricity output.

Deputy Brian Cowen

They refer to the overall mix of fuels used in generation. Renewable fuels account for 11% of that mix. We are making headway.

Question put and agreed to.

Sections 63 to 68, inclusive, agreed to.

SECTION 69.

Question proposed: "That section 69 stand part of the Bill."

Deputy Joan Burton

According to recent replies supplied by the Minister and his colleagues, the number of off-licences has increased phenomenally. I understand the figure is currently around 4,500. Will the Minister indicate the number of off-licences paying this duty to the Revenue Commissioners?

Rather than getting more badly needed doctors, dentists and physiotherapists, the poorest areas of my Dublin constituency are getting more off-licences and betting shops. While there is nothing wrong with these types of businesses, the number of off-licences is increasing dramatically, with almost every garage in my constituency now selling alcohol. Is the rate of duty being charged appropriate?

The traditional off-licence's trading hours used to be restricted and were linked to the trading hours of pubs, whereas the new off-licences do not appear to be restricted in terms of the times at which they are able to sell alcohol. Drink is included in the general mix. One enters to pay for petrol but one can buy beer, wine, chocolate, etc. Is the licence duty appropriate?

Traditional off-licences and pubs are closing at a fast rate in Dublin and a catastrophic rate elsewhere. Has the Minister had an opportunity to examine how tax policy could be used to reduce the number of off-licences and points of sale for alcohol? The off-licences that are new to the trade are offering incentives in the sale of alcohol. For instance, for St. Patrick's Day last year, Tesco and other supermarkets were offering two-for-one deals on cans of beer. Does taxation have a role in reducing the number of points of sale for alcohol? Alcohol is now being sold in places like garages where young kids hang around and many problems with anti-social behaviour arise. Adults are buying carry-outs for children and on big match days, one sees children heading out on a Saturday morning to buy trays of Dutch Gold on special offers. The situation is almost out of control. Will the Minister examine the charges and levies imposed on these off-licences with a view to bringing some kind of order and control to this area?

Sitting suspended at 1.05 p.m. and resumed at 2.30 p.m.

Deputy Richard Bruton

We were discussing section 69, in which the Minister is moving to increase the off-licence fee at an astonishingly low level. I note that the Minister for Justice, Equality and Law Reform has established a committee under Dr. Gordon Holmes who is to look into the issues surrounding the availability of alcohol and the extraordinary explosion in discount selling and the number of new outlets. Who has dramatically relaxed the conditions surrounding the sale of alcohol? There was a time when alcohol could not be sold before 11 a.m. There was a degree of formality. However, matters have changed dramatically. I recently saw a "Dial-a-Can" sign outside an off-licence in my constituency, where a number can be dialled and the cans delivered. The law used to stipulate that the seller had to form a reasonable view on the age of the customer, but I do not know how licence holders can comply with these obligations if mobile phones are used to purchase alcohol.

There seems to have been an explosion in terms of the ease with which alcohol is made available. I wonder whether there has been a conscious effort to loosen the laws, or were such provisions always available to licence holders? The Competition Authority has waded into the debate, claiming that it wants to defend competition in the business. There is a real conflict between competition and the evidence which suggests the greater the availability of alcohol, the greater the abuse. There is a public policy debate. How has this extraordinary relaxation developed, seemingly in the last three or four years?

Deputy Kieran O’Donnell

I concur with Deputy Bruton. Does the Minister think the size of the licence fee increase is sufficient? The increase in the number of off-licences is proving to be contentious for people living in certain areas. It is a cause of anti-social behaviour such as late-night and under-age drinking. It should be difficult rather than easy to obtain an off-licence. We will have to tighten our planning laws, licence renewal arrangements and the way in which the matter is dealt with in the courts. Control must be gained over the issue because it has a serious effect on our social fabric. The Minister should increase the charge well above the figure of €50 he is now proposing.

Deputy Edward O’Keeffe

I am conscious of the damage being done by off-licences in terms of alcohol abuse. I recently saw alcohol being sold in a hardware shop and did not realise a licence could be bought for the price of a dog licence. That is leading to major abuse of alcohol that cannot be detected. The Minister for Justice, Equality and Law Reform is looking at the issue. Off-licences should not be ten a penny in every town and village, as is the case. The only way we can prohibit this is through having a licence, the cost of which is penal. One off-licence in a town of 5,000 people was the norm ten years ago, but today there might be ten to 15. Discount supermarkets now have cheap imports from the Continent, which is causing difficulties in society. If pubs were not licensed, we would have the same problem with alcohol that we have with drugs. Therefore, this is an opportunity for the Minister to increase revenue in his Department by making this provision prohibitively expensive.

A retail shop in Mitchelstown recently closed down and reopened as an off-licence in an area that did not merit one. Originally it was a newsagency, sweet shop, etc. The lease cost €500 per week and I am told that was not considered sufficient. Off-licences are now paying in the order of €1,500 per week. It is a very lucrative sector and the State should share the funding raised.

Deputy Brian Cowen

Enforcement or the provision of liquor licences are matters for the Department of Justice, Equality and Law Reform. The Minister has recently established a Government alcohol advisory group to examine, among other matters, the increase in the number of supermarkets, convenience stores, petrol stations and off-licences and the conditions attaching to the sale of alcohol products in such outlets. Submissions are being invited from the public by the group which will report to the Minister for Justice, Equality and Law Reform by the end of next month. This is a contemporaneous issue that is being looked at by the Minister.

The other trend is the increase in off-licence as against on-licence sales which has been evident for some time. Five or ten years ago the ratio of on-licence to off-licence sales was probably 70:30. It is now 52:48 according to the drink industry group. For the first time off-licence sales will exceed on-licence sales, for which there are a number of reasons, including social changes but also price. While previous generations regarded the pub as the centre of attraction, that is no longer the case. Societally, people drink at home at a younger age and there is a greater tolerance of drinking at home. There is a totally different attitude than would have been the case when we were growing up. This is reflected in the fact that people no longer regard the on-licence premises as the only place in which one can take a drink. An amount of spirits and wine is being consumed in restaurants and the market has changed to meet the changing tastes of the population. I do not believe in using tax policy to close down outlets. That is not the purpose of tax policy. If they are legally in place under the law, they are provided for. The societal impact is a different issue, one for the Minister for Justice, Equality and Law Reform who is looking at it to see whether sales should be restricted in the increased number of outlets such as the supermarkets, convenience stores, petrol stations and so on.

The provision concerns an increase in the cost of a licence. Many off-licences have three licences. They have a spirits licence, a beer licence and a wine licence. Bearing this in mind, 1,170 spirits licences, 1,170 beer licences, 3,845 wine licences and around ten cider licences have been issued. Approximately €1.5 million in excise duty in respect of off-licences was paid in 2006. Each type of licence attracts an excise duty of €250 which is being increased to €300 in the Bill. Off-licence traders have to obtain a separate licence for each type. If a trader wishes to sell spirits, beer and wine, the cost of possession of each of the relevant three licences will increase from €750 to €900 from 1 October. This has to be taken into account when considering the number of licences granted. A court certificate is required to obtain a spirits or beer licence. A certificate is not required for a wine or cider licence. That might explain the noticeable difference in the number of wine licences compared with the number of spirits and beer licences. Only wine is sold on its own in a number of outlets. To put the issue of off-licences in context, there were 9,482 premises which held an on-licence, that is, a pub licence, in 2006.

I note that the accessibility of alcohol to the public generally and young people in particular is a matter of concern. Clearly, there is an enforcement issue but there is also the matter of whether the access issue should be revisited. The Minister for Justice, Equality and Law Reform is revisiting it.

Deputy Richard Bruton

Does the Minister have data on the apparent explosion in the number of off-licences? I think he said there were 3,800 wine licences, 9,000 pub licences and 1,100 beer licences. Therefore, the number of off-licences is about one third of the number of pubs. Are these conditions for which the Minister has a responsibility?

Deputy Brian Cowen

No. It is an issue for the Minister for Justice, Equality and Law Reform.

Deputy Richard Bruton

What are sweets? A retailer of sweets, of cider and of wine pays the same amount. Are these sweet wines or bullseyes?

Deputy Brian Cowen

Sweet wines.

Deputy Richard Bruton

One needs a special licence to sell sweet wines.

Deputy Brian Cowen

Thankfully, there are three in the country.

Deputy Joan Burton

Perhaps the Minister would give consideration to any changes in policy that he could implement via the Finance Bill before Report Stage? Deputies from all parties have expressed their concern about the impact of off-licences on their communities. I spoke about the issue this morning. The Minister would find very strong all-party agreement if he were to do something about it because it is a plague on communities, particularly in local authority housing estates. It presents an enormous difficulty and is causing untold misery.

Chairman

The Minister has stated this is a matter for the Minister for Justice, Equality and Law Reform and that we are dealing with an increase in the cost of licences. Therefore, we do not want to go into—

Deputy Joan Burton

With due respect to the Minister, we shall take Report Stage the week after next. I am well aware of the technical virtuosity of the Minister and officials in the Department and the Revenue Commissioners.

Chairman

We cannot have a Second Stage speech on the issue.

Deputy Joan Burton

Will the Minister undertake to look at the issue because he would receive all-party support? It is a plague on communities.

Deputy Brian Cowen

There are a number of issues, including personal responsibility. A suggestion was made that because of the proliferation of off-licences we had a drink problem. We had a problem when there were very few off-licences. Personal responsibility is an issue in the use and abuse of alcohol. There has been a proliferation of off-licences which reflects the greater demand for off-licence than on-licence premises, as anyone acquainted with the vintner trade would know. The food business has become very important to the viability of a vintner's business. Without it, it is hard to justify remaining open for the usual hours, seven days a week. There are also off-licences being obtained by on-licence holders in an attempt to maintain trade on the basis that their customers no longer wish to remain on site to drink alcohol.

Deputy Joan Burton

They are usually better outlets.

Deputy Brian Cowen

That may be the case. There were irresponsible vintners and fewer off-licences. I am sure there is no monopoly of virtue on either side of the fence. We can generalise all we like but the bottom line is that there are enforcement issues which are the responsibility of the Minister for Justice, Equality and Law Reform. He is taking up the matter as a matter of urgency. By the end of next month he will have a report from the advisory forum which is seeking submissions from the public. The issue is in hand and being dealt with as a priority by the Minister. I do not contend, nor will I suggest, that if we were to double or treble the licence fee, it would detract from the current number of licences or would contribute positively or negatively in terms of the overall consumption patterns. We can sometimes miss the point. The point is that we need an alcohol policy that will have the support of the people who understand the benefits of moderation in the use of alcohol because of the consequences involved.

I agree this is a serious social issue and has been for many years, regardless of developments in the on or off trade. As it has not been touched for some time, I am simply changing the arrangements for the moment. If the advisory forum recommends in the future that the issue should be examined in the context of reform, I will re-examine it in that context as well. The focus of the section is narrow because the other issues are being dealt with in a more appropriate way. As a Government and as a Parliament we will consider what legislative or other changes are necessary to deal with the wider societal implications of easier access to alcohol facilitated by the far greater number of outlets than was traditionally the case.

Deputy Kieran O’Donnell

The Minister spoke about the changes in drinking habits. I can say, without fear of contradiction, that the increase in the number of off-licence premises has contributed to the biggest change, namely, the increase in under-age drinking. That is beyond all doubt. The pub environment was a far more controlled environment. Effectively one had to drink on the premises and there was an element of supervision. As matters stand, older people are buying drink for younger people in off-licences which are open at all hours and are on every street corner. There appear to be no controls on them getting planning permission. In terms of their effects on the wider community and anti-social behaviour, when a licence comes up for renewal through the courts system residents in an area have very little input. In many cases they are unaware the licence is up for renewal. It would be necessary to keep an eye on the courts system on a daily basis.

Chairman

I advise the committee that this is a matter for the Joint Committee on Justice, Equality, Defence and Women's Rights.

Deputy Kieran O’Donnell

May I make one point?

Chairman

We should leave it. The Minister has stated that his colleague, the Minister for Justice, Equality and Law Reform, is dealing with the matter.

Deputy Kieran O’Donnell

The licence fee is an element of control and it is under the Minister's control. It is, therefore, an area in which the Minister can play a part in regulating and controlling the off-licence sector. Currently it is getting out of control. Furthermore, I disagree with the Minister's statement that the increase in alcohol consumption is related to changing habits within the home environment.

Deputy Brian Cowen

The record will show that I did not say that.

Deputy Kieran O’Donnell

The Minister said that people are more tolerant.

Deputy Brian Cowen

I said there are many societal changes taking place which help to explain why consumption is increasing, one of which is changing habits within the home environment.

Let me take up the point the Deputy makes. The annual licensing court sits every September to consider applications in regard to the sale of intoxicating liquor, so it is incorrect to state that nobody knows when a licence is being renewed. Furthermore, I did not suggest that there are not shared concerns about the trends in drinking in Ireland today. On the contrary, I make the case that it has been a problem in Irish society for a very long time.

Deputy Kieran O’Donnell

It is a growing problem at underage level.

Deputy Brian Cowen

There was a problem before we saw the increase in the number of off-licences. The Deputy is missing the point. There is currently a greater degree of visibility in terms of access to liquor. The issue of personal responsibility arises. There is greater tolerance of young people drinking. They are allowed to drink at home at an age when most of us would not have contemplated touching alcohol. These are social changes which are happening, whether they are right or wrong, good or bad.

If it is the contention that a variation of what I am doing here would make a serious impact on a wider societal problem that is far more complex than is suggested, I do not agree with that contention. That is not to say that I am complacent about the matter. I was reared in a vintners' establishment and can claim to know something about it. What I am saying is that the abuse of alcohol has been with us for generations. That is not a flippant point. It is true. Perhaps it is only now that, in many respects, much of what was swept under the carpet is out in the open. I am concerned about the amount of drinking being done out of public view and the consequences of that. If someone is disorderly in a pub the problem is identified and the person is removed from that environment. I am worried about over-drinking in homes where there is an inter-generational tolerance of the abuse of alcohol.

For those reasons the Minister for Justice, Equality and Law Reform is introducing measures as a matter of urgency. He wants a report by the end of next month regarding what he can do about this. That may involve planning issues, issues of access or licensing. If monetary measures are recommended, there is no Minister who would be more enthusiastic than I in implementing them if they are part of a myriad of responses to deal with this issue.

I am strongly of the view that we cannot walk away from the issue of personal responsibility. The real issue is people's preparedness to abuse alcohol, denying families income for matters more important and germane to their health and welfare. I am acutely aware of those issues.

Deputy Kieran O’Donnell

I do not deny that.

Deputy Edward O’Keeffe

I agree with the spirit of the review body's recommendation and welcome it because it is urgent. Traditional pubs had a small range of drinks. If off-licences have a wider range, some with very high alcohol levels, there is a need for this measure. According to the table at the bottom of page 94 of the Bill there are five licences at €300 per licence. Does an off-licence have to have five different licences, one for spirits, one for beer, one for wine, one for cider and one for sweets?

Deputy Brian Cowen

It must have three.

Deputy Edward O’Keeffe

There are five mentioned in the Bill.

Deputy Brian Cowen

If it has licences for beer, wine and spirits, it can sell the rest.

Deputy Edward O’Keeffe

They can sell the sweets free.

Deputy Kieran O’Donnell

I agree with everything the Minister has said. The point I am trying to make is a very simple one. It is that under-age drinking in particular has increased primarily because of the increase in off-licences throughout Ireland. That is certainly a major factor in Limerick. It is an issue of major concern to the people who elected me. I am glad the Minister has agreed to take it on board if the review body set up by the Minister for Justice, Equality and Law Reform recommends an increase in the licence fee.

Deputy Brian Cowen

That will not be a problem.

Deputy Peter Power

It may be of assistance to members to know this matter is being and will be examined by the Joint Committee on Justice, Equality, Defence and Women's Rights. It met the chairman of the advisory group, Dr. Gordon Holmes recently. It is clear, without going into detail, that the factors influencing the abuse of alcohol by young people are wide and varied. Many have to do with the inability or unwillingness of the Garda Síochána to properly enforce the law through test purchasing and so on and the inability, because there is no legislative framework, of local authorities to refuse planning permission for off-licences. Parental control is a major issue. Personal responsibility, as the Minister pointed out, is also a major issue, along with a range of other issues, including education, advertising, societal changes and so on.

The one thing which was clear at our meeting was that a financial measure such as the budget or Finance Bill was a very blunt instrument to deal with a very complex problem. I invite members to engage with the Joint Committee on Justice, Equality, Defence and Women's Rights on this matter. The forum to discuss it is elsewhere.

Chairman

We will leave it to the committee of which Deputy Power is Chairman. I am sure he is doing a good job.

Deputy Joan Burton

We all have the same objective. A horrible incident occurred in my constituency, following which a young girl died. An adult also died some time later as a result. The incident left a scar on a community and a set of young people. Those involved in the death of the young girl had been drinking and moved on from various areas. They were outside a garage which also sold alcohol adjacent to a GAA club with a licensed bar.

Chairman

We are discussing section 69.

Deputy Joan Burton

Chairman, you heard out Deputy Power.

Chairman

I must advise the committee.

Deputy Joan Burton

You heard out Deputy Power.

Chairman

Section 69 provides for an increase to €300——

Deputy Joan Burton

When a shop became free in the neighbourhood shopping centre of this community—

Chairman

That is the provision made in section 69.

Deputy Joan Burton

—another off-licence opened for business in it. The local authority was powerless to refuse permission—

Chairman

That is not a matter to be dealt with under this section. We must move on.

Deputy Joan Burton

What Deputy Power is saying is not quite correct. Communities want to stop the opening of off-licences but do not have the power to do so.

Chairman

That is a matter for another committee.

Deputy Joan Burton

The Minister could assist by making the taxation and charge regime more realistic to stop trays of Dutch Gold being sold for next to nothing, particularly at weekends, in the Dublin area.

Question put and agreed to.

Sections 70 and 71 agreed to.

SECTION 72.

Question proposed: "That section 72 stand part of the Bill."

Deputy Richard Bruton

The sections dealing with VRT are more germane to the issue I raised with the Minister when I sought to ring-fence moneys from environmental taxes. This would be an appropriate area in which to introduce changes. The Minister was not agreeable to accept my two amendments to an earlier section which he, probably rightly, pointed out was an inappropriate place for them. If he is not willing, at this stage, to say he will ring-fence additional revenue which might come from the vehicle registration tax system, would he at least agree that we should have separate reporting by the Revenue Commissioners in order that we would be able to see the revenue impact of the changes? Presumably, people will change their habits and one hopes to see a reduction rather than an increase in revenue. However, the public deserves to see the impact of green taxes on revenue. This is the first green tax and I am sure there will be others. We should debate the question of ring-fencing these resources for particular uses. The Minister may not be willing to agree to it at this stage, while the Commission on Taxation is meeting. However, he might agree to separate reporting by the Revenue Commissioners, so far as it is possible, on the impact of green taxes on revenue.

Deputy Brian Cowen

VRT statistics will be broken down into various categories for VRT purposes, including the new carbon dioxide categories, when we enact this legislation. Working off previous car sales figures, we will see the shift, in environmentally friendly terms, in the numbers of car sales. It would be possible, under present arrangements, to look at the numbers of cars sold in various categories before and after the introduction of this measure. I am sure bodies such as the Society of the Irish Motor Industry would be very anxious to highlight the impact of this measure. Because of the way we have structured the measure, a rebalancing is taking place. We do not see it as a revenue raiser.

Deputy Richard Bruton

I am merely asking that the Revenue Commissioners be asked to issue such a report in order that they would be able to analyse the figures to see if people had continued to drive high emission vehicles and if the change had revenue implications. We could then look at the question of what to do with that revenue. The information would inform policy.

Deputy Brian Cowen

It is not necessary to do this de novo. The statistics required would be included in the annual report of the Revenue Commissioners. Their presentation of VRT figures will be in line with the various carbon dioxide categories.

Deputy Richard Bruton

I am trying to establish the principle that the Revenue Commissioners would report on additionality from green tax measures. I am merely asking that they be reported. It is matter of public information.

Deputy Brian Cowen

Those figures will be available.

Deputy Richard Bruton

On VRT.

Deputy Brian Cowen

That is what we are talking about. That is my responsibility. The shift in attitude, if any, will be clear from current and previous reports. The purpose of this measure is to change attitudes. The Deputy's suggestion that the revenue be ring-fenced suggests it will be substantial. My understanding is that the VRT base will not be affected but that people will be incentivised to buy more environmentally friendly cars through the new categorisation. The old categorisation was indifferent to emissions and based solely on engine size. I will get my money to use for the general purposes for which I use it. If the new regime raises more revenue than the old one, that will be clear from the presentation of figures, based on the shift involved. Parliamentary questions submitted on foot of the annual report of the Revenue Commissioners will glean further information beyond what is on the page.

Deputy Richard Bruton

I accept what the Minister says but I am not happy with it. We ought to establish the principle that Revenue should report separately on green taxes in order that we would be able to consider the issue. Most advocates of green taxes argue that even if they do not encourage people to change their behaviour, the revenue raised will, at least, be used to lower other taxes and that they will not be used as a subterfuge for revenue raising. The only way to ensure public confidence that this is the case is to ask Revenue to make separate reports. It may be that the Minister is right, that people will be virtuous, that revenue will decrease and the green account will diminish.

Deputy Brian Cowen

I understand the Deputy's point but it is a matter for another day. It should be possible for us to have that debate in the context of information currently being provided. We will not be completely in the dark on the matter.

Question put and agreed to.

SECTION 73.

Question proposed: "That section 73 stand part of the Bill."

Deputy Richard Bruton

I notice that on a figure of up to 120 grammes per kilometre of CO2 the same tax is to apply. I am not an expert on emissions but it seems strange that our tax structure does not encourage drivers to go lower still. There is no incentive to cut an engine's emissions back, for example, to 50 grams per kilometre. Why is it not graded in a more logical way? It is a leap into 14 and then rises to 36.

Deputy Brian Cowen

Just 1.6% of the total number of cars fit that category at present. A very small number of cars emit at the lower rate. We felt that it was its own de minimis rule. If it was any less, it might be difficult to define it as a mechanically propelled vehicle.

Deputy Richard Bruton

We will be taxing bicycles next.

Question put and agreed to.

SECTION 74.

Question proposed: "That section 74 stand part of the Bill."

Deputy Richard Bruton

An issue is raised by people renting vehicles about the change being made in this regard. They contend its impact is unfair. I am aware the Minister has received representations on the matter.

Deputy Kieran O’Donnell

We have received representations on this matter. Perhaps the Minister will explain the logic of the measure. Is it due to a specific abuse or is it simply a general measure? The people in the car rental business have asked that a period of time be allowed for proper discussions to take place with the Department's officials to see what accommodation can be reached.

Deputy Peter Power

Perhaps the Minister would look again at this section. The purpose of the proposal is laudable and the intention behind it is accepted. However, there could be unintended and unfortunate consequences for people in the industry. The relief was introduced in 1992 when the tourism industry was at a low ebb. The intention was to give some form of relief on VRT to the car hire sector. Oddly enough, it arose from Irish fans going to the World Cup in Italy in 1990 and our Italian friends, for one reason or another—

Deputy Brian Cowen

Was that the "Joxer" amendment?

Deputy Peter Power

That is correct. The Italians came back here in droves, which has probably led to the ultimate conclusion of the Irish team having an Italian manager. However, the original relief worked very well and produced great results for the industry. I believe it was reviewed in 1997 but that review was conducted in consultation with the industry, which appears to have worked well.

The reason this section is being introduced is that the relief is now being used by certain companies and some finance houses, possibly banks, in the car leasing business. There is now the concept of fleet hire where cars go into corporate use. They are not for bona fide tourists and are not genuine leases for tourists. That was not the intent of the original provision.

However, if one redefines the definition of a short-term lease down to 35 days, it will frustrate the industry. There has been a growing demand in recent years for these leases. I was surprised to discover from people in the industry that it is quite common for one person to lease a car or a series of cars for more than 35 days in the year. People of Irish origin, for example, who return here three of four times a year could easily clock up 35 days. If Mr. Trapattoni came here for 35 days in the year, the lessor of his hire car would be unable to reclaim the VRT. That is a problem for the industry. The industry caters for genuine tourists who are genuinely leasing cars.

Whatever about the financial impact on the companies, which is arguable, the tax foregone would be minimal until such time as there is consultation with the industry. The real issue for the industry, however, is compliance. To comply with this provision the industry will have to introduce a number of systems to calculate on a rolling basis. If a tourist comes to the country in July, December and June the following year and hires a car from the same company, that one individual has leased a car for over 35 days in the year, even if he or she hires three different cars. The company will not be able to claim any VRT on that car and if three cars are used, it would be unable to claim the VRT on any of the cars. It is a real issue. It accounts for 10% of the industry, oddly enough.

If the Minister was willing to look at the issue again, it would be appreciated by the industry. The Minister could change the current wording. The phrase "in any period of 12 months" can capture tourists who arrive here in August 2008 and June 2009, thereby clocking up 35 days. If the provision specified a calendar year or if consecutive leases within a 12-month period were outlawed, the original intention of the relief would be fulfilled. The abuse of this relief can be dealt with in another way.

Deputy Brian Cowen

I am aware representations have been made and I discussed this matter with Deputy Power in my office earlier in an effort to understand the problem. Other Deputies have referred to it as well.

I will explain the background to this relief. The VRT relief on cars used in the short-term car hire industry was introduced in the Finance Act 1992. The measure was aimed at boosting supply in the short-term car hire market to facilitate the tourism industry. Short-term car hire also enjoys the advantage of qualifying for the 13.5% VAT rate as a Sixth Schedule service. In both taxes, the relevant legislation includes measures to ring-fence the tax advantage to bona fide short-term hires, that is, periods not exceeding 35 days. The VAT provision in paragraph (15) of the Sixth Schedule provides that where aggregate hires, whether of the same goods or of other goods of a similar kind, to any customer exceeds 35 days in any 12-month period, the 21% rate is chargeable. In practice, this means that the corporate hire of motor vehicles is, in general, charged at the 21% rate. The VRT refund, by contrast, is allowed where the hire of a specific vehicle to a specific customer does not exceed 35 days in any 12 months. That is provided for in section 134(11)(b) of the Finance Act 1992.

With regard to avoidance, a practice has emerged among some of the short-term car hire operators of recalling cars let to longer-term customers in advance of the 35-day threshold and replacing the car with a similar model to ensure that the car continues to qualify for the relief. An alternative avoidance approach by the trade is to simply split longer-term hires into several shorter contracts for the same vehicle. This practice has no commercial substance and is carried out purely to support the avoidance of a VRT liability on the vehicles in question.

In reality, the practice represents a nuisance for customers who must change vehicles during a hiring period. The impact of this practice is to thwart the intention of the inclusion of the 35-day rule in the legislation and extend the VRT relief to a wider range of hiring circumstances. In addition to bringing longer term hiring scenarios into the VRT relief scheme, the divergence between the VAT and VRT definitions of short-term car hire contracts also causes confusion in the industry.

The short-term car hire refund scheme for VRT was introduced to support the tourism car hire sector. It is clear the scheme has been abused and that the leasing sector has manipulated contracts to benefit from the VRT scheme. The amendment brings the definition into line with the Revenue definition for VAT purposes.

Following publication of the Bill, I received representations from Deputies on behalf of the sector about the implications of the change in the definition. As a result of this consideration, if necessary and in order to give the short-term car hire operators time to bring their record keeping up to date and make any necessary amendments to accounting procedures and ICT systems, Revenue could defer implementation of section 74 as an administrative arrangement until September next. This would allow the sector to regularise its current position in order that it would be fully compliant with the requirements of the legislation, both in relation to VRT and VAT, in time for the tourism season in 2009.

It should be noted that this concession will not apply to abuses of the VRT refund scheme or the application of the current VAT rules. Furthermore, if the sector believes that, because of the changing face of tourism, a consultation process is required on the current legislative requirements of the scheme, we would be in a position to engage in the consultation to determine if the concerns of the trade warrant amendments of the existing rules as they relate to the aims of making cars available at a competitive rate during the tourism season. For example, it has been intimated that the existing system discriminates against tourists who may visit the country for three weeks in August in one year and three further weeks in July the following year. This matter could be examined and if it poses a problem, the legislation might be changed in the future to ensure the five week period refers to a calendar year, rather than any 12 month period.

Deputy Richard Bruton

The Minister is making a reasonable attempt to meet people halfway on this issue. Will the consultation take place before the deferral date? Will he return to the committee and indicate what the new date will be in order that we will be informed of the outcome of the consultation?

Deputy Brian Cowen

In practice, the deferral removes the 2008 tourism season from the equation. Therefore, if any further changes were required, we could introduce them in the Finance Bill next year, as that would cover the next tourism season. We will work out the details. The purpose of the measure is to ensure there will not be a hiatus. We will try to address the immediate issue by deferral and thereafter will have a consultation to identify what further changes are warranted to meet the objective of the short-term car hire scheme, while excluding any possibility that existing abuse will become institutionalised abuse.

Deputy Joan Burton

Is the Minister addressing the principal concerns expressed in the submission by car hire groups and various individuals from the car hire sector?

Deputy Brian Cowen

Yes, I have been persuaded by the arguments I heard in meetings I had on the issue.

Deputy Peter Power

I thank the Minister for taking a reasonable position and attempting to meet the industry halfway. I respectfully suggest a further issue could be examined before Report Stage. If the introduction of the scheme is deferred until after the tourism season and placed on an administrative footing until then, I understand the section in its current form will become effective in September. This would still be an imposition on the industry during the interregnum between that point and the Finance Bill, notwithstanding the consultation period. I suggest the wording be re-examined to find a way to exclude the consecutive rentals to an individual. This would defeat the current abuse in the system and assist the bona fide car rental industry.

Deputy Brian Cowen

We will tease out the practicalities of the issue and try to address the requirements of the case. The intention is to deal with the abuse, not to mess up bona fide arrangements in short-term car hire. We will defer until September and engage in discussions. If the Deputy's proposals can be considered before Report Stage, we will do so. We will do what is necessary to ensure a problem does not arise between September and February. We will try to get beyond the current position but will not have a full solution until further consultation takes place.

Deputy Kieran O’Donnell

My understanding from representations made by the car rental industry is that the benefits of the scheme are factored into their pricing policies. The car rental market is very competitive and prices have been falling recently. Is it proposed to hold consultations with the car rental industry before Report Stage?

Deputy Brian Cowen

No.

Deputy Kieran O’Donnell

Would this option be considered? Is the car rental industry amenable to the Minister's proposal?

Deputy Brian Cowen

The industry did not realise I planned to be so generous.

Deputy Kieran O’Donnell

It may have a different view.

Deputy Brian Cowen

I can withdraw the proposal if the Deputy wishes.

Deputy Kieran O’Donnell

No.

Deputy Brian Cowen

The Deputy will be blamed.

Deputy Kieran O’Donnell

On a lighter note, if Mr. Trappatoni, the new manager of the Irish soccer team, is here for less than 35 days, it does not augur well for the team. I suggest the Minister make an exception.

Deputy Brian Cowen

His remuneration package suggests he will be okay for some time.

Deputy Edward O’Keeffe

I thank the Minister for going halfway on this issue. Deputies received several representations from the car rental industry for which this is a major economic issue. I hope the Department and the industry will reach an agreement in the best interests of everyone concerned.

Question put and agreed to.

Sections 75 and 76 agreed to.

SECTION 77.

Deputy Brian Cowen

I move amendment No. 66:

In page 98, line 43, after "activity" to insert the following:

", whatever the purpose or results of that activity,".

The section, as initiated, amends section 1 of the VAT Act which defines words and expressions used in the Act. As this is the first item in the VAT part of the Bill, I remind Deputies of the two key VAT issues covered in this year's Finance Bill. They will have noticed the useful overview of these two issues in the introduction to Part 3 of the explanatory memorandum. The issues are VAT on property and the preparation for the enactment of a new VAT Bill. A new VAT Bill is being considered as a response to the introduction of a new VAT directive.

The amendment is required to bring the definition of the word "business" fully into line with the definition of the term "economic activity" in the new VAT directive. It provides that the definition of the word "business" covers an economic activity, whatever the purpose or results of that activity.

Deputy Richard Bruton

Forfás or another body raised the need for Ireland to lead a campaign to have the definition of the term "VAT" changed. Its concern is that the present arrangement as to where VAT falls on services restricts competition and opportunities for development. Has the Minister had an opportunity to examine the case it made and whether it is possible to negotiate changes to address the matter?

Deputy Brian Cowen

I have not been personally briefed on that matter. The proposal has just emerged and discussions have started in the European Union. I will find out the state of play with regard to the discussions and the view of the Forfás proposal and revert to the Deputy.

Amendment agreed to.

Section 77, as amended, agreed to.

Section 78 agreed to.

SECTION 79.

Deputy Brian Cowen

I move amendment No. 67:

In page 100, paragraph (a), line 10, to delete “paragraph (e)” and substitute “subsection (1)(e)”.

Section 79 of the Bill, as initiated, amends section 3 of the Value Added Tax Act which deals with the supply of goods. This amendment corrects a minor drafting error in the Bill, as initiated.

Amendment agreed to.

Section 79, as amended, agreed to.

SECTION 80.

Deputy Brian Cowen

I move amendment No. 68:

In page 101, line 8, after "1 July 2008." to insert the following:

"Subsection (9) shall apply only as respects a reversionary interest created prior to 1 July 2008.".

Again, section 80 of the Bill amends section 4 of the Value Added Tax Act, which deals with the special provisions in regard to the supply of immovable goods. This is a transitional measure associated with the introduction of the new VAT on property regime. The amendment restricts the exemption of the supply of a reversionary interest under subsection (9) to cases where that reversionary interest was created before the introduction of the new system for the taxation of property.

Amendment agreed to.

Section 80, as amended, agreed to.

Section 81 agreed to.

SECTION 82.

Chairman

Amendments Nos. 69 to 85, inclusive, are related and will be discussed together.

Deputy Brian Cowen

I move amendment No. 69:

In page 104, lines 46 and 47, to delete "until those goods are supplied, and" and substitute the following:

", until such time as those goods have been disposed of by that taxable person on or after that date, and".

Section 82, as initiated, inserts two new sections 4(b) and 4(c) into the Value Added Tax Act. The amendments proposed relate to section 4(c) of the Value Added Tax Act which deals with the transitional measures that apply to transitional properties that had been subject to tax under the old rules and disposed of under the new rules. The amendments are essentially drafting clarifications, correcting errors and eliminating ambiguities. The most significant ones are those on pages 106 and 107. They reflect the outcome of representations made following the publication of the Bill. If Deputies wish, I can give more details of the background to these amendments when I come to the substantial note on section 82 of the Bill.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 70:

In page 105, line 1, to delete "completed".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 71:

In page 105, line 3, after "applies" to insert the following:

", being completed immovable goods within the meaning of section 4B,".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 72:

In page 105, line 26, after "person" to insert "referred to in subsection (1)".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 73:

In page 105, lines 45 to 49, to delete all words from and including ", which" in line 45 down to and including "Act." in line 49 and substitute the following:

"is deemed to be a supply of immovable goods for the purposes of this Act for a period of 20 years from the creation of the interest or the most recent assignment or surrender of that interest before 1 July 2008, whichever is the later.".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 74:

In page 106, line 26, to delete "and an option" and substitute "but a joint option".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 75:

In page 106, lines 27 and 28, to delete "may not be exercised." and substitute "may be exercised.".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 76:

In page 106, line 31, to delete "an assignment" and substitute "a taxable assignment".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 77:

In page 106, line 32, to delete "(a)”.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 78:

In page 106, line 39, to delete "the assignment" and substitute "a taxable assignment".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 79:

In page 106, line 40, to delete "(a)”.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 80:

In page 107, line 9, to delete "(a)”.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 81:

In page 107, line 10, after "period" to insert the following:

"and tax is payable in respect of that assignment or surrender".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 82:

In page 108, line 9, to delete "(a)”.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 83:

In page 109, lines 11 and 12, to delete "the capital goods owner" and substitute "the person treated as the capital goods owner".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 84:

In page 109, to delete lines 36 to 41 and substitute the following:

"(j) the amount which shall be treated as the total reviewed deductible amount shall be the amount of the total tax incurred as provided for in paragraph (d) less—

(i) any amount of the total tax incurred which was charged to the person treated as the capital goods owner but which that owner was not entitled to deduct in accordance with section 12,

(ii) any amount accounted for in accordance with section 12D(4) by the person treated as the capital goods owner in respect of a transfer of the goods to that owner prior to 1 July 2008, and

(iii) any tax payable in accordance with subsection (3) or section 4(3)(ab) by the person treated as the capital goods owner,”.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 85:

In page 109, line 45, to delete "amount."." and substitute the following:

"amount,

and for the purposes of applying paragraphs (f), (h) and (i) 'year' means each 12 month period in the adjustment period, the first of which begins on the first day of the initial interval referred to in paragraph (g)

(12) Where a taxable person acquires immovable goods on or after 1 July 2007, then, notwithstanding subsection (10), section 12E(4) shall apply and, notwithstanding subsection (11)(j), the total reviewed deductible amount shall have the meaning assigned to it by section 12E. However this subsection does not apply where a taxable person has made an adjustment in accordance with section 12(4)(f) in respect of those goods.”.”.

Amendment agreed to.

Question proposed: "That section 82, as amended, stand part of the Bill."

Deputy Richard Bruton

I do not pretend to be an expert in this field, but I certainly have the impression that many avoidance schemes were being developed in this area. I understand a number of changes are being made to avoid the breaking up of transactions to secure a reduction in taxes. Will the Minister give us a general overview of the types of abuses that were in place and the measures he is taking to stamp them out?

Deputy Joan Burton

Has the Minister calculated the revenue implications of this move? I have raised on a couple of occasions the issue of avoidance structures, which have become notorious. From these amendments it seems that a developer who bought land was able to avoid paying not only stamp duty but also, possibly, VAT. Purchasers were paying VAT on the completed house or apartment when it was sold on, and stamp duty if it was subject to stamp duty, although that is unlikely as these would be new builds. However, the developer was able to avoid paying it. Could the Minister estimate how much was lost to the Exchequer through these avoidance mechanisms?

If the Minister is now tightening up the legislation relating to VAT, what is the situation regarding stamp duty? What measures does he propose to introduce to deal with devices such as the issuing of licences to individual purchasers or Government Departments to enter sites to develop them rather than selling the sites, despite being offered a king's ransom for them? That was a particular feature in parts of west Dublin, including in regard to school developments. Is this mechanism of using licences still likely to be effective now that the Minister is changing the regime? I welcome the change to it if it will reduce the level of tax avoidance.

Deputy Brian Cowen

The changes do not relate to the general housing market, the area from which VAT is largely obtained. There are small and limited aspects of commercial developments where special purpose vehicles were being used. This is a technical change. It does not relate to general residential issues. I cannot say what the amounts involved are. It was not a systemic construction-wide issue regarding how VAT was treated. Specific issues arose. Many of the changes are to avoid ambiguities and errors and to make corrections.

The amendments on pages 116 and 117 reflect the outcome of representations made following publication of the Bill. They provide that a joint option for taxation may be exercised in the case of an assignment or surrender of an interest by a person who is not entitled to deductibility on the acquisition of that interest. The amendment on page 108, line 9, corrects the reference to subsections of the capital goods scheme that does not apply to transitional properties. The amendment on page 109, lines 11 and 12, clarifies that the person in question is treated as the capital goods owner. The amendment on page 109, lines 36 to 41, substitutes new text for subparagraph (j). The new text is a more accurate representation of what was intended to be treated as the total reviewed deductible amount. The amendment on page 109, line 45, is a technical amendment to facilitate the next amendment. The amendment to the section on page 109 after line 45 clarifies the meaning of the word “year” for the purposes of this section and also inserts a new subsection into the section. The new subsection (12) means that a taxable person is not obliged to make two adjustments for transitional goods. A taxable person is required to make an adjustment under the capital goods scheme. However, this requirement is set aside if an adjustment had already been made under section 12(4)(f). This is a technical area. These issues come to us from the official side. We are implementing what they have asked me to do.

Last year there was an issue which I made the subject of a commencement order. Subsequently, given the state of the construction industry, I asked for an external assessment as to whether that was the right thing to do. Goodbody did the assessment and found it would not be to anyone's benefit to make the commencement order at that time. I can make that report available to the Deputy if she wishes.

Deputy Joan Burton

The Minister said he might give us an indication of the loss to the Exchequer, even if it was not significant. There was considerable talk last year of developers and builders who were building on their own sites and seemed to have found a number of mechanisms to avoid, or significantly mitigate, liabilities.

Deputy Brian Cowen

I cannot give the Deputy an accurate answer to that query. I will do so if the figure can be assessed in the coming days. Anti-avoidance issues were coming to Revenue and being challenged successfully on appeal. Appeals were most successful on the VAT side. I will send a structured note to the Deputy.

Deputy Joan Burton

That is appreciated.

Question put and agreed to.

Section 83 agreed to.

SECTION 84.

Deputy Brian Cowen

I move amendment No. 86:

In page 110, lines 25 to 26, to delete all words from and including "that" in line 25 down to and including "2008."." in line 26 and substitute the following:

"where those goods are acquired or developed on or after 1 July 2008.

(c) For the purpose of applying paragraph (b), a waiver of exemption, which is in place on 18 February 2008 in respect of the letting of immovable goods which are undergoing development on that day by or on behalf of the person who has that waiver, may extend to a letting of those immovable goods.”.”.

Section 84, as initiated, amends section 7 of the VAT Act which deals with waivers of exemption from VAT on the letting of property. The two amendments deal with transitional measures for the new VAT on property regime. They clarify when the current system of waivers will cease to apply in certain circumstances. The system will be replaced by the new optioned tax lettings provided for in section 85.

Amendment agreed to.

Section 84, as amended, agreed to.

SECTION 85.

Chairman

Amendments Nos. 87 to 93, inclusive, are related and may be discussed together.

Deputy Brian Cowen

I move amendment No. 87:

In page 111, line 31, after "rent," to insert "or".

Section 85 of the Bill, as initiated, inserts two new sections, 7A and 7B, into the VAT Act. Section 7A provides an option for landlords to tax lettings of commercial properties, while section 7B deals with transitional measures for lettings in place before 1 July 2008. Most of the amendments to this section correct drafting errors. The last amendment is an anti-avoidance measure to limit the possibility for taxpayers to use the period from now until 1 July next to create new avoidance schemes for transitional properties.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 88:

In page 112, line 35, to delete "subparagraph (ii)" and substitute "paragraph (b)”.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 89:

In page 116, line 3, to delete "in account" and substitute "into account".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 90:

In page 116, line 7, to delete "Where" and substitute "Subject to paragraph (c), where”.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 91:

In page 116, line 13, to delete "for" and substitute "for,".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 92:

In page 116, line 14, to delete "period" and substitute "period,".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 93:

In page 116, between lines 26 an 27, to insert the following:

"(c) This subsection applies to a letting referred to in paragraph (a)—

(i) where a landlord has a waiver in place on 18 February 2008 and—

(l) on 1 July 2008 that letting had been in place since 18 February 2008, or

(ll) the immovable goods subject to the letting are owned by that landlord on 18 February 2008 and are in the course of development by or on behalf of that landlord on that day,

or

(ii) where a landlord holds an interest, other than a freehold interest or a freehold equivalent interest in the immovable goods subject to the letting, acquired between 18 February 2008 and 30 June 2008 from a person with whom the landlord is not connected, within the meaning of section 7A, in a transaction which is treated as a supply of goods in accordance with section 4.".

Amendment agreed to.

Question proposed: "That section 85, as amended, stand part of the Bill."

Deputy Joan Burton

Will the Minister briefly explain this section or send Members a note on it if the explanation is very long?

Deputy Brian Cowen

Section 85 inserts sections 7A and 7B into the VAT Act. Section 7A contains new rules on how the letting of property is to be treated for VAT purposes. Section 7B deals with the transitional measures for a short-term letting of immovable goods where a waiver of exemption applies. I will give a note to the Deputy.

Question put and agreed to.

Section 86 agreed to.

SECTION 87.

Chairman

Amendments Nos. 94 to 96, inclusive, are related and may be discussed together.

Deputy Brian Cowen

I move amendment No. 94:

In page 118, lines 16 and 17, to delete all words from and including "With" in line 16 down to and including "(4C):" in line 17 and substitute "Section 10 of the Principal Act is amended—".

Section 87 amends section 10 of the VAT Act which deals with the taxable amount. The first three amendments to the section are technical amendments required to allow for the insertion of new texts. The final amendment inserts two new paragraphs, the first of which simplifies the operation of the reverse charge for construction services provided for a principal contractor. It sets aside the special valuation rule for goods supplied as part of a construction service contract. I am proposing this amendment in response to representations from tax practitioners on behalf of the industry. The second is a transitional rule for the property regime and ensures that the capitalised value rules for long leases do not apply under the new regime.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 95:

In page 118, between lines 17 and 18, to insert the following:

"(a) by inserting with effect from 1 July 2008 the following after subsection (4C):”.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 96:

In page 118, line 41, to delete "amounts.". and substitute the following:

"amounts.",

(b) in subsection (8) by inserting with effect from 1 September 2008 the following after subparagraph (c):

"(d) This subsection does not apply in respect of a supply of services to which section 8(1B) applies.”,

and

(c) in subsection (9)—

(i) by inserting the following after paragraph (b):

"(ba) Subsections (a) and (b) apply in respect of transactions which take place prior to 1 July 2008.”,

and

(ii) with effect from 1 July 2008 in paragraph (c), by substituting “value” for “price” in both places where it occurs.”.

Amendment agreed to.

Question proposed: "That section 87, as amended, stand part of the Bill."

Deputy Joan Burton

Will the Minister provide examples of the type of assets where a distinction is made between private and non-business purposes? Does this refer to assets such as houses, cars, yachts, paintings and so on? What type of property is involved?

Deputy Brian Cowen

It only relates to real property, namely, buildings.

Deputy Joan Burton

Just buildings.

Question put and agreed to.

SECTION 88.

Deputy Brian Cowen

I move amendment No. 97:

In page 118, lines 43 and 44, to delete paragraph (a) and substitute the following:

"(a) in subsection (1)(a)—

(i) in paragraph (iiic) with effect from 1 July 2008 by substituting "section 4B(6)(a) or 4(8)” for “section 4(8)”, and

(ii) with effect from 1 September 2008 by inserting the following after subparagraph (vb):”.

This amends section 12 of the VAT Act which deals with deduction of VAT borne or paid. It is a technical amendment to ensure the normal deductibility entitlements apply in the case of joint options for taxation.

Amendment agreed to.

Section 88, as amended, agreed to.

SECTION 89.

Chairman

Amendments Nos. 98 to 101, inclusive, are related and may be discussed together.

Deputy Brian Cowen

I move amendment No. 98:

In page 119, subsection (1), line 16, after "(3)" to insert "with effect from 1 July 2008".

This section, as initiated, amends section 12B of the VAT Act which deals with the special scheme for means of transport supplied by taxable dealers. These amendments postpone the coming into effect of this section from the date of passing to 1 July next. This postponement facilitates an orderly introduction of the rules. I am introducing it in response to representations received following publication of the Bill.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 99:

In page 119, line 18, to delete "a taxable person" and substitute "an accountable person".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 100:

In page 119, lines 34 to 36, to delete subsection (2).

Amendment agreed to.

Question proposed: "That section 89, as amended, stand part of the Bill."

Deputy Brian Cowen

I will consider tabling on Report Stage a further amendment to section 89 to amend section 12B of the VAT Act. The amendment will be to counter the possible manipulation of the section to gain an unjustified tax advantage in the area of deductibility.

Question put and agreed to.

SECTION 90.

Deputy Brian Cowen

I move amendment No. 101:

In page 119, line 37, after "amended" to insert "with effect from 1 July 2008".

Amendment agreed to.

Section 90, as amended, agreed to.

NEW SECTION.

Deputy Brian Cowen

I move amendment No. 102:

In page 119, before section 91, to insert the following new section:

91.—Section 12D of the Principal Act is amended by inserting the following after subsection (4):

"(5) This section does not apply to a transfer of an interest in immovable goods which occurs on or after 1 July 2008."."

This amendment inserts a new section before section 91 to amend section 12D of the VAT Act which deals with adjustment of tax deductible in certain circumstances. The amendment restricts the provisions of section 12D to a transfer of an interest in immovable goods which occurs before 1 July 2008. After this date, the new VAT on property provisions will apply.

Amendment agreed to.

SECTION 91.

Chairman

Amendments Nos. 103 to 115, inclusive, are related and may be discussed together.

Deputy Brian Cowen

I move amendment No. 103:

In page 122, line 16, to delete "acquisition," and substitute "acquisition or".

Section 91 of the Bill, as initiated, inserts a new section 12E into the VAT Act declaring a capital goods scheme. The scheme is being introduced as part of the new system for VAT on property transactions. Most of the amendments to this section are corrections of drafting errors. I will go into more detail on the capital goods scheme when discussing section 91, if need be.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 104:

In page 122, to delete lines 18 to 25 and substitute the following:

"(c) Where a capital goods owner acquires a capital good—

(i) by way of a transfer, being a transfer to which section 3(5)(b)(iii) applies other than a transfer to which subsection (10) applies, on which tax would have been chargeable but for the application of section 3(5)(b)(iii), or

(ii) on the supply or development of which tax was chargeable in accordance with section 13A, then, for the purposes of this section, that capital goods owner is deemed to have claimed a deduction in accordance with section 12 of the tax that would have been chargeable—

(I) on the transfer of that capital good but for the application of section 3(5)(b)(iii), less any amount accounted for by that owner in respect of that transfer in accordance with subsection (7)(d), and

(II) on the supply or development of that capital good but for the application of section 13A.".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 105:

In page 123, line 10, to delete "at any time".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 106:

In page 123, line 15, to delete "(6)(c)” and substitute “(6)(b)”.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 107:

In page 123, line 27, after "good," to insert "and".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 108:

In page 124, line 41, after "then" to insert the following:

", for the purposes of the remaining intervals in the adjustment period,".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 109:

In page 124, line 47, to delete "and" and substitute "and,".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 110:

In page 124, line 48, to delete "subparagraph (i)" and substitute "subparagraph (i),".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 111:

In page 124, lines 50 to 51, to delete all words from and including "for" in line 50 down to and including "period" in line 51.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 112:

In page 126, line 20, to delete "was deductible" and substitute "was not deductible".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 113:

In page 127, lines 19 and 21, to delete all words from and including "in" in line 19 down to and including "owner" in line 21.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 114:

In page 127, line 22, to delete "shall" and substitute the following:

"in relation to the remainder of that capital good for that owner shall".

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 115:

In page 130, line 37, to delete "good" and substitute "goods".

Amendment agreed to.

Section 91, as amended, agreed to.

Section 92 agreed to.

NEW SECTION.

Deputy Brian Cowen

I move amendment No. 116:

In page 131, before section 93, to insert the following new section:

"93.—Section 16 of the Principal Act is amended—

(a) in subsection (1) by inserting “and entitlement to deductibility” after “tax”,

and

(b) by inserting the following after subsection (4):

"(5) The requirement to keep records in accordance with this section shall apply to records relating to-

(a) exercising and terminating a landlord’s option to tax,

(b) a capital good record referred to in section 12E, and

(c) a joint option for taxation.”.”

This amendment inserts a new section before section 93 to amend section 16 of the VAT Act. The amendment provides for a requirement to keep certain records in regard to the new VAT rules on property.

Amendment agreed to.

SECTION 93.

Chairman

Amendments Nos. 117 and 118 are related and may be discussed together.

Deputy Brian Cowen

I move amendment No. 117:

In page 131, subsection (1)(b), line 35, after “deleting” to insert “with effect from 1 July 2008”.

Section 93 of the Bill amends section 17 of the VAT Act which deals with invoices. Both amendments to this section postpone the coming into effect of the section from the date of passing until 1 July next. The postponement facilitates an orderly introduction of the rules and allows the businesses involved time to modify their accounting systems accordingly.

Amendment agreed to.

Deputy Brian Cowen

I move amendment No. 118:

In page 131, subsection (1)(c), line 36, after “substituting” to insert “with effect from 1 July 2008”.

Amendment agreed to.

Section 93, as amended, agreed to.

Section 94 agreed to.

NEW SECTION.

Deputy Brian Cowen

I move amendment No. 119:

In page 132, before section 95, to insert the following new section:

95.—With effect from 1 July 2008 section 26 of the Principal Act is amended in subsection (3AA) by substituting "open market value" for "open market price".".

It is proposed in the amendment to insert a new section before section 95 to amend section 26 of the principal Act. It relates to the penalty for obstructing a person authorised to inspect property in order to value it for VAT purposes. It is consequential to the amendment to section 87 of the Bill which changes "open market price" to "open market value".

Deputy Joan Burton

As this is an anti-fraud section, will the Minister indicate whether this was a significant problem? What type of transactions or issues in particular is he talking about?

Deputy Brian Cowen

We are not changing anything, it is just a change in terminology to make it compliant with the new VAT Act provision.

Amendment agreed to.

Sections 95 to 97, inclusive, agreed to.

SECTION 98.

Deputy Brian Cowen

I move amendment No. 120:

In page 134, line 1, to delete "elephant grass" and substitute "miscanthus".

The proposal is to delete "elephant grass" and substitute "miscanthus". It is necessary to give the botanical term for elephant grass.

Amendment agreed to.

Question proposed: "That section 98, as amended, stand part of the Bill."

Deputy Richard Bruton

I have a question on the VAT issue. There is a long-disputed condition which allows disabled drivers to get relief from VAT and VRT. The Minister has had this report before him for a very long time and nothing has happened in regard to it. The net issue is that the concession as it is now structured is a very expensive one but it is drawn extremely tightly and many people who have significant levels of disability get nothing. Will the Minister at some point consider a category of people with lower levels of disability who would be eligible for some relief in this area? I am sure the Minister like other Members is approached by people who are genuinely hard cases but who do not meet the criteria. As far as I can recollect, one has to have lost two limbs before one is eligible. Is there a light at the end of this tunnel vis-à-vis the review?

Deputy Brian Cowen

All of us in public life meet people who are in these situations. It is true that when the scheme was first devised it was narrowly drawn to deal with amputees or people who had lost legs or the use of their limbs. In some conditions people physically have their limbs but do not have the use of them, such as in the case of a stroke.

It is a very expensive scheme in terms of the demand that has arisen for it. As Deputy Bruton indicated, a review examined the scheme and it is a matter of annual consideration at budget time. I have some interest in this area generally. It is not easy to ring-fence the scheme without expanding it because of the question of medical certification and why one person is eligible for it and another is not. The spectrum of disability can be quite broad. This is not the easiest matter to sort out.

The amount of driving done by those who benefit from the scheme is less than the average driver in many respects. However, the scheme is necessary in terms of providing people with mobility, and we can examine whether participation could be renewed every two years. If there were a longer period in which one could re-apply it would create more scope to see whether we could widen the definition without having an incremental cost that results in a budgetary strain. The difficulty is that if one changes the scheme, to what extent should it be changed and how far should it go.

There are 12,500 claimants under this scheme. The cost last year was €66 million. When motor tax is included the cost is approximately €74 million. This is something of which I am mindful. I know many appeals are sent to the appeals board and even though it is clear that people, unfortunately, do not meet the narrow criteria set out in the scheme, a large number of appeals are made in the hope that people might get through. None of us has the heart to say we do not think the appeals will be successful or that people should go ahead with the appeal but we are not optimistic of the outcome because when the scheme was conceptualised the criteria stipulated, effectively, amputation rather than loss of use of limbs.

I have examined this issue. I have spoken to officials about it because it is one many of our colleagues talk about. However, unfortunately I have not come up with a solution as yet. I am not unmindful of what the Deputy said but I do not know whether I will be able to make more progress on it this year. I do not want to raise expectations unnecessarily because of the huge swathe of people who feel this scheme should apply to them.

Deputy Richard Bruton

Should the Minister look at it in the context of some of the other provisions that are available? There used to be a motorised grant from the Health Service Executive. That has a much more restrictive provision and is solely related to finding employment. Perhaps something could be done by reviewing all of these mobility supports for people who have lost the capacity in their limbs. If the matter was examined in the wider context of those provisions also, it might be possible to develop something, not necessarily from the tax side. Such a scheme might involve recognition of people's need by the HSE or some other type of subvention.

Deputy Brian Cowen

Some of the other schemes are a lot smaller than this one in terms of the numbers eligible or the amounts involved. This is by far the largest scheme in terms of numbers and the amount expended. I accept Deputy Bruton's point. I will review this issue again to see whether I can come up with a way to address the need. I am aware of cases where it is very hard to justify their non-eligibility. I understand why they are not eligible. The scheme has been dealt with properly but it was conceptualised with a narrow focus that does not meet some medical conditions which Deputies now have to contend with on behalf of constituents. It should do this in a way that does not cause problems. This might involve changing the scheme for everyone so that more people would benefit rather than just those who are eligible at present, who can renew their cars every two years, or perhaps it is every three or four years. This might open up better possibilities for people who are at present excluded in all circumstances.

Deputy Martin Mansergh

I discovered recently that this scheme was introduced by or at the instigation of one of the most creative of the Minister's predecessors, Mr. Charles J. Haughey. When I was a member of the tax strategy group between 1997 and 2002, this was discussed and was the subject of papers every year. From time to time there was an interdepartmental group headed up by the Department of Finance. It was a difficult issue to wrestle with but, obviously, it is a very attractive scheme for people who qualify. On the other hand, disability is a term that stretches from people who are very severely disabled to those who are, shall we say, very mildly disabled. I met an appellant recently who I thought had quite a good case but she was not altogether hopeful she would succeed. Having sat on the tax strategy group, I understand the enormous complexity and difficulty involved in changing and reforming this scheme. However, there is a great public demand that it be done.

Deputy Edward O’Keeffe

On section 98, why is it necessary to deal with the different horticultural items under this section? Paragraph (c) is also interesting. I had always thought seeds and bulbs were exempt.

Deputy Brian Cowen

Paragraph (c) reduces the rate of VAT on non-oral contraceptive products.

Deputy Edward O’Keeffe

That is quite clear. I am interested in paragraph (b).

Deputy Brian Cowen

Paragraph (b) confirms my budget announcement in which I reduced the rate of VAT on the supply of certain goods used for the agricultural production of bio-fuels. It comes into effect from 1 March.

Deputy Edward O’Keeffe

Will there be zero VAT in this area?

Deputy Brian Cowen

No, it is 13.5%.

Deputy Edward O’Keeffe

Was it exempt previously?

Deputy Brian Cowen

No, it was 21%, so it is being reduced.

Deputy Edward O’Keeffe

Is the humble potato exempt also? If I buy seed potatoes from a garden merchant, will they be exempt?

Deputy Brian Cowen

This concerns non-food products used for the production of bio-fuels, such as seeds for plants for bio-fuels, such as miscanthus or otherwise. Spuds have been zero rated since 1846.

Deputy Edward O’Keeffe

I do not want to get into a botany argument—

A Deputy

Go on.

Deputy Edward O’Keeffe

Different bulbs are used for different purposes; some are edible and some for gardening. When I go to my garden centre, how will I differentiate between one and the other?

Deputy Brian Cowen

The Deputy should insist on getting edible bulbs at the zero rate and inedible bulbs, if they exist, at a rate of 13.5%, and he should thank the Minister for having reduced his big bill by approximately €3.

Deputy Joan Burton

What of hanging baskets?

Deputy Edward O’Keeffe

Hanging baskets are zero rated.

Question put and agreed to.

Sections 99 and 100 agreed to.

Chairman

Amendment No. 121 is out of order as it involves a charge on the people.

Amendment No. 121 not moved.

Sections 101 to 104, inclusive, agreed to.

SECTION 105.

Question proposed: "That section 105 stand part of the Bill."

Deputy Joan Burton

The Minister received representations from many people, including one of the sons of a former Deputy, who bought houses on the strength of the Minister's commitment in his budget speech of 2006 that there would be no changes to stamp duty. Subsequently, on the eve of the election, if I recall correctly, the Taoiseach overruled the Minister's position and announced there would be changes to stamp duty which would be made retrospective. There is an issue for people who on foot of the commitments given, particularly by the Minister and at that stage apparently endorsed by the Taoiseach, that there would be no stamp duty changes. People who bought in that narrow period before the backdated date ended up with very large bills for stamp duty, as first-time buyers in what is now a falling market, and are at a considerable disadvantage.

The Minister promised at one stage he would consider this issue. Did he carry out a review of what happened and whether it was possible to offer these people any kind of recompense? Of the many who made representations, most were young. Perhaps some were foolish enough to follow what the Minister said in his budget speech in 2006 and take him at his word. The Taoiseach then changed the position and backdated the change. The consequence was that people buying second-hand properties, mostly in city areas, were left with significantly higher bills for stamp duty and lost a great deal of money. Did the Minister examine the numbers who lost out, the amount of money involved and whether it was possible to do anything for them? They were treated quite unfairly by the changes in policy.

Deputy Brian Cowen

I do not agree with the version of events the Deputy, in her continuing effort to grapple with the outcome of the last election, continues to articulate. I at all times made the point I would do nothing to disrupt the market, which I certainly did not do. The proposal which eventually formed part of the Fianna Fáil policy manifesto for the general election, in response to what I regarded and still regard as a very irresponsible proposal which went through about four mutations during the three weeks of the campaign, in the alternative rainbow's efforts to make an acceptable and coherent proposal that might find acceptance with the public, was initiated and devised by me as Minister for Finance and agreed to by the Taoiseach. There is no question of my being over-ruled, being at variance or having any difference with the Taoiseach on that matter.

I went into that election stating I would introduce that proposal as the first act of the incoming Government. I am proud I did that exactly in line with what I had said before the election, unlike the proposal coming from elsewhere, which changed according to the requirements of the situation during the campaign. I do not wish to reopen electoral battles. The people have spoken. In regard to this matter, they obtained clarity from me and the measure was implemented faithfully. I also decided to make further changes in this budget on the basis that they would not disrupt the conditions of the market. Most people would agree it was not a time to introduce stamp duty changes when markets were on the rise, as I was being told to do in previous years. I stand over my decisions.

When any Minister for Finance makes changes there are people who make decisions in respect of the old situation vis-à-vis the new situation. I backdated the changes I made in the context of the manifesto to the date when they were announced, which I felt was the honourable and straightforward thing to do as an exceptional measure to confirm the clarity of our position as against the confusion of those who had alternative positions. I gave no indication to the contrary. Let us remember there had been many changes to stamp duty. I changed stamp duty in my first budget. My position is that if there were to be changes, the considerations I had were to concentrate on the first-time buyer, and to do so in a way that would not disrupt the market. That was my consistent position as Minister for Finance. There were others who did not have the responsibility of the Department of Finance, of being the incumbent in that Ministry, who speculated and who came forward with their proposals. The people took account of all those issues when an election was called and we have the Government that was formed as a result of the mandate we received. That argument has been dealt with by the people.

I did not do anything that was inconsistent with my publicly stated positions, which were quite cautious and non-specific because of the office I held. That is the truth from my perspective and there will be others for political reasons who seek to portray it some other way. The Deputy can portray it that way as long as she wishes but I know the origin of the proposal, how it was devised. No one disagreed with it. The argument could have been made by some that I was being less ambitious in the reforms I was bringing forward than others. I did not seek to buy an election on the basis of stamp duty; quite the contrary. It was an issue that, politically, I felt had to be answered by us on the basis of the proposals that came from elsewhere. That was all discussed. I do not wish to re-open the debate. The measure was introduced in the context of the section so I respond to it for the record. I do not intend repeating it ad nauseam.

I backdated the change to the date of the announcement and people who bought subsequent to the announcement of our position publicly were accommodated in the legislation. I brought further changes which were not a panacea for the housing market but were on the basis of the conditions in the market where I felt it necessary to make an effort to further clarify the position so that people would see it was dealt with and that it was not being used as a side issue in the context of the correction that has taken place in the housing market.

Deputy Joan Burton

I thank the Minister for recounting his justification for effectively reversing what he said in the debate and in the budget presentation in 2006. The people to whom I refer are a relatively small group of first-time buyers, young couples who bought second-hand homes on foot of what the Minister clearly indicated in his budget speech in December 2006. He subsequently appeared on many occasions on various television programmes to say he was not for turning on the issue. My concern is not with re-fighting the election or the fiasco and the hames the previous Government made of stamp duty reform and the consequent disastrous effect on the housing market, to add to the downturn that was coming in the construction sector. My concern is that relatively small group of people who, because they took the Minister at this word in his budget speech in 2006, went ahead with some confidence while there was still confidence in the property market and purchased and did incur significant stamp duty bills because they bought second-hand homes. What I asked the Minister was not for post-event justification of what he did, it was whether he was willing to examine the impact on this relatively small group of people and see whether it is possible to make some amends to them.

Deputy Brian Cowen

I do not know what reference the Deputy made to the 2006 statement but I will check it. I doubt if there is a reference. If I was making no changes I do not see why I would mention it. I will check it out before I decide how incorrect the Deputy is in regard to that reference.

Deputy Martin Mansergh

The point Deputy Burton made is entirely divorced from context, which is that between the budget of December 2006 and the election in 2007 there was a totally overblown campaign, partly driven by a particular Sunday newspaper but eagerly latched on to by the Opposition parties so that if anyone has lost—

Deputy Joan Burton

Started by a Minister in the Deputy's own Government.

Deputy Martin Mansergh

May I finish without interruption please? If anyone lost out, perhaps it was partly because of the way that campaign was politically driven. Matters like stamp duty and excise duties should be dealt with at budget time and not made part of political campaigns which inevitably disrupt the market. The situation was totally disproportionate, as if stamp duty was the biggest issue facing the country. The issue did not arise in three quarters of the constituencies in the country because it was completely irrelevant.

Deputy Chris Andrews

I agree with Deputy Mansergh. I reject any notion that a hames has been made of the property market or stamp duty.

Chairman

We will not continue to fight the general election.

Deputy Chris Andrews

There seems to be an inability to accept that there is stability and affordability in the market. Young people to whom I speak are very happy with the current situation. Houses are being sold. For the first time in a year there is stability in the housing market. Far from changes to stamp duty making a hames of anything, things are looking very bright. Young people now have a chance to buy their own home without having to compete with hyper prices and news reports.

Deputy Kieran O’Donnell

Far be it from me, but it was the Minister who brought stamp duty into the domain of the committee. I remind Deputy Mansergh—

Deputy Martin Mansergh

No—

Deputy Kieran O’Donnell

I am entitled to a right of reply. The former Minister, Mr. Michael McDowell, was the one who made stamp duty an issue. He said stamp duty on residential houses would be abolished. Effectively, that is where the matter started. I am pleased to see that in his recent budget the Minister—

Chairman

It is not appropriate to mention somebody who is not here to defend himself.

Deputy Kieran O’Donnell

It is a matter of public record.

Chairman

The Chair has to make that point.

Deputy Kieran O’Donnell

Point taken, but I may not agree with it. I am pleased to see that in his recent budget the Minister has taken on board measures that were put forward by my party, Fine Gael, through Deputy Bruton. They were straightforward measures in terms of stamp duty reform.

As we are discussing the issue, I hope the Minister will take into consideration disabled people who are in a two-storey house who need to get one-storey accommodation. We should introduce a measure to prevent such people from being penalised if they have to move from a two-storey house to a bungalow.

Deputy Richard Bruton

I have to remark on how extraordinary the change in perspective in Dublin South-East is. I used to think it was a constituency where it was very difficult to buy a house, even for people who were well established. I would not have thought it was an easy option for young people to buy in Dublin South-East. I am delighted to hear that Deputy Chris Andrews believes that young people find it easy to buy houses because the Central Bank recently gave an authoritative report showing that 50% of families cannot afford a house at the average price, let alone in Dublin 4. I think the Deputy is engaging in special pleading having arrived at the committee belatedly on his horse to fire some shots across our bows.

Deputy Martin Mansergh

It is time to decentralise to Tipperary.

Deputy Kieran O’Donnell

Perhaps they are buying houses in another constituency.

Deputy Chris Andrews

It is easier for people to buy houses now than it was a year or two ago because there is greater affordability and stability.

Deputy Joan Burton

This is ridiculous.

Deputy Chris Andrews

It is recognised by people, including auctioneers and those I represent, that there is now greater value and houses can be bought.

Deputy Richard Bruton

What is the average house price in Dublin South-East?

Deputy Chris Andrews

The reality is—

Deputy Richard Bruton

The average house price in Dublin South-East is well over €500,000. What sort of young people is the Deputy referring to? The average industrial wage is €38,000.

Deputy Chris Andrews

It is easier to buy a house now in Dublin South-East than it was a year ago.

Deputy Kieran O’Donnell

That is not the point.

Deputy Chris Andrews

That is the point I wished to make. Are the Deputies denying that there is now stability in the market?

Deputy Joan Burton

Nothing is selling.

Deputy Chris Andrews

That is another myth because houses are selling.

Deputy Joan Burton

The Deputy should talk to some auctioneers if he believes that is the case.

Deputy Chris Andrews

There is a man upstairs whose house was on the market for a year and a half and he recently sold it. People are now interested in buying houses, although the Deputies may wish to engage in political opportunism by denying reality.

Chairman

We will move on from this matter as it has become a debate on housing.

Deputy Chris Andrews

The Opposition has still not recovered from losing the election and is trying to scare people. That did not work in the last election and it will not work again.

Deputy Joan Burton

Can I ask Deputy Andrews where in Dublin South-East one can find these wonderful affordable houses? I will bring a bus load of people over to see them. In Dublin West developers are dropping house prices by €100,000 in some cases. Some people are returning to the market but if the Deputy can tell us where this is happening in Dublin South-East we will get a taxi there.

Deputy Chris Andrews

Prices are dropping in Dublin South-East too.

Deputy Edward O’Keeffe

We must examine this matter in a realistic way because 90,000 houses were built last year under this Government, with Deputy Brian Cowen as Minister for Finance. Some 65,000 to 70,000 houses will be built this year and I understand interest rates will fall further. AIB announced this morning that it has had a reasonably good year.

Chairman

That is a positive note on which to move on to the next section.

Deputy Richard Bruton

Deputy O'Keeffe has sat here all day and we should listen to what he has to say.

Deputy Edward O’Keeffe

I mention all this because the contributions so far have been very one-sided. We should be realistic about the fact that, under this Government and the Minister for Finance, we are moving from a time of enormous hype to a more grounded period and the correct level for the economy.

Chairman

I remind Deputies that we are on section 105 of the Finance Bill, we are not having a general debate on housing.

Question put and agreed to.

Sections 106 to 115, inclusive, agreed to.

SECTION 116.

Question proposed: "That section 116 stand part of the Bill."

Deputy Kieran O’Donnell

Would the Minister consider a concession on stamp duty for people with disabilities who must move house?

Deputy Brian Cowen

I do not think stamp duty is the area in which an exemption can be given in such cases. Disabled person's grants and direct provisions to help deal with the adaptation of houses are the way forward, rather than a broad-brush approach involving stamp duty.

Deputy Kieran O’Donnell

The disabled person's grant is great but it applies to one's existing house. I am raising a situation in which a person living in a two-storey house needs to purchase a smaller, second-hand house. My suggestion would not result in an enormous cost to the Exchequer because it applies only to situations in which individuals are forced to move. I ask the Minister to reconsider this as it is a reasonable suggestion.

Deputy Joan Burton

I support this suggestion and I raised the issue previously with regard to specific cases, for example, when parents need to move to accommodate disabled children and there are significant tax implications.

Deputy Mansergh mentioned the tax strategy group and Deputy Bruton earlier spoke of the group dealing with disabled people. Would the Minister agree to a review of this area as it affects a finite number of people? The matter could even be confined to people who qualify for the likes of the disabled person's maintenance allowance or are clearly registered as disabled. A scheme could be created that would not be open to abuse but which could indicate a degree of social solidarity.

The availability of the disabled person's grant varies greatly depending on the resources available to different county councils and HSE areas and the number of demands made on them. The availability of the grant is far more limited in densely populated urban areas than in rural areas. If the Minister cannot address this issue in this Bill it should be possible for him to agree to a review of the area. This would receive all-party support and could be confined to certain cases, such as parents who need to move house to cater for the mobility needs of a disabled child who is growing older.

Deputy Seán Barrett

That could also apply in the case of a child who was involved in an accident.

Deputy Joan Burton

Parents today may wish to look after a child at home when in the past he or she might have gone to an institution.

Deputy Brian Cowen

I have given the view that I do not believe we can devise stamp duty rules based on the particular circumstances of individuals. A more targeted approach can be taken by the Department of the Environment, Heritage and Local Government in helping to adapt dwellings and make them more accessible to disabled people. This method has been widely successful, it is very flexible and it caters for a whole range of different circumstances in a way the VAT rebate and the vehicle registration tax relief schemes do not. A grant scheme that provides the specific requirements of a specific disabled person in specific circumstances is a preferable approach to a generalised tax exemption and this is where we should focus our attention if we wish to do something effective.

Question put and agreed to.

Section 117 agreed to.

SECTION 118.

Question proposed: "That section 118 stand part of the Bill."

Deputy Joan Burton

Can the Minister explain whether this relates to the four-year time limit on claiming repayments of tax that was overpaid on capital acquisitions tax? This issue arose with regard to PAYE refunds that were not claimed. Given that CAT is paid by relatively few people, why is the Minister introducing a four year time limit for those who have overpaid? Is this fair when there is no time limit for Revenue to go after somebody who does not pay CAT?

Deputy Brian Cowen

There is a four year limit and we are adapting it. The amendment ensures the four year time limit for claiming repayments of overpaid gift and inheritance tax will run from the date of payment of the tax. Eligibility to receive repayment is extended on the basis that the payment was made within four months in the first place. Good behaviour is rewarded. Those who do not pay within four months cannot expect to receive the same treatment.

Deputy Joan Burton

Do I understand that, irrespective of this change, the period for repayment of overpayments broadly remains at four years?

Deputy Brian Cowen

Yes.

Deputy Joan Burton

Why do we have a four year limit for reclaiming overpayments when there is no such time limit for Revenue claiming underpayments? Correctly, Revenue can go after people for an indefinite period.

Deputy Brian Cowen

Unless an underpayment is due to fraud or neglect, the Revenue Commissioners cannot go after it once four years have elapsed. The amendment and section state that if the tax is paid within four months of receiving an inheritance, the four year period begins at the end of month four. If the tax is not paid, the four years will be counted from the date on which the inheritance was deemed to have been given, normally on death.

Deputy Joan Burton

A solicitor will normally deal with this issue rather than a tax adviser. What happens in a case where a solicitor has not acted properly?

Deputy Brian Cowen

Probate or administration will not be granted unless a CAT certificate is produced. Part of the inland revenue affidavit required of a solicitor assessing the assets of an individual and setting out those in receipt of benefit under a will, or an intestacy under the Succession Act rules, is to set out the valuation of inheritances. Therefore, one must provide certification and Revenue will assess liability, if any. If one does not pay CAT, one is not granted probate. It is all tied in under an integrated approach. If a solicitor does not do what he or she is supposed to do, one sues him or her for negligence.

Question put and agreed to.

Sections 119 to 123, inclusive, agreed to.

NEW SECTION.

Deputy Brian Cowen

I move amendment No. 122:

In page 158, before section 124, to insert the following new section:

124.—Section 891B of the Principal Act is amended by inserting the following after subsection (9):

"(10) Section 4 of the Post Office Savings Bank Act 1861 shall not apply to the disclosure of information required to be included in a return made under regulations made under this section and, accordingly, this section shall apply to information to which, but for this subsection, the said section 4 would apply.".".

This new section makes an amendment to section 891B of the Taxes Consolidation Act 1997. Section 891B is an enabling provision introduced in the Finance Act 2006 which authorises the Revenue Commissioners, with the consent of the Minister for Finance, to make regulations requiring financial institutions to make automatic returns to Revenue of payments made to customers. The purpose of the amendment is to ensure section 4 of the Post Office Savings Bank Act 1861 which restricts the disclosure of information relating to deposits will not prohibit the disclosure to Revenue of certain information relating to payments made by financial institutions.

Amendment agreed to.

Sections 124 and 125 agreed to.

NEW SECTION.

Deputy Brian Cowen

I move amendment No. 123:

In page 159, before section 126, to insert the following new section:

126.—Section 888 of the Principal Act is amended—

(a) by substituting the following for subsection (1):

"(1) In this section—

‘lease', ‘lessee' and ‘rent' have the same meanings respectively as in Chapter 8 of Part 4;

‘premises' means any lands, tenements or hereditaments.",

and

(b) by inserting the following after “Chapter 8 of Part 4” in subsection (2):

"including, in the case of persons referred to in paragraph (d), of income which would be chargeable to tax under Case V of Schedule D if it had arisen in the State,”.”.

This is a minor technical amendment to section 126 of the Bill which is concerned with extending the obligation on letting agents to provide information for Revenue on request in respect of the letting of foreign properties. Section 126 amends the primary legislation contained in section 888 of the Taxes Consolidation Act 1997. The context for these information returns is to assist the Revenue Commissioners in determining tax liabilities of persons under Cases IV and V of Schedule D, in other words, miscellaneous and rental income. The difficulty is that rental income from foreign property is taxed under Case III. This cross-reference was omitted in the Bill as published and the amendment corrects this, as the section would be ineffective without it.

Amendment agreed to.

Section 126 deleted.

Sections 127 and 128 agreed to.

SECTION 129.

Question proposed: "That section 129 stand part of the Bill."

Deputy Seán Barrett

Will the Minister explain whether this relates to airports where there is no customs service and at which private planes land and take off?

Deputy Brian Cowen

Section 129 and Schedule 7 concern certain elements of the existing customs secondary legislation where they adapt primary customs legislation. The section ensures the regulations referred to in the Schedule have the force of law as though they were Acts of the Oireachtas. The regulations concerned are in respect of customs rules applying to the arrival and departure of aircraft at a customs-free airport and the land frontier.

Deputy Seán Barrett

Does it have anything to do with the problem of landing of illegal drugs at airports not manned by customs officials?

Deputy Brian Cowen

No. It relates to concerns regarding the constitutionality of the three sets of regulations referred to in Schedule 7 arising from the Supreme Court judgment in the case of Mulcreevy v. the Minister for the Environment, Heritage and Local Government. This judgment was to the effect that, with some exceptions, secondary legislation could not be used to adapt or amend primary legislation. The amendment is a precaution to ensure the Bill’s constitutionality is upheld.

Question put and agreed to.

NEW SECTION.

Deputy Brian Cowen

I move amendment No. 123a:

In page 160, before section 130, to insert the following new section:

130.—(1) Section 811A of the Principal Act is amended—

(a) by inserting the following after subsection (1)—

"(1A) Without prejudice to the generality of any provision of this section or section 811, sections 955(2)(a) and 956(1)(c), as construed together with section 950(2), shall not be construed as preventing an officer of the Revenue Commissioners from—

(a) making any enquiry, or

(b) taking any action

at any time in connection with this section or section 811.

(1B) Where the Revenue Commissioners have received from, or on behalf of, a person, on or before the relevant date (within the meaning of subsection (3)(c)) a notification (referred to in subsection (3) and (6) as a ’protective notification’) of full details of a transaction, then the Revenue Commissioners shall not form the opinion that the transaction is a tax avoidance transaction pursuant to subsections (2) and (4) of that section after the expiry of the period of 2 years commencing at—

(a) the relevant date, or

(b) if earlier, the date on which the notification was received by the Revenue Commissioners,

but this subsection shall not be construed as preventing an officer of the Revenue Commissioners from making any enquiry at any time in connection with this section or section 811.

(1C) Where the Revenue Commissioners have not received from, or on behalf of, a person, on or before the relevant date (within the meaning of subsection (3)(c)) a notification (referred to in subsection (3) and (6) as a ’protective notification’) of full details of the transaction, then section 811 shall apply as respects that transaction, if it is a transaction specified or described in a notice of opinion given by the Revenue Commissioners, as if the following clauses were substituted for clauses (I) and (II) of subsection (9)(a)(i):

‘(I) consider that there are grounds on which the transaction specified or described in the notice of opinion or any part of that transaction could reasonably be considered to be a tax avoidance transaction, that the opinion or the opinion in so far as it relates to that part is to stand,

(II) consider that, subject to such amendment or addition thereto as the Appeal Commissioners or the majority of them deem necessary and as they shall specify or describe, there are grounds on which the transaction, or any part of it, specified or described in the notice of opinion, could reasonably be considered to be a tax avoidance transaction, that the transaction or that part of it be so amended or added to and that, subject to the amendment or addition, the opinion or the opinion in so far as it relates to that part is to stand, or',

and the provisions of section 811 shall be construed accordingly.",

(b) in subsection (2)(a) by substituting “20 per cent” for “10 per cent”,

(c) in subsection (3)—

(i) in subparagraph (b)(i) by inserting “the application of subsection (1C) to the transaction concerned or” after “solely to prevent any possibility of ”, and

(ii) in subparagraph (c) by substituting—

(I) "19 February 2008" for "2 February 2006", and

(II) "19 May 2008" for "2 May 2006",

in each place where they occur,

(d) in subsection (6)(b) by substituting “the purposes of subsections (1B) and (3)” for “the purposes of subsection (3)”, and

(e) in subsection (7) by substituting “19 February 2008” for “2 February 2006” in each place where it occurs.

(2) This section applies—

(a) as respects any transaction where the whole or any part of the transaction is undertaken or arranged on or after 19 February 2008, and

(b) as respects any transaction, the whole of which was undertaken or arranged before that date, in so far as it gives rise to, or would but for section 811 of the Principal Act give rise to—

(i) a reduction, avoidance, or deferral of any charge or assessment to tax, or part thereof, where the charge or assessment arises only by virtue of another transaction or other transactions carried out wholly on or after 19 February 2008, or

(ii) a refund or a payment of an amount, or of an increase in an amount of tax, or part thereof, refundable or otherwise payable to a person where, but for section 811 of the Principal Act, that amount or increase in the amount would become first so refundable or otherwise payable to the person on or after 19 February 2008, but where as respects any transaction the Revenue Commissioners have before 19 February 2008 received from, or on behalf of, a person a notification (referred to in subsection (3) and (6) of section 811A of the Principal Act as a "protective notification" and made on or before the relevant date, within the meaning of subsection (3)(c) of that section prior to any amendment made by this section) of full details of the transaction, then the said section 811A shall apply to that transaction as if this section had not been enacted.”.

This amendment proposes changes to section 811A of the Taxes Consolidation Act 1997. Section 811A was introduced by the Finance Act 2006 and is essentially a companion section to section 811, the general anti-avoidance provision. It provides that where Revenue successfully challenges a tax avoidance transaction under section 811, the taxpayer concerned suffers a 10% surcharge on any tax found to be payable and must also pay interest back to the date on which the tax would have first become payable, if there had been no attempt at avoidance. However, the section also gives taxpayers the benefit of a safe haven for any transactions they are contemplating, without exposure to the surcharge and interest. They can avail of this safe haven by making, on a wholly without prejudice basis, a protective notification to Revenue, setting out the full details of the transaction, within 90 days of their first undertaking the transaction.

The primary intention behind section 811A was to encourage taxpayers and their advisers to be open with Revenue with their tax planning. Unfortunately, the response to the protective notification provisions to date has been very disappointing with only eight notifications received by Revenue. The proposed amendments are aimed at increasing the incentive for taxpayers to use the protective notification regime. First, where Revenue's opinion that a transaction is a tax avoidance transaction is either not appealed by the taxpayer or, if appealed, has been upheld by the appeal commissioners and-or the courts, the existing 10% surcharge that applies to the tax the taxpayer was seeking to avoid is being increased to 20%. Second, by way of a positive incentive to taxpayers to make protective notifications, the period within which Revenue must form an opinion that a transaction is a tax avoidance transaction under section 811 which is open-ended at present will be limited, where a full protective notification is made, to a period of two years from the date of notification.

In the case of an appeal against a Revenue opinion that a transaction is a tax avoidance transaction, the appeal commissioners and, in turn, the courts will be required to determine the appeal on the basis of whether there were grounds on which the transaction specified in the Revenue notice of opinion could reasonably have been considered to be a tax avoidance transaction. This contrasts with the present provision where the appeal commissioners and each court are required to base their decision on the existing proof of correctness. They are required, at each level of the appeal process, to form their own opinion as to whether the transaction is a tax avoidance transaction in accordance with the provisions of the legislation. They can, therefore, agree or disagree with the initial Revenue opinion, or with the view taken at a preceding appeal hearing.

In placing a two-year time limit on Revenue forming an opinion that a transaction is a tax avoidance transaction where a protective notification has been made, the amendments restate in more emphatic terms the current position that a notice of opinion under section 811 can, otherwise, be made at any time. As before, a taxpayer can get full protection from the surcharge, the interest charge and the change to the burden of proof on appeal and obtain the certainty and finality of a two-year time limit on Revenue forming an opinion that a transaction is a tax avoidance transaction by the simple expedient of making a protective notification. In such cases the only exposure facing the taxpayer will be to pay the tax which would have been due had the tax avoidance transaction not taken place.

I am making these changes to the protective notification regime with a view to increasing the incentive for taxpayers to disclose their tax planning arrangements to Revenue. If it transpires that taxpayers and their advisers do not use this opportunity to be open with Revenue, I will have no hesitation in revisiting the issue again and proposing such further changes as may be necessary to ensure the provision's effectiveness. In other jurisdictions mandatory protective notification is considered in some cases. I am attempting to bring about co-operation and an open relationship of trust in this arrangement. If there is a finding against an individual in using the protective notification procedure, he or she will pay the taxes due. For those who decide on aggressive tax planning and do not make protective notification, there will be an increase in the surcharge contemplated from 10% to 20%.

Rather than Revenue have an open-ended option to return to an individual's tax affairs who has made a protective notification and claim it was a tax avoidance mechanism, it must come to that conclusion in two years. It is a carrot and stick approach to ensure taxpayers have protections and will not be subject to surcharges if they comply with the protective notification provision. At the same time Revenue is being required to come to conclusions in a reasonable period. This will lead to more co-operation, given that advisers would have to take responsibility for explaining to clients why a protective notification was not made to protect against subsequent surcharges and interest. It is a little more stick but there is a carrot with the two-year provision.

Deputy Richard Bruton

On what basis has the Minister formed the opinion that this provision is not being used sufficiently? If people are sailing close to the wind, this is akin to taking out an insurance policy. Is there evidence that there are many avoidance schemes being detected? If we have that evidence, is Revenue not in clover in the sense that it is getting interest and penalties?

Deputy Brian Cowen

Revenue is not in clover as such. There is evidence of more aggressive tax planning taking place. Eight notifications under the procedure up to now do not indicate a level of co-operation commensurate with the amount of tax planning taking place.

Deputy Richard Bruton

What is the evidence that there is aggressive tax planning? If there is, is it not the case that Revenue has caught up with it? Presumably, it is arming itself to the teeth to catch out the people concerned.

Deputy Brian Cowen

We already have closed down two schemes today through amendments.

Deputy Richard Bruton

Was tax revenue collected under those schemes?

Deputy Brian Cowen

They were challenged.

I am trying to find a balance. We are entitled to take taxes in the context of our laws and working within the contemplation of the Oireachtas in introducing those laws. There is good professional advice available as to how one should arrange one's tax affairs to best effect, a legitimate exercise in itself.

The need to challenge aggressive tax avoidance reflects a growing concern, mirroring similar concerns internationally, about its scale and cost to the Exchequer. The unprecedented level of economic growth and significant wealth generation in the past decade has seen an increasing number of citizens with complex employment, financial and investment profiles. We are seeking to ensure everyone pays his or her fair share of taxes and duties in accordance with the law. If allowed to go unchecked, aggressive tax planning and unintended use of legislation will threaten tax yields and the perceived fairness of the tax system. Perceptions of unfairness can damage compliance generally. Revenue, in its recent statement of strategy, has committed itself to protecting the tax base by combating tax avoidance through direct challenge and proposals for changes in the law, some of which are reflected in the Finance Bill.

The original proposal was more severe. I am trying to find a balance. I believe in working incrementally in order that the professional tax advice industry recognises there is a balance.

Deputy Richard Bruton

When the Minister discovers an aggressive tax avoidance scheme, is the problem that he then cannot collect his 10% and pin it as being unlawful?

Deputy Brian Cowen

There are several issues. A large amount of resources are devoted to funnelling out some of these issues which the protective notification procedure would greatly discard. This approach would lead to a far healthier one for everyone concerned.

Tax advisers can be innovative and creative in aggressive tax planning. There will be consequences for the client in the event that he or she does not use this procedure which could have been avoided if it had been used. This is an effort to put in place a mechanism under which people can carry out legitimate tax planning and the Office of the Revenue Commissioners is provided with an opportunity to adjudicate within a fixed time on whether a scheme goes over the line. The main issue is that Revenue finds it difficult to detect such schemes because they thrive on secrecy. If tax advisers use the protective notification procedure in order to avoid increased penalties for their clients later, it will enhance the cultures of both compliance and tax planning within the contemplation of the legislation.

Deputy Joan Burton

I do not know if the Minister's approach will work, but I would be interested to know whether the Minister obtained the opinion of the Attorney General as to its likely success. The money involved in aggressive tax planning is significant and, for many of the parties involved, it is well worth their while to choose a court route to justify their actions. It is noticeable that there is much serious court action contesting stands taken by the Revenue Commissioners. I presume many of these cases will ultimately go all the way to the Supreme Court.

Aggressive tax planning is mostly done by a select group of accountants and tax lawyers, as the Minister knows. I am concerned about some of the implications for Ireland's reputation. For example, it was a Labour Party Minister who brought in the 12.5% rate of corporation tax, and there is now all-party agreement to defend it. However, we are now continuously under attack from both the British tax authorities and those of the USA, which look upon Ireland as little short of a tax haven, particularly with regard to the operation of the IFSC. I am sure the Minister knows that there are a number of aggressive schemes run by certain banks in the IFSC which the British revenue authority views as depriving it of large streams of revenue. The authority has successfully contested cases against UK-based banks.

Reputation works both ways. Ireland has a reputation as a fair and effective place to do business with low tax rates such as the 12.5% corporation tax rate. However, such has been the proliferation of tax-based schemes out of Ireland that when one goes to the UK, the USA and much of the EU, there is not a lot of sympathy for Ireland because of the perceived losses to other exchequers due to the type of aggressive tax planning that occurs here. People who pay their fair taxes here may say they would like Ireland's corporation tax rates to be higher, but in terms of international tax competitiveness, our corporate tax rate is a significant advantage to us as an island and one we should utilise.

Is the Minister doing enough in this regard? For example, has he sat down and talked to the key players? I was wondering the other day whether some of these key players were in fact members of the new commission or people who have direct contact with the designers of some of these schemes. Is the Minister confident of the likely success of the provision if it is subject to attack in the courts? Has the Attorney General given a view on this?

I support the closure of aggressive tax planning schemes. The outgoing chairman of the Revenue Commissioners has told people over and over again that they are in the last-chance saloon, although I do not know whether that is the exact phrase he used. However, it is hard to impress this upon some people. It is similar to asking for voluntary codes of agreement. Where is the evidence that the select group of top-flight lawyers and accountants responsible for such schemes are responding to what the Minister is saying? Is the Minister's message so coded that it is hard for them to get it?

Chairman

Our timetable said we were to finish at 5 p.m., but as this is the last amendment and we have a number of sections to cover, would the committee consider continuing?

Deputies

Yes.

Deputy Martin Mansergh

I have a slight amendment to what the previous speaker said. The Labour Party Minister for Finance announced the 12.5% corporation tax rate in May 1997, but that Minister's predecessor, former Deputy Charlie McCreevy, negotiated approval for it in Brussels and introduced it over a phased period of years, with some doubts among the Labour Party along the way.

Deputy Joan Burton

That is incorrect.

Deputy Martin Mansergh

That is a correct history.

Deputy Joan Burton

It is actually not.

Deputy Martin Mansergh

It is, actually.

Deputy Joan Burton

No, it is not.

Deputy Martin Mansergh

To come to the amendment—

Deputy Joan Burton

It is not correct.

Deputy Brian Cowen

I have a note on the matter.

Deputy Martin Mansergh

Of course there is aggressive tax planning — mostly, if not entirely, covert — and it is a question of catching up with it. Has the Minister put aggressive tax planners onto his commission to pervert its purpose? Of course not. The measure he is introducing is psychologically very clever, for two reasons. If an accountant advises an aggressive tax plan and it is subsequently discovered and ruled out of court, the client will face a liability that he or she would not have faced if protective notification was availed of. However, it is also clever from the point of view of the client. Effectively, the tax adviser, to protect himself or herself, will have to advise the use of protective notification, but in many cases the client may say that he or she would rather not do so. Thus, it will assist compliance from two points of view. I therefore strongly support the amendment.

Deputy Kieran O’Donnell

The Minister has already touched on some of my points. Is there a special investigations unit in the Revenue Commissioners which deals with schemes such as these? I presume this is about freeing up resources within the Revenue Commissioners to deal with other issues and, additionally, about revenue collection. Thus, it is as much an administrative measure as anything else. This goes back to a point made previously. We want the measure to work but to date it has not worked. The question is whether increasing the surcharge from 10% to 20% is a deterrent. Is this really about freeing up resources and revenue collection?

Deputy Brian Cowen

Yes, that is partly what it is about. It is also about dealing with the information deficit that exists with regard to aggressive tax planning, because of the secrecy, by definition, in which it operates. Members will be aware that prior to the introduction of protective notification in the Finance Act 2006 our primary weapon in combatting aggressive tax planning was the general anti-avoidance provision contained in section 811 of the Taxes Consolidation Act 1997. However, there are obstacles to the application of section 811, the principal one being that the use of the section is wholly dependent on the trigger of a notice of opinion by Revenue that a transaction is a tax avoidance transaction. Clearly Revenue cannot investigate and challenge tax avoidance transactions by forming such opinions if it has no information or inadequate information regarding them.

Despite our best efforts to keep fully abreast of significant or suspect transactions indicating avoidance, Revenue would make the point that it often only hears about these transactions from informal sources and very often hears about them late in the day. The details of the arrangements constituted in the scheme that are made available to Revenue or that Revenue can establish are often incomplete or partial.

In many instances, the avoidance scheme will only come to its attention long after the relevant tax return has been filed. That can result in significant lost revenues before a scheme can be closed off in legislation, even where the legislation can be made retrospective to the date of a ministerial announcement. Revenue has every reason to believe that there may also be widespread and costly tax avoidance in respect of transactions that, in the absence of any requirement or inducement to disclose to Revenue, never come to its attention, so there is always that problem. It is like drugs. There are the drugs one gets and drugs about which one knows nothing. I am just making that detection analogy.

The primary purpose of the protective notification regime introduced in 2006 was to attempt to reverse the information deficit facing Revenue in respect of tax avoidance schemes. We sought to accomplish that by introducing a downside to avoidance in the form of a surcharge on the interest while giving the taxpayer the option to avoid those impositions through disclosing details of their transactions on a non-prejudicial way.

The initiative has not proved to be singularly effective in inducing taxpayers to provide the information required. It is clear that the incentives to disclose in terms of the potential consequences of not doing so have not been sufficiently persuasive under the current protective notification structure as to make disclosure a likely option for the taxpayer. Hence the objective of a package of proposals for change being put forward in the Bill in an effort to have an impact on the taxpayer's perception of the risk-reward balance involved in deciding to make a protective notification or not. That sets out the thinking and rationale behind the further adaptations we made, based on our experience since 2006.

The large case division has an anti-avoidance branch in Revenue which seeks to identify and challenge schemes. It is important to point out that our tax code operates in compliance with the EU code of conduct on business taxation and that this covers international tax issues, so we should not convince ourselves that we are not complying with standards; we certainly are.

Deputy Kieran O’Donnell

Does the Minister expect that the increase in the surcharge from 10% to 20% or 100%, will work?

Deputy Brian Cowen

I made these changes in an effort to provide a more persuasive effect. It is important that people respond accordingly. This issue will be revisited if the changes do not have the persuasive effect I would like them to have.

Deputy Richard Bruton

Does it need to or can it be matched by more aggressive investigative work? Presumably, it is like any other thing. If people think they will get away with it, doubling the penalties will not have a significant impact.

Deputy Brian Cowen

We will then have to look at further issues. I want this to work as contemplated in the interests of the taxpayer, as has been said by Deputy Mansergh, and in the interests of having a mature relationship between those with whom Revenue interfaces and the need for us to uphold the public good by ensuring that tax revenues that are due to the State are obtained by it.

In its recently launched statement of strategy, Revenue has committed to more challenges to tax avoidance schemes through an increase in the use of section 811 notices of opinion. Under this approach, Revenue will initiate a much more robust operational response to the use of section 811 notices of opinion than heretofore and over a range of case types and sizes. There will also be an upping of the game internally.

The aim is to send a strong signal that Revenue no longer regards section 811 as a provision to be used sparingly but rather as a provision to be used in any instance of avoidance that is not amenable to specific existing anti-avoidance provisions. The approach of using section 811 in this fashion, coupled with the section 811 notices that will arise from the increased flow of protective notifications as a direct result of the amendments I am making in this year's Finance Bill, will, hopefully, send a clear signal and generate increased awareness of the need for compliance in this area.

Deputy Joan Burton

In respect of the questions I asked the Minister, has the Attorney General given advice on this matter? Has the Minister either considered or met the leading practitioners in this regard, namely, the small collective of leading accountants and tax lawyers who are responsible and sell most of these schemes, as the Minister is aware? I think we know who I am talking about.

Is the Minister concerned about the level of refunds arising in respect of international companies based in Ireland? I mentioned two jurisdictions, the UK and the US, whose tax authorities are aggressively attacking tax avoidance, which they contend takes place to some degree in Ireland. I said that in the context of saying that we have an advantage to offer in terms of financial services in this area but, equally, where it is done in an over-aggressive fashion, we attract corresponding attacks from other jurisdictions who see their taxation flows being unfairly and severely mitigated and reduced.

Deputy Brian Cowen

Like all amendments, these amendments were considered by the Government. As far as I recall, the Attorney General had no issues with this amendment. I have not discussed these matters with anyone outside my Department or Revenue. I must get back to Deputy Burton in respect of the last point she raised because I do not recall anything in that regard.

Amendment agreed to.

Sections 130 to 133, inclusive, agreed to.

Schedules 1 to 8, inclusive, agreed to.

Title agreed to.

Chairman

I thank members of the committee for doing their business in sight of the agreed time. I thank the Minister and his officials also for their co-operation.

Deputy Brian Cowen

I join you in those sentiments, Chairman.

Deputy Edward O’Keeffe

I congratulate the Minister on his efficiency in completing the Bill in record time. This Committee Stage of the Finance Bill might make the Guinness Book of Records. I congratulate the Opposition on being so disciplined in not calling a vote.

Deputy Richard Bruton

Applause ringing in the Deputy's ears.

Bill reported with amendments.