Thursday, 29 Nov 2012

Written Answers Nos. 53-64

Tax Code

Questions (53)

Dan Neville

Question:

53. Deputy Dan Neville asked the Minister for Finance his views on whether the same system that operates for farmers should also operate for agricultural contractors who do more than 50% of the farm machinery work on farms such as silage cutting, hedge cutting, round bailing, slurry spreading and ploughing, planting and harvesting of crops and so on, agricultural contractors are looking for the same system that prevails for farmers that is, that is, that they be allowed to have rebated as double taxation on their income tax the carbon tax and agricultural diesel. [53632/12]

Written answers

Minister for Finance

I assume that the Deputy’s question relates to the double deduction for carbon tax on farm diesel which I provided for in Finance Act 2012. Under this provision, farmers are allowed a deduction in computing their farming profits or losses for the amount of additional carbon tax they incur on purchases of farm diesel following the proposed increase in the rate of carbon tax on certain fuels from 1 May 2012. The new deduction is in addition to the existing deduction for carbon tax included in the cost of farm diesel used in the course of the farming trade.

As the Deputy will be aware, it is a longstanding practice of the Minister for Finance not to comment, in advance of the Budget, on any tax matters that might be the subject of Budget decisions.

Tax Compliance

Questions (54)

Jerry Buttimer

Question:

54. Deputy Jerry Buttimer asked the Minister for Finance if support measures, such as moratorium on instalments, can be put in place by Revenue to assist a young small business (details supplied) to continue to trade, thereby securing its financial position, ensuring its medium and long term success and providing employment; and if he will make a statement on the matter. [53398/12]

Written answers

Minister for Finance

I am advised by the Revenue Commissioners that it has been engaged with the business in question on an ongoing basis over the past four years to help it meet its tax obligations. In March 2012 Revenue facilitated a four year phased payment arrangement, which is in excess of normal timelines for such agreements, to help the business pay arrears of tax that had accumulated over the previous number of years. A condition of the phased arrangement is that current taxes are paid as they fall due, but unfortunately there have been a number of occasions where the business has failed to honour its commitments in this regard. Currently there are both VAT and PAYE/PRSI payments and returns outstanding, as well as certain payments due to the Sheriff, which were agreed by the business separate to its agreement with Revenue.

Revenue is conscious that the current economic climate is exerting financial pressure on some businesses and in such circumstances is prepared to work with them to meet their tax obligations, as has been the situation in this case. However any such assistance must take account of Revenue’s responsibility to maintain a level playing field for other businesses that are tax compliant and in that context a moratorium on tax debt cannot be considered.

Notwithstanding the above, Revenue remains committed to engaging with the business but can only do so if there is meaningful engagement and a clear commitment from the business to honour terms as agreed. In circumstances where the terms of the agreement are not adhered to and where the business does not put realistic alternative proposals to Revenue, then Revenue has no choice but to commence enforcement proceedings to secure the outstanding tax debts.

VAT Rates Application

Questions (55)

Sandra McLellan

Question:

55. Deputy Sandra McLellan asked the Minister for Finance if he will consider changing the VAT system so that the VAT is paid by companies and not passed on to the consumer; and if he will make a statement on the matter. [53405/12]

Written answers

Minister for Finance

VAT is a tax on the value added to a supply of goods and services, and the collection and recovery of VAT takes place at each stage of the distribution chain of supply. In the end, VAT is borne by the final consumer in the form of a percentage addition to the final price of the goods or services. VAT is governed by the EU VAT Directive, with which Irish VAT law must comply. It is not possible under EU VAT law to provide that VAT is paid by companies and not the final consumer.

Bank Codes of Conduct

Questions (56)

Paschal Donohoe

Question:

56. Deputy Paschal Donohoe asked the Minister for Finance if the Central Bank of Ireland code of practice on the transfer of mortgages which states that a loan secured by the mortgage of residential property may not be transferred without the written consent of the borrower must be adhered to by non domestic Irish financial institutions including Lloyds TSB and RBS; if the Central Bank of Ireland code of practice on the transfer of mortgages applies to buy to let loans secured on residential properties; if the Central Bank of Ireland code of practice on the transfer of mortgages applies to non-Irish residential properties; and if he will make a statement on the matter. [53421/12]

Written answers

Minister for Finance

I have been advised by the Central Bank that the ‘Code of Practice on the Transfer of Mortgages’ is a voluntary code. The Code was issued by the Central Bank in 1991 to financial institutions involved in the provision and transfer of mortgage credit. A copy of the Code and a list of regulated financial institutions are available at www.centralbank.ie. As the Code is voluntary, it is not subject to the Central Bank’s administrative sanctions procedure.

The Code states that it applies to a loan secured by the mortgage on residential property. I have also been advised by the Central Bank that, for the purposes of the Code, residential property is not limited to the principal private residence of the mortgagor. Therefore, the Code may be applied, on a voluntary basis, to mortgage arrangements on a residential property that is intended for letting or on a residential property that is located abroad.

Notwithstanding its voluntary nature, I expect that best practice dictates that the Code be applied by all institutions to all classes of residential property.

Bank Debt Restructuring

Questions (57)

Paschal Donohoe

Question:

57. Deputy Paschal Donohoe asked the Minister for Finance the aggregate amount of loans that are to be deleveraged via sale from the four banks that participated in the March 2011 PCAR/PLAR exercise and the total loss from these sales that was allowed for March 2011 PCAR/PLAR recapitalisation and from the figures the amount of the loan sales that have occurred to date and the aggregate losses incurred on them; and if he will make a statement on the matter. [53422/12]

Written answers

Minister for Finance

As at March 2011, when the Central Bank published the Financial Measures Programme (FMP) Report and following the Prudential Liquidity Assessment Review (PLAR), a surplus of some €70bn of loans relative to a sustainable Loan to Deposit Ratio of 122.5% at end-2013 for the aggregate domestic banking system, was identified for deleveraging. De-leveraging is achieved through the separation of assets into ‘core’ and ‘non-core’ elements, and the gradual run-off and disposal, avoiding a fire-sale, of these non-core assets. The Prudential Capital Assessment Review (PCAR) included assumed losses of €13.2bn for the sale of such assets and as such the banks were assumed to be able to absorb this level of loss from disposal without affecting future capital. The figure of €13.2bn was not broken down by bank by the Central Bank in the FMP Report due to commercial sensitivities. In this regard, deleveraging has progressed well. Deleveraging of €49.9bn has been achieved by Allied Irish Banks (AIB), Bank of Ireland (BOI) and Permanent TSB from 31 December 2010 to 30 September 2012. Aggregate losses have not been disclosed by the Central bank due to commercial sensitivities and confidentiality of information, however the Pillar Banks where disposals have been concentrated, have disclosed that overall cumulative losses incurred have been within PLAR assumed losses.

The on-going progress in deleveraging and deposit gathering activities has seen BOI make further progress towards improving its Loan to Deposit (LDR) ratio reducing from 136% at June 2012 to less than 130% in November 2012. Similarly, AIB’s LDR reduced to less than 120% at the end of October (including loans held for sale) from 125% at end of June.

Mortgage Arrears Report Implementation

Questions (58)

Finian McGrath

Question:

58. Deputy Finian McGrath asked the Minister for Finance the options available to a person (details supplied) in Dublin 17. [53424/12]

Written answers

Minister for Finance

The Deputy will appreciate that it would not be appropriate for me to advise or comment on individual cases. However the key general advice for any mortgage holder experiencing difficulties with their mortgage is to engage at an early stage with their bank. From an overall public policy perspective, a number of steps have been taken to protect all homeowners experiencing mortgage difficulty. The Central Bank’s Code of Conduct on Mortgage Arrears is a key protection and provides that each bank must put in place a formal Mortgage Arrears Resolution Process to deal with its mortgage customers who are in arrears or pre-arrears and for the establishment of dedicated arrears support units and appeals processes to handle such cases. The Code highlights the importance of a borrower contacting their lender when they are in arrears or pre-arrears. The Central Bank has published a guide for consumers on mortgage arrears called ‘Mortgage Arrears – A Consumer Guide to Dealing with your Lender’ and this is available on the Central Bank website:

http://www.centralbank.ie/regulation/processes/consumer-protection-code/Documents/Consumer%20Booklet%20-%20FINAL%20Feb%202011.pdf .

I can assure the Deputy that the Government is committed to advancing appropriate measures to assist those mortgage holders who are experiencing genuine difficulty. In this regard, the Government is now actively implementing the main recommendations contained in the ‘Keane Report’.

A number of significant milestones have now been achieved:-

- The Personal Insolvency Bill was published last June and the Bill has been progressed by the Minister for Justice, Equality and Defence. The Dáil Report stage of the Bill has recently concluded and it is now before the Seanad;

- The Minister for Housing and Planning has formally launched the “mortgage to rent” scheme on a nationwide basis;

- Lenders have provided details to the Central Bank on their proposed forbearance and loan modification options for appropriate cases. The roll out of these options has commenced overseen by the Central Bank.

- An extensive independent mortgage advice framework has been put in place by the Minister of Social Protection comprising (i) an enhanced website www.keepingyourhome.ie (ii) a Mortgage Arrears information helpline and (iii) the provision of free independent ‘one-to-one’ professional financial advice to borrowers when considering a long term forbearance/resolution offer from their lender. The list of accountants providing this service is located on the www.keepingyourhome.ie website.

The general policy issue of mortgage arrears is of the utmost importance to Government and in recognition of this, the Taoiseach is chairing a special Government committee on mortgage arrears to oversee the overall Government response to tackle the problem. In addition, a high level Steering Group, chaired by the Department of Finance, is continuing to drive the implementation of the recommendations set out in the Inter-Departmental Group on Mortgage Arrears (the ‘Keane Report’).

Pension Provisions

Questions (59)

Michael McGrath

Question:

59. Deputy Michael McGrath asked the Minister for Finance if he will show separately in respect of the CEO of the National Treasury Management Agency and the CEO of the National Assets Management Agency, an estimate of the State's pension contribution and the estimated value of each of their pension fund if they were employed to retirement age on present salary; if the pension due to be paid is based on final pensionable salary before or after the voluntary pay cut. [53438/12]

Written answers

Minister for Finance

The Chief Executives of the NTMA and NAMA are members of the NTMA defined benefit superannuation scheme. Pension benefits for those who were members of the scheme prior to 1 January 2010 are based on final salary. The pension benefits of members who joined the scheme on or after 1 January 2010 are based on career average earnings. Unlike most public pension schemes which are funded on a pay as you go basis, the NTMA superannuation scheme is a funded scheme. The NTMA contribution to the scheme is determined on the advice of an independent actuary and is at present set at a level of 25% of payroll in respect of members prior to 1 January 2010 and 10.5% of payroll in respect of members who joined the scheme on or after 1 January 2010. Pension entitlements are within the standard entitlements in the model public sector defined benefit superannuation scheme. Pension contributions are not paid to individual employees – they are paid into the scheme. The level of potential pension payments to members is dependent on length of service, based on final salary or career average earnings, with 1/80th of salary accruing for each year of service.

In relation to the pension entitlements of the Chief Executive of the NTMA, his contract provides that his pension will be based not on his salary as Chief Executive but on his salary as a director of the NTMA prior to his appointment as Chief Executive.

The pension of the Chief Executive of NAMA will ultimately be based on a pro-rata average of his final salary as NAMA Chief Executive and his final salary as an employee of the NTMA. He was appointed to the position of Chief Executive of NAMA on 22 December 2009 and his contract as NAMA Chief Executive is a specified purpose contract, linked to the lifespan of NAMA.

The Chief Executives of NTMA and NAMA have waived 15% of salary through the gifting of a proportion of salary to the Exchequer under Section 483 of the Taxes Consolidation Act 1997. Gifting of a proportion of salary to the Exchequer under this provision does not affect the calculation of pension benefits.

The salary of the Chief Executive of NTMA for 2011 was €490,000 before the voluntary reduction. The salary of the Chief Executive of NAMA for 2011 was €430,000 before the voluntary reduction. The public service Pension-Related Deduction is applied to the Chief Executives of the NTMA and NAMA.

Bank Debt Restructuring

Questions (60)

Paschal Donohoe

Question:

60. Deputy Paschal Donohoe asked the Minister for Finance the total aggregate amount in euro of original par value of loans where assets have been realised by the National Assets Management Agency and Irish Bank Resolution Corporation or the nationalised Angle/INBS; if he will detail those assets which have been realised by NAMA and IBRC; the total aggregate amount in euro for all assets that have been sold; the total aggregate losses in euro that would be realised against the full original par value of the loan versus the sale price of the sold assets; the total aggregate amount of original par value loans in euro which have been sold by NAMA and IBRC or the nationalised Anglo/INBS; the cumulative losses against the full original par value of the loans in euro versus the sale price of the sold loans; and if he will make a statement on the matter. [53442/12]

Written answers

Minister for Finance

At 30th June 2012, NAMA has generated cash receipts of €8.1 billion since inception, of which €5.2 billion relates to disposal activity and €2.9 billion relates to non-disposal activity. This capturing of this €2.9 billion is an important measure of NAMA’s performance. I am further advised by NAMA that its objective in any loan or asset sales is to achieve the best outcome for the taxpayer and, in that context; the disclosure of the additional information sought by the deputy could adversely affect its competitive position as it would be of greatest benefit to potential purchasers.

I am advised by NAMA that Sections 99 and 202 of the NAMA Act preclude it from disclosing details relating to its debtors and their assets.

The overriding mandate of IBRC is to maximise the recovery of loans on behalf of the State and to wind down over time.

I have been advised that IBRC does not disclose the details of individual assets sold. The Business Review in IBRC’s financial statements contains detailed information in respect of the Bank’s deleveraging to date. On a pro-forma statutory basis, the Bank’s net loan book decreased by €12.1bn or 43% between 31 December 2010 and 30 June 2012.

Included in these figures are loans sold by the Bank of €5.3bn, which were primarily bulk US loan sales, related to the closure of the Bank’s US offices in 2011. Gross loans of €6.7bn were sold with related provisions of €1.4bn and derivatives and other assets of €0.2bn. Proceeds received were €5.1bn, resulting in a net loss on disposal of €0.4bn. Full details of these loan sales are contained in the financial statements note “Gain / (loss) on deleveraging of other financial assets” in the Annual Report 2011 and Interim Report 2012

http://www.ibrc.ie/About_us/Financial_information/Annual_Report/Annual_Report_2011.pdf

Question No. 61 withdrawn.

NAMA Investigations

Questions (62, 63)

John Lyons

Question:

62. Deputy John Lyons asked the Minister for Finance further to the alleged fraud reported by the National Treasury Management Agency (details supplied), if he is confident that the NTMAs internal controls are sufficient; and if he will make a statement on the matter. [53485/12]

John Lyons

Question:

63. Deputy John Lyons asked the Minister for Finance his plans to change internal processes or review the appointment of external auditors in view of reported fraud by the National Treasury Management Agency (details supplied); and if he will make a statement on the matter. [53486/12]

Written answers

Minister for Finance

I propose to take Questions Nos. 62 and 63 together.

I am informed by the National Treasury Management Agency, as Manager of the National Pensions Reserve Fund (NPRF), that the Comptroller and Auditor General (C&AG), the NPRF’s external auditor, in Chapter 4 of his 2011 Report (the C&AG Report) examined in considerable detail the overcharging on transition number 14 of the NPRF by State Street Bank Europe Ltd.

Transition management is a specialized service requiring significant expertise, the purpose of which is to execute large volumes of securities transactions seeking to minimise the costs of market impact through careful timing of the execution of trades. The purpose of transition management is to enable the market risks, operational risks and costs incurred to be managed systematically.

The C&AG Report states that the NTMA outlined the context for the overcharging and that it engages large regulated organisations of scale and substance as transition managers and implements robust contractual arrangements. The NTMA noted that the pricing amendments improperly applied by State Street Bank Europe Ltd were never visible to the NTMA and that the NPRF had been reimbursed for the overcharged amounts. The NTMA stated that it had identified three actions, which were set out in the C&AG Report, which it will implement to mitigate risks specifically associated with activities similar in nature to those encountered on transition number 14. The C&AG made four recommendations which the NTMA will implement to the greatest extent possible, as reflected in the Chief Executive’s responses as set out in the C&AG Report.

I am satisfied that there is no requirement for any additional measures to be taken.

VAT Rates Exemptions

Questions (64)

Robert Troy

Question:

64. Deputy Robert Troy asked the Minister for Finance if he will consider putting in place a system where play-schools can apply for tax back after they purchase equipment for their facilities as new equipment is essential to provide a quality and safe service for young children; and if he will make a statement on the matter. [53489/12]

Written answers

Minister for Finance

Bodies supplying educational services, such as play-schools, are exempt from VAT under the EU VAT Directive, with which Irish VAT law must comply. This means they do not charge VAT on the services they provide, but equally they cannot recover VAT incurred on goods and services that they purchase, including equipment for their facilities. Only VAT registered businesses which charge VAT are entitled to recover VAT.