Wednesday, 20 Nov 2013

Written Answers Nos. 44-50

VAT Rate Application

Questions (44)

Jerry Buttimer

Question:

44. Deputy Jerry Buttimer asked the Minister for Finance the reason insulin is subject to VAT; if he will exempt it from VAT; and if he will make a statement on the matter. [49763/13]

Written answers

Minister for Finance

I am advised by the Revenue Commissioners that the supply of oral medicines is liable to VAT at the zero rate and that the supply of non-oral medicines is liable to VAT at the standard VAT rate at 23%. The supply of insulin solution for injection or insulin suspension for injection, which are not oral medicines, are therefore liable to VAT at the standard rate. The VAT rating of goods and services is constrained by the requirements of EU VAT law with which Irish VAT law must comply. Under the EU VAT Directive, Member States may retain the zero rate on goods and services which were in place on 1 January 1991, but cannot extend the zero rate to new goods and services.

Member States may apply a reduced VAT rate to those goods and services which are listed under Annex III of the VAT Directive, including pharmaceutical products of a kind normally used for health care and as treatment for medical purposes. Therefore, the application of a reduced rate of VAT, at 9% or 13.5%, is permissible under the VAT Directive.

VAT Rate Application

Questions (45)

Jerry Buttimer

Question:

45. Deputy Jerry Buttimer asked the Minister for Finance the reason defibrillators are subject to VAT; if he will exempt them from VAT; and if he will make a statement on the matter. [49764/13]

Written answers

Minister for Finance

The VAT rating of goods and services is subject to the requirements of EU VAT law with which Irish VAT law must comply. Defibrillators, other than implantable defibrillators, are liable to VAT at the standard rate, currently 23%. There is no provision in the EU VAT Directive that would make it possible to exempt from VAT or apply a zero rate to the supply of such products.

Under the VAT (Refund of Tax) (No.15) Order, 1981 it is possible for individuals to obtain repayment of VAT expended on certain goods and appliances which assist persons with a disability to overcome that disability. In this context, a defibrillator purchased by or on behalf of an individual may qualify for a VAT refund. However, a defibrillator purchased for general use by a sports body or charity would not qualify for such a refund.

Financial Services Regulation

Questions (46)

Shane Ross

Question:

46. Deputy Shane Ross asked the Minister for Finance the contact he or any of his officials have had with the Central Bank as a direct result of sudden losses at Royal Sun Alliance and the collapse of Newbridge Credit Union; if there was a failure of regulation in either case; the advice he received from the Central Bank in each case; if he was updated on the events as they unfolded; the reason Permanent TSB was chosen as the vehicle to rescue Newbridge Credit Union; and if he will make a statement on the matter. [49575/13]

Written answers

Minister for Finance

Officials from my Department were in regular contact with the Central Bank regarding the transfer of assets and liabilities of Newbridge Credit Union to permanent tsb, and I was kept informed of events throughout the process. My role, as Minister for Finance, in this process was as consultee and as such, I was made aware of events as they occurred. The special manager was appointed by the High Court and each extension of his term required High Court approval. The Central Bank’s Resolution Report sets out the level of bad practice at Newbridge credit union in the past. The Central Bank was required to meet rigorous High Court approved intervention conditions when undertaking this resolution process. It must be remembered that the cause of the problems rests with those running Newbridge Credit Union. The bad practice in Newbridge over many years can be illustrated in the following key lending statistics:

- An individual loan of €3.2 million, which was in excess of the Credit Union Act restriction of a max of 1.5% of the total assets.

- 52% of the loans exceed five years duration, as opposed to the maximum set out in the Credit Union Act of 20%.

- The average loan in Newbridge Credit Union was €17,281 as compared to the average Credit Union loan which is €7,764.

- There were 26 loans of an average value of €550,000, which were seriously distressed.

These statistics demonstrate that Newbridge was very different from a normal Credit Union. The structure of many of these loans was more akin to Development loans with “bullet” repayments as opposed to regular repayments.

Based on Central Bank advice I am satisfied that the decision to take this course of action was the only viable option available apart from liquidation. The Central Bank advised me that, having regard to the purposes of the Central Bank and Credit Institutions (Resolution) Act 2011 and the matters set out in section 9(6) of that Act, the immediate winding up of Newbridge Credit Union was not in the public interest. The reason for this being the particular purpose of maintaining public confidence in the financial system in the State, including the protection of members’ savings in credit unions.

My priority in assessing the Central Bank’s proposal on Newbridge was to protect the savings of depositors and members of Newbridge Credit Union. Arising from the transfer members of Newbridge Credit Union will continue to have full and uninterrupted access to their savings.

In line with the resolution options available to it the Central Bank undertook a process which involved the examination of possible credit union combinations. This examination resulted in an approach being made to a number of credit unions. Ultimately, however, no credit union considered that it was in its best interests to complete such a combination, even in the context of extensive financial support. This reflected the exceptional nature of financial difficulties in Newbridge Credit Union and the relative scale of the credit union within the sector. The Central Bank also considered proposed solutions put forward by various interested parties but none proved feasible in addressing the problems or protecting members’ savings.

It was as an alternative to a possible liquidation that the Department of Finance, with the support of the Central Bank, requested Permanent TSB to undertake this transaction. The transfer of Newbridge Credit Union to Permanent TSB means that Newbridge Credit Union members can be assured that they can continue to operate their loan and deposit accounts as normal.

As Minister for Finance, I agreed to the payment from the resolution fund to Permanent TSB of a financial incentive of up to €53.9m to support the transfer. This was on foot of a request from the Governor of the Central Bank. The incentive includes the following:

- €23m in cash up-front

- €4.25m for restructuring and integration costs

- €2m for other transferring liabilities, and

- a maximum additional €24.7m to cover a risk share on the transferring loans whereby the State will absorb 50% of the losses where loans perform below their transfer value and 50% of the gains where they perform above the transfer value.

The financial incentive provided in the Newbridge case is fully recoupable from the financial services sector over time in the form of a levy.

Royal Sun Alliance

With regard to the recent developments at Royal Sun Alliance Insurance Ireland, officials from my Department held a conference call with the Central Bank on Monday 11 November to discuss the position. Following that call, the Central Bank provided background information to the Department on the sequence of recent events and the injection by RSA Group of €100m in capital to bolster its reserves, taking its solvency capital requirement to 228%. In addition, the Central Bank provided an overview of its on-going contacts, meetings and inspections with RSA which the Central Bank conducts in its role as supervisor of insurance undertakings.

The Central Bank of Ireland has had an on-going programme of engagement with RSA Insurance Ireland (RSAII) since the implementation of the Central Bank’s Probability Risk and Impact System – PRISM, as it does with all high impact companies. As part of the framework the Central Bank of Ireland engages with firms at a level that corresponds to their impact category; the higher the impact, the higher the level of engagement. Engagement involves reviews, inspections and meetings, and the frequency and level of engagement is associated with the firms’ impact rating. I am satisfied that this improved regulatory framework provides for enhanced supervision of the industry and protection of the Irish consumer. With regard to RSA this programme included eight on-site inspections over a two year period and on-going meetings with key role holders such as the Chief Executive Officer, Chief Finance Officer, Chief Risk Officer, etc.

European Stability Mechanism

Questions (47)

Terence Flanagan

Question:

47. Deputy Terence Flanagan asked the Minister for Finance if he will provide an update regarding negotiations in relation to support from the European Stability Mechanism for retrospective recapitalisation of our banks; and if he will make a statement on the matter. [49615/13]

Written answers

Minister for Finance

The Euro Area Heads of State or Government agreed in June 2012 to break the vicious circle between banks and sovereigns, and that when a Single Supervisory Mechanism, involving the ECB, is in place and operational, the European Stability Mechanism (ESM) could recapitalize banks directly.

The Eurogroup meeting of 20th June 2013 agreed on the main features of the ESM’s Direct Bank Recapitalisation (DBR) instrument. The DBR instrument will come into effect when the Single Supervisory Mechanism is in place and operational. This is not expected to take place until the second half of 2014. There is a specific provision for retrospective recapitalisation included in the main features. This provision states that “The potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement.” Therefore, the agreement that we were active in negotiating keeps open the possibility to apply to the ESM for a retrospective direct recapitalisation of the Irish banks should we wish to avail of it.

The overall framework agreed this summer builds upon the earlier Euro area Heads of State or Government agreement secured on the 29th of June 2012 and is an important step in the Eurozone’s efforts in this regard.

The October 2013 European Council called on the Eurogroup to finalise the detailed guidelines for ESM direct recapitalisation so that the ESM can have the possibility to recapitalise banks directly, following the establishment of the Single Supervisory Mechanism.

European Stability Mechanism

Questions (48)

Terence Flanagan

Question:

48. Deputy Terence Flanagan asked the Minister for Finance the cost for the next five years of being a member of the European Stability Mechanism; and if he will make a statement on the matter. [49616/13]

Written answers

Minister for Finance

The European Stability Mechanism Act, 2012 provides for Ireland's membership of the European Stability Mechanism (ESM) and payments into it. Section 3 of the Act provides for payments to the ESM out of the Central Fund. In July 2012 the European Stability Mechanism Act was signed into law and in August 2012 Ireland deposited its instrument of ratification for the Treaty establishing the ESM. The Treaty provides for a total capital subscription of €700 billion, of which €80 billion is paid-in capital. Ireland’s total share of the paid-in capital is €1.27376 billion, based on our percentage share of the ESM total paid-in capital which is 1.5922%. This paid-in capital is to be paid in five equal tranches of €254,752,000 up to April 2014. The Eurogroup (Euro Area Finance Ministers) agreed in September 2012 that two tranches of capital would be paid in 2012, both in October, following the ESM’s entry into force. The ESM entered into force as of 27th September 2012, and Ireland’s first two tranches of €254,750,000 were paid together on 11th October 2012, resulting in a total payment of €509,504,000.

The third tranche of €254,752,000 was paid on 19th April 2013.

The fourth tranche of €254,752,000 was paid on 29th October 2013.

The agreed payment schedule is that the remaining fifth tranche (again of €254,752,000) will be paid in April 2014.

EU-IMF Programme of Support

Questions (49, 51)

Terence Flanagan

Question:

49. Deputy Terence Flanagan asked the Minister for Finance the reason a precautionary credit line was not proceeded with; the terms that were offered in that credit line, including interest rate and term of loan; and if he will make a statement on the matter. [49617/13]

Billy Timmins

Question:

51. Deputy Billy Timmins asked the Minister for Finance the conditions that would have prevailed if we had availed of the precautionary credit line; the reasons he chose not to take this option; and if he will make a statement on the matter. [49638/13]

Written answers

Minister for Finance

I propose to take Questions Nos. 49 and 51 together.

As the Deputy will be aware, the Government decided on 14 November that Ireland is now in the best position to exit the EU-IMF programme of financial assistance on December 15 without the need to pre-arrange a new precautionary credit line from our EU and IMF partners.

The Government decided that exiting without a pre-arranged precautionary facility or backstop is the right decision for Ireland. Market confidence in Ireland is high, the public finances are under control, we are reducing our deficit and debt levels and economic conditions and sentiment are improving.

In relation to the conditionality, the ESM Treaty provides that all ESM funding, including the precautionary facilities, require conditionality. The conditionality relating to any credit line would be a matter for discussion in the event that an application would be made. Article 13 (3) of the ESM Treaty states as follows;

"..the Board of Governors shall entrust the European Commission - in liaison with the ECB and, wherever possible, together with the IMF - with the task of negotiating, with the ESM Member concerned, a memorandum of understanding (an "MoU") detailing the conditionality attached to the financial assistance facility. The content of the MoU shall reflect the severity of the weaknesses to be addressed and the financial assistance instrument chosen. In parallel, the Managing Director of the ESM shall prepare a proposal for a financial assistance facility agreement, including the financial terms and conditions and the choice of instruments, to be adopted by the Board of Governors...."

However, it was not possible to get clarity on the type conditionality that would apply to any precautionary facility that might be sought in advance of an application. The interest rates for any particular facility, if sought, are determined by the ESM’s Pricing Guidelines and the IMF’s Pricing Policy.

The Government concluded that exiting with a pre-arranged precautionary credit line was not appropriate to Ireland’s circumstances as the option of exiting without a precautionary credit line was preferred in view of the favourable market conditions at present. There is no certainty that conditions would be as favourable in a year’s time when any precautionary facility would end, or at a later date, if the option for further six month renewals were exercised.

Finally, while the decision was finely balanced, it is the case that since taking the decision we have enjoyed a significant amount of support and the markets have responded positively.

Redundancy Payments

Questions (50)

Ciaran Lynch

Question:

50. Deputy Ciarán Lynch asked the Minister for Finance the effect of changes to top slicing relief as applied to a redundancy package being offered to a person (details supplied); and if he will make a statement on the matter. [49637/13]

Written answers

Minister for Finance

Ex-gratia payments can be made in addition to statutory redundancy payments on the termination of the holding of an office or employment, or alternatively on death or disablement grounds. Statutory redundancy payments are exempt from income tax. Furthermore, there are additional exemption limits for ex-gratia discretionary redundancy payments or retirement gratuities in excess of the statutory redundancy amount, which apply to all employees and office holders in receipt of such ex-gratia payments. These include:

- a basic exemption of €10,160 plus €765 per complete year of actual service in excess of the statutory redundancy payment;

Or

- Standard Capital Superannuation Benefit i.e. 1/15th of the person’s annual income (average of the last three years) for each year of employment less any tax-free lump sum which is received or receivable under any approved or statutory pension scheme.

It is open to the taxpayer to choose whichever relief is of most benefit.

The basic exemption from income tax as outlined above can be further increased by up to €10,000 if the person is not a member of an occupational pension scheme. (This can only be claimed if the person has not made any claims in respect of a lump sum retirement gratuity received in the previous 10 tax years.)

Any balance of the ex-gratia payment after the calculation of the exemptions and reliefs is liable to income tax. An additional relief called Top Slicing Relief is available in relation to this taxable amount. Given the budgetary constraints and the nature of the relief, which ensures that an individual’s average tax rate for the previous three years applies to such lump sums rather than the marginal rate of tax of 41 per cent, the Government has now decided to abolish Top Slicing Relief in respect of all ex-gratia discretionary payments made on or after 1 January 2014.

This measure will have no impact on retirement lump sums paid under Revenue approved pension arrangements and under statutory schemes.