Dara Calleary
Question:7. Deputy Dara Calleary asked the Minister for Finance his views on the tax treatment of crowdfunding initiatives; and if he will make a statement on the matter. [41758/14]
View answerWednesday, 5 November 2014
Questions (7)
Oral answers (6 contributions)
The National Policy Statement on Entrepreneurship in Ireland indicated that more diverse sources of finance are needed for start-up companies. It indicated there is considerable potential in crowdfunding. I want to ascertain from the Minister what work is under way in his Department to support and mine that potential.
Crowdfunding is still in its early stages of development. This type of funding has the potential to increase entrepreneurship as it bridges a financing gap for many micro-enterprises and fosters a more engaged investor community whose expertise can help micro-enterprises. Delivering on action No. 217 of the Action Plan for Jobs 2014, officials in my Department are working with stakeholders involved in SME finance on a number of non-bank financing initiatives, of which crowdfunding is one, so that the optimum mix of SME finance products can be established as soon as possible. The SME State bodies group, which is chaired by my Department, hosted an SME policy day and identified crowd funding as an area that is likely to help Irish SMEs in the coming years. My officials recently facilitated meetings between the European Investment Bank and two crowdfunding organisations.
In terms of supporting such alternative financing mechanisms as crowdfunding through tax incentives, it must be borne in mind that value for money and a strong justification for State intervention are key considerations. As crowdfunding is relatively new and is only currently establishing a presence in Ireland, I am inclined to consider the various available options prior to intervening with taxpayers' money in an effort to boost take-up. Private sector initiatives have their place and do not necessarily require tax reliefs in order to foster participation. The Deputy will be aware that the employment and investment incentive already provides tax relief for investments of medium-term risk capital in qualifying SMEs.
I acknowledge the progress made. The justification for State intervention is job creation. Some private companies can point to just under 1,000 new jobs created in the past two years. I acknowledge the significant progress made by Microfinance Ireland over the past four months in terms of reforming and sharpening up its role. What timeframe has the Minister given to his own Department to conclude these negotiations and come forward with a proposal which might hit the marketplace? Might we see some sort of Government-endorsed package around crowd financing to assist the growth of potential projects?
As the Deputy knows, crowdfunding is the practice of funding a project or venue by raising small amounts of money from a large number of people, typically via the Internet. Crowdfunding campaigns are generally funded by the general public rather than by traditional investors.
Section 6.2 of the 2014 report of the entrepreneurship forum discusses crowdfunding and recommends that no action be taken by the Government until the industry establishes itself in Ireland and has had time to grow and develop. Action No. 217 of the Action Plan for Jobs 2014 commits to developing proposals to support the development of alternatives to bank financing within Ireland. My officials are working with stakeholders involved in SME finance on a number of non-bank financing initiatives, of which crowdfunding is one. Our policy position so far is that it is at a very early stage and I am not disposed to encourage it at this time by providing it with a tax break. However, it is an issue we will keep under review. We have tax breaks to encourage investment in other areas.
The tax breaks from the employment and investment incentive scheme, EIIS, and the other schemes are for people with larger incomes, who have spare capacity to invest in such schemes. As the Minister said, crowdfunding tends to attract smaller investors and people with smaller savings. They are entitled to a fair share of any tax incentives on offer. I welcome the progress made but I encourage the Minister to move forward as quickly as possible on this rapidly growing market. There is no reason this country should not be at the forefront.
We might learn from the practice in the United Kingdom. In 2013, the UK Government commenced lending to small businesses through a peer-to-peer lending platform called Funding Circle. An initial amount of £20 million was provided through its British business bank and this has subsequently been increased to £40 million. These funds will be used to provide the final 10% of any loan to a borrower. The remaining 90% of funds must be raised through private investors.
While I will not cite peer-to-peer lending specifically, the Government has a range of mechanisms in place to provide alternative sources of finance to SMEs in Ireland, such as those mentioned by the Deputy - the microfinance loan scheme, the employment and investment incentive scheme, the start-up refunds for entrepreneurs, SURE, programme, and the Strategic Banking Corporation of Ireland. Crowdfunding is something that is gaining traction in other jurisdictions, and it is worth looking at what is happening in the United Kingdom. However, while we are keeping up with what is happening, I do not have an initiative to propose yet. The Deputy may be correct in his analysis, but this is something I will keep under review.