Amendments Nos. 86 to 92, inclusive, are related and may be discussed together. Is that agreed? Agreed.
Finance Bill, 1991: Committee Stage (Resumed).
I move amendment No. 85:
In page 30, line 31, to delete "subsection" and substitute "section". Amendments Nos. 85 to 92, together inclusive, are in the main technical amendments and are required to ensure that the restrictions contained in section 24 are correctly targeted.
Amendment No. 86 deals with the situation where a lender receives a repayment of capital from a non-trading Shannon company before 31 December 1991. Under paragraph (ii) of the proviso to paragraph (a) of subsection (3B), a lender who receives such a repayment will immediately become subject to the 40 per cent ceiling. Under the provisions of the Finance Bill as published, that lender would not be able to make advances in excess of the 40 per cent ceiling until after 31 December 1991 when the new list in paragraph (b) of subsection (3B) comes into force. The lender would not have access to the £170 million list contained in the Finance Bill, 1990, as access to companies on that list is only available when the conditions of paragraph (b) of subsection (3A) are met. The amendment ensures that a lender in those circumstances will be able to make advances before 31 December 1991, to companies on the list referred to in the 1990 provisions. This is a mechanism by which we stop people coming out before the termination of the loan and getting in again before the date on which the loan expires.
Amendment No. 87 makes it clear that only loans which are denominated in a foreign currency are subject to the restrictions in the new subsection (4A) and that the rate to be used for the purposes of the 80 per cent of DIBOR rule is the three month Dublin interbank offered rate on Irish pounds. The amendment also secures that the interest is not to be treated as a distribution in the hands of the lender. It will, however, continue to be treated as distribution in the case of the borrower. This is in line with the existing restrictions on section 84 borrowing.
Amendment No. 88 ensures that interest on a high-coupon loan which is not to be treated as a distribution will be taxable in the hands of the lender but that such treatment will not result in the interest becoming an allowable deduction in the case of the borrower. Amendment No. 89 specifies that the three month DIBOR rate is the rate on Irish pounds. Amendment No. 92 provides that the 80 per cent of DIBOR rule is not to be applied to a loan to a borrower which is a non-manufacturing company carrying on trade in the Shannon Airport Zone.
Amendment Nos. 85, 90 and 91 are drafting matters to facilitate the above amendments.
I commend the amendments to the House.
(Limerick East): I do not have any objections to the amendments. The measures being taken by the Minister now are in line with the series of measures which were taken since 1984 when section 84 loans were first restricted. In 1984, Deputy Alan Dukes, the then Minister, proposed that section 84 loans would be restricted by and large to manufacturing industries. There were further restrictions in 1989 when the lending agencies, as I understand it, could only lend 110 per cent of their outstanding amounts. That was further restricted by the Minister last year.
I think we are down now to 40 per cent of what was originally denominated. As well as following what is now well established sequence and putting restrictions on section 84 loans with the view to taking more tax from the corporate sector, there is a loosening up and concessions are being given to certain new businesses. Manufacturing projects which fulfil certain conditions will be able to borrow and agencies will be able to lend above the 40 per cent barrier. I should like the Minister to reflect publicly with us on why he is doing this and to deal specifically with the mechanism which will allow certain companies to benefit from these new arrangements.
As I understand it, exceptions will only be made where the Minister for Industry and Commerce and the Department of Industry and Commerce, on the advice of the IDA, put forward proposals to the Revenue Commissioners. It seems peculiar that the IDA will be the authority who decide whether a particular company get a specific type of lending, especially when it is taxed based lending. I should like to hear the Minister's reflections on this point because I think the Minister or the Revenue Commissioners should decide who gets tax relief for a particular type of lending. As I understand it, the initiator will be the IDA, and unless they list the company appropriate for this type of lending it will not be put forward by the Department of Industry and Commerce, and, consequently, it will not be adjudicated on by the Revenue Commissioners.
The mechanism which is being followed this year is similar to the one operated in 1990. The IDA will complete a list of projects, taking into account appropriate submissions from both the Shannon Development Company and Údarás na Gaeltachta. All these projects will have to conform in all respects to the qualification criteria specified in section 24. This list will then be submitted to the Minister for Industry and Commerce and transmitted to me and the Department of Finance for approval. When approved, this list will be sent to the IDA by the Department of Industry and Commerce for notification to all companies on the list. The list will then be available to the qualifying banks to indicate to them the companies to which section 84 facilities can be provided under the transitional arrangement. This is to provide for pipeline projects where companies coming in from abroad would be ready to start negotiations, be they in the middle of negotiations or completing negotiations. I think the Deputy would agree that in those circumstances it would be advisable that we are seen to carry through the good faith of the negotiators, the IDA or the Shannon Development Company, and ensure that the credibility of those development companies is kept intact.
(Limerick East): I do not want to delay the House but I want to explore the scope of this provision further. Will this provision be confined to companies operating in Shannon or the financial services centre or is it wider than that?
It is wider than that; it extends into the area of industrial projects.
(Limerick East): It will relate to companies which are recommended by one of the agencies, the IDA or SFADCo. I presume companies recommended by Údarás na Gaeltachta would be included also.
(Limerick East): Again as I understand it, a company will have to have submitted a business plan which contains proposals for increasing employment. How hard is this tied in as a condition?
How hard are the conditions?
(Limerick East): The section seems to be an enabling provision which will allow the IDA and other agencies to recommend companies as they see fit. This seems to be a very permissive section. I am not too sure whether the references to employment in the section are cosmetic or real. Can the Minister be specific about the type of project involved? If the IDA put up a project, must jobs have been created or will it be recommended on the promise or expectation of jobs? Will it give rise to lobbying to include companies on the IDA list which will go to the Department of Industry and Commerce? Will the Minister for Industry and Commerce have the opportunity to add a few more companies to the list? How directly related to employment will the relaxation of the provisions be? Is the Minister satisfied that he has this provision tied down sufficiently so that it will not simply operate as another tax avoidance scheme?
It is part of the ongoing mechanism to scale down the use of section 84. Clearly in the middle of any period when it is being scaled down there will be companies in the pipeline and at different stages of negotiation. As I said already, it is to protect the good faith and credibility of the development agencies in their dealings with foreign companies that the rules will not be changed half way through the negotiation. That is specifically what is provided for here.
The development agencies will apply the same criteria they apply when grant-aiding projects in the normal way. They will assess the project on the basis of product, business plans, marketing and job creation. They will consider the cost per job from a grant point of view and will also take into account the benefit of section 84. It is all part of the one operation. The creation of additional employment is central to any grant application, whether it comes from Údarás na Gaeltachta, Shannon Development or the IDA. It will do no more or less than cater for those projects and proposals which are in the pipeline or in the process of negotiation and ensure that no new projects can be taken in after that. It is a way of scaling down the use of section 84.
I move amendment No. 86:
In page 30, to delete lines 33 to 48 and substitute the following:
"(I) references in paragraph (a) of this subsection, other than this paragraph of the proviso, to the 31st day of December, 1991, were references to the day on which the amount is repaid, and
(II) during that period—
(A) the reference in paragraph (i) of this proviso to relevant principal in respect of the interest on which the provisions of paragraph (a) do not, or would not, apply by virtue of the provisions of paragraph (b) were a reference to such principal in respect of the interest on which the provisions of paragraph (a) of subsection (3A) do not, or would not, apply by virtue of the provisions of paragraph (b) of that subsection, and
(B) the reference in paragraph (b) of subsection (3A) to paragraph (a) of that subsection were a reference to paragraph (a) of this subsection.".
I move amendment No. 87:
In page 31, to delete line 43 and substitute the following:
"(i) relevant principal, denominated in a currency other than Irish currency, and".
I move amendment No. 88:
In page 31, line 47, after "Act", to insert "in the hands of the company".
I move amendment No. 89:
In page 31, line 50, to delete "Dublin Interbank Offered Rate" and substitute "Dublin Interbank Offered Rate on Irish pounds".
I move amendment No. 90:
In page 32, line 21, to delete "or".
I move amendment No. 91:
In page 32, line 27, to delete "sterling." and substitute "sterling, or".
I move amendment No. 92:
In page 32, between lines 27 and 28, to insert the following:
"(iv) to a borrower which is a company carrying on one or more trading operations (within the meaning of subsection (1) of section 39A, as amended by the Finance Act, 1991, of the Finance Act, 1980).".
My amendment No. 84 which was ruled out of order refers to the same matter. It raised a point which it is incumbent on us to advert to at this stage in so far as we spent yesterday debating the different aspects of the income tax provisions. I think all sides of the House were agreed that there is a necessity to broaden the taxation base. We might disagree as to where that broadening of the base should happen, but if we are to give continued reliefs to the PAYE sector, then the money has to be raised elsewhere. This section deals with the corporate sector, the first area we have an opportunity to look at.
My concern about the debate we have just had on the Minister's amendments is that when one compares the present system and the actual yield from the corporate sector, the net point at the end of the day is that insufficient is being contributed by the corporate sector.
My amendment sought to intrude a new argument into the debate which was that an alternative minimum tax ought be established below which no section of the corporate sector, no matter what specific regime attaches to it, could avoid paying. We can talk all day about the 40 per cent tax regime on the corporate sector other than the IDA manufacturing area. However, the facts are that hardly anybody in their right mind is paying an effective rate of 40 per cent corporation tax. There are so many allowances and reliefs and escape hatches that may be availed of that nobody is paying it.
What my amendment effectively sought to do was to introduce an effective minimum rate of 10 per cent so that, no matter what the circumstances, if one was making a profit one could not pay less than 10 per cent. For example, it is a practice followed in the United States with their ACT tax and it seems to have a great deal to recommend it. It really is disingenuous of us in this House to talk about giving further relief to the PAYE sector if, at some stage, we do not identify where we are going to find the revenue that is lost. Deputy Noonan made the point that the Progressive Democrats, who are in the vanguard of this movement, have never identified where we are going to find the money.
Here we have a corporate sector which, broadly speaking, has been doing extremely well in recent years. They have made unprecedented profits. They have given a tremendous performance with greater efficiency in industry. Yet, because of a combination of the IDA tax regime applied to the various allowances, reliefs and escape hatches in section 84, they are paying hardly any tax. The section 84 reference by the Minister is effectively a mechanism to allow the banks themselves, who make substantial profits, to avoid paying their fair share of tax; it is an escape hatch for them under the guise of assisting industry.
I know the IDA would be extremely angry if that were to be cut out entirely. They argue strongly that such a facility has to be there, but I do not believe it has to be there in the wide open way it is at the moment, and Deputy Noonan's questions about employment and precisely what is the prospectus that has to be advanced before this can be made available are very pertinent.
In conclusion, I am unhappy once again that we have glided over this section creating the most generous climate possible in any western European country in terms of the tax regime applying to business in Ireland without in any way tightening up or ensuring that we get a better yield.
I am also somewhat unhappy about our going back on amendments already disposed of or ruled out of order. I would much prefer that comments now would be on the section, as amended, rather than referring specifically to amendments which are at this stage disposed of.
Perhaps the Minister might indicate the Government's thinking in relation to the future of section 84 type reliefs having regard to the OECD report published in today's media in regard to the level of corporation tax here. It would benefit everybody if there was some clarity from the Minister as to how he would like to see corporation tax move over the next few years in a manner not unlike the commitments given in relation to personal tax. It would be particularly beneficial to industry, given the long lead in time from planning. There are very few areas in this open market economy of ours over which we have domestic control to the extent that we have over our own domestic tax regime. Having regard to all the constraints, the greater the degree of certainty that can be offered by the Minister for Finance the better it is for industry generally in planning ahead.
In response to the points raised by Deputies Noonan and Rabbitte, will the Minister outline what the thinking in the Department now is? Each year we are getting restrictions and a tightening down in relation to the operation of section 84. Is there a long term vista, and if so, can it be revealed at this stage?
(Limerick East): If I recall correctly, last year when we were talking about transitional arrangements the aggregate amount which could be availed of in this type of borrowing in transitional arrangements was £170 million. Now we are into a second year of transitional arrangements and the aggregate amount this year is £250 million plus and the residue of last year's aggregate amount. That is an awful lot of money. What is the residue from last year? What is the estimate of the Department's tax loss on this? Supposing no transitional arrangements were made, what would be the return to the Exchequer? How much of last year's aggregate amount is still there to be added to the £250 million allowed for this year? What is the estimated loss to the Exchequer of making this concession for a further 12 months at the new aggregated amount? Does the Minister think it appropriate that it is the IDA or SFADCo or Údarás na Gaeltachta who should, in effect, be the decision makers on whether companies will get tax breaks of what looks like about £300 million? Aggregated relief on PAYE, according to the Minister's tables yesterday, was £53 million.
Deputy Rabbitte asked what minimum tax rate should be applied instead of the allowances that are there. However, a minimum tax rate of corporate tax is useful where tax allowances are generally available which significantly reduce the part of a company's profit charged to tax.
Accelerated capital allowances were principally responsible for transforming accounting profits into losses or greatly reduced profits for tax purposes. These allowances are being phased out. Accordingly, there will be increasingly little difference between profits for accounts purposes and profits for tax purposes.
Apart from the phasing out of accelerated capital allowances, there has been substantial reduction of groups relief and section 84 lending. In addition, a company must pay advanced corporate tax every time they distribute profits to shareholders in the form of a dividend. To the extent that a company distribute their profits the ACT is, for all practical purposes, a minimum corporate tax rate. Calls for a minimum corporation tax rate ignore the substantial changes which have taken place in our corporation tax code over the last number of years. I am satisfied that the elimination of free depreciation and the introduction of advanced corporate tax achieved largely the same objectives as underlie calls for a minimum tax on companies.
The ending of export sales relief is just another part of the whole area where corporate tax will now be paid where it was not being paid. Up to 1990 we had zero tax on exports; now it is 10 per cent corporate tax — the systematic reduction in the lending under section 84 in the last three years and again in this year's Bill accelerated capital allowances, which was one of the greatest mechanisms for reducing profits into losses or eliminating them, and the restriction in the 10 per cent carried out last year by narrowing the definition of manufacturing tax have combined to make an effective corporate tax payable. It is interesting to look back over the figures of the last couple of years to see what has happened. In 1987 the corporate tax yield was £255.7 million; we are projecting this year £527 million. The percentage of revenue that corporate tax represents——
Is that a function of profitability or a widening of the tax base?
It is a combination of both. While the earlier years would not have been great for profits, it is becoming evident, in the elimination of all the various factors, I am talking about plus profits last year. It is very difficult to draw a line between the two.
The Minister has been asked about 1986 in terms of profits.
I imagine there would not have been many profits in 1986 or 1987. The 1987 base is probably a fair base from which to move. Most of the changes I am talking about came about in those three to four years and they will take increasing effect as we go along. Export sales relief will not come into play effectively until 1992. There would be a build up of accelerated allowances that would probably wipe out a certain amount of profit in 1991 but we will begin to see the full effect of that in 1992 rather than 1991. We expect that trend to continue. Last year we reduced the ceiling to 75 per cent for section 84 loans and this year we are taking that ceiling down to 40 per cent. At the end of this year there will be about £500 million coming out of the Shannon section 84 loans. We brought in amendments to make sure there can be no mechanism for coming out early and getting back in, that our objective cannot be frustrated. The returns from corporation tax are rising gradually. They were £255.7 million in 1987, £285.9 million in 1988, £303 million in 1989, £474 million in 1990 and £527 million in 1991.
The same objective has been achieved in a different way. One must always be careful when taking away investment incentives that one remains competitive for international investment which, I am sure the House will appreciate, is a very competitive market. We do not want to put out disincentive ideas and certainly we do not want to to be accused of changing the rules in the middle of negotiations. If we change rules half way the opposition in the marketplace will very soon use that against the IDA and against Ireland. We have to be careful about that and, consequently, we move slowly. We need to ensure that we do not do damage to our investment; we need all the investment we can get.
(Limerick East): On the last point, let me draw the Minister's attention to something which has been drawn to my attention regarding accelerated capital allowances which the Minister has been talking about. When the changes were made the cost of equipment could be written off in 10 per cent tranches. Now it is operating not on a straight line basis where 10 per cent is taken off every year but on 10 per cent of the residue in subsequent years. Therefore, for accounting purposes a company can write off the cost of a machine over the life of the machine, perhaps seven or eight years, but for tax purposes, because it is 10 per cent of residues along a line, they cannot write off the tax allowances for up to 40 years. A small residual tax break is being kept in the books up to the 40th year until it diminishes to a point of irrelevance. Purely for the sake of the profession, will the Minister consider bringing the 10 per cent on a straight line basis rather than 10 per cent of the residue as one goes on, effectively decreasing into infinity? Does he see the point?
(Limerick East): It works to infinity and is left in the books for maybe 40 years; at least that is what is being projected at the moment. It would be some benefit to the company up to the 40th year, yet it is causing a professional problem.
The problem is being caused with the phasing out of accelerated capital allowances. That brings into focus the question of wear and tear allowances that need updating in the light of the changing life cycle of products, machinery, maybe software, and a whole range of new items subject to wear and tear. I want to confirm to the Deputy, and the House, that this is being studied by the Department, the Revenue Commissioners and everybody concerned. We hope to have a new package of wear and tear rates to encompass what the Deputy is talking about and many other facets that will cause problems. The last portion of accelerated capital allowances will not be eliminated until next year. I want to have it finished in time and I hope to make an announcement in that regard, probably in the late summer.
(Limerick East): Can it be done on a straight line basis so the tax allowance matches the write-off allowance over the same period?
I will take that into consideration. I will not tie myself at this stage because the new arrangements are still being worked out.
I do not want to delay the House, but it is an important section. Notwithstanding what the Minister has said, I still argue that the total tax take is too small. I do not know whether the Minister has the up to date figures. If he has not, I would like to hear them before we finally enact this measure.
The table in the report on the second triennial review of industrial performance measures the cost of tax reliefs in industry in the area of export sales relief as £729.2 million in 1987-88, £131.4 million for the 10 per cent tax rate and £98.8 million for the section 84 loans. The Minister has confused the point Deputy Quinn put. Did the Minister say £255 million was the 1987 figure?
And it is now projected to be £527 million? The Minister stood the point Deputy Quinn was making on its head. From the profit base of 1986-87 to the profits we have been experiencing over the last two or three years, which are projected into 1991-92, £527 million is not an increase of any significance in real terms, the point being that the take is still very marginal. Has the Minister the up-to-date figure?
I would not consider going from £255 million to £527 million from 1987 to 1991 infinitesimal or not a real increase. It is a real increase and as years go by I expect the area on which we have taken action will show greater increases. The figures Deputy Rabbitte was quoting came from the industrial performance review where they calculated export sales relief as tax foregone at the rate of 50 per cent corporate tax, despite the fact that corporate tax by and large in the whole manufacturing area is 10 per cent. I raised this question previously and was told that the basis on which it is calculated is tax foregone on the basis of a 50 per cent corporate tax rate which in my view is not a true reflection of the position. Manufacturing tax is not 50 per cent, it is 10 per cent. The other trading corporate tax rates were 50 per cent and are now on the way down to 40 per cent. Therefore, that figure had to be discounted from what it is at the moment.
If the Minister has the information on one point he might indicate it to the House. If not, it might be made available later. To what extent does the figure of £200-plus million in 1986 represent a percentage of the total profits reported by companies at the time, and how does that figure compare with the £500 million he is quoting now? He has given us an increase from £200-plus million to £500-plus million which is a substantial amount of money in anybody's book. What is the comparable percentage?
It is 4.1 to 6.5 per cent.
(Limerick East): Has the Minister any figure for the corporate tax take from the Irish Financial Service Centre? Instead of paying interest on German bonds it is paid as the distribution of a profit and, consequently, even though the German tax authorities would not get their share of the action, the Irish tax authorities should be getting 10 per cent on the distribution. If we knew how much was coming in we would be able to measure the activity.
We do not have a strict breakdown available on it today. When I get accurate figures I will give them to the Deputy.
(Limerick East): Is it significant?
It is increasing.
I move amendment No. 93:
In page 33, before section 25, to insert the following new section:
"25. —Section 87 of the Corporation Tax Act, 1976, is hereby amended, as respects any acquisition of shares on or after the 25th day of July, 1990, in subsection (4) by the addition of the following paragraph after paragraph (d):
‘(e) Nothing in this subsection shall require a company, which is a subsidiary (being a subsidiary within the meaning of section 155 of the Companies Act, 1963) of another company to be treated as making a distribution where it acquires shares in the other company pursuant to section 9 (1) of the Insurance Act, 1990.'.".
Tax planners have always sought ways of getting profits out of a company to the company's owners while avoiding the ACT liability for the company and the income tax liability for the owner or shareholder which are chargeable on the payment of a dividend by the company.
One method of transferring company profits to shareholders would be to redeem shares at a substantial premium — the premium being effectively a distribution of profits to the shareholders.
The Corporation Tax Act, 1976, anticipated that method of distributing profits to shareholders and provided that premiums paid to shareholders under such arrangements would be treated the same as dividends for tax purposes. Accordingly, whenever a company pay a premium over subscription moneys on acquiring their own shares the premium is classified as a "distribution" resulting in an ACT charge on the company and on income tax liability for the shareholder.
The Corporation Tax Act also provided for a variation of such arrangements which could be organised in the case of a group of companies. Instead of the issuing company redeeming or otherwise acquiring their own shares at a premium, a wholly-owned subsidiary of the issuing company could acquire the shares from the shareholders at a substantial premium. This would simply be another way of transferring the issuing company's profits, albeit profits held in a subsidiary, to the issuing company's shareholders.
Section 9 of the Insurance Act, 1990, allows a subsidiary life assurance company to acquire and hold shares of any class in its quoted holding company on behalf of its policyholders. Section 9 allows life assurance companies which are subsidiaries of quoted companies to acquire shares in their parent companies for the purposes of achieving the same representative spread of investment in quoted securities for their policyholders as any other collective investment vehicle.
Such acquisitions of shares by a subsidiary are fundamentally different from the tax avoidance arrangements addressed by the Corporation Tax Act, 1976, to the extent that the acquisition is not for the benefit of the subsidiary, their quoted holding company or the holding company's shareholders. It is wholly for the benefit of the life assurance policyholders of the subsidiary. The subsidiary acquire the shares not on their own behalf but rather on behalf of the policyholders.
The new section will ensure that where subsidiaries acquire shares in holding companies on behalf of policyholders, as managers of a life assurance fund, any premium paid over the issue price of the holding company shares will not be treated as a distribution of profits to the shareholders in the holding company. Accordingly, the subsidiary will not have to pay ACT where it acquires its holding company's shares in such circumstances.
Section 87 (4) of the Corporation Tax Act, 1976, treats any amount distributed out of the assets of a 90 per cent subsidiary to the shareholders of its holding company as a "distribution".
The amendment of section 87, which is to have effect from the date of the enactment of the Insurance Act, 1990, sets out an exception to the treatment of acquisitions of holding company shares by subsidiaries as including a distribution of profits to the holding company's shareholders.
The new paragraph (e) to be added to subsection (4) of section 87 will prevent a subsidiary from being treated as making a distribution by virtue of acquiring their quoted holding company's shares for the purposes of a life assurance policyholders' fund.
In summary, the Corporation Tax Act, 1976, prevents certain tax avoidance arrangements by treating any premium, over the issue price of the shares, paid by a subsidiary in acquiring their holding company's shares as a distribution of the subsidiary's profits — in the same way as if the subsidiary paid a dividend to the holding company's shareholders. This results in an ACT liability for the subsidiary.
There is no tax avoidance in the case of a life assurance subsidiary of a quoted holding company acquiring shares in the holding company for the benefit of their policyholders' life assurance fund.
Any premia paid in such circumstances will not be treated as distributions of profits and no ACT will be payable. This is to provide for Irish Life holding shares in their holding company in that kind of situation.
(Limerick East): Does the section apply only to the securitisation of mortgages?
Yes, that is right.
(Limerick East): If a bank decides to sell on its portfolio of mortgages to somebody to manage them the same tax will apply to the new handlers as to the old investment company. Is that it in a nutshell?
(Limerick East): Does the Minister or his Department have a view that this should be extended to other areas where, say, outstanding credit card balances or car leasing arrangements could be securitised or is it to be confined solely to mortgages?
At the moment, yes.
(Limerick East): It is the start of a trend?
There are no plans to move further at present. It is the start of a trend, as the Deputy said.
(Limerick East): Can the Minister explain the purpose of the section?
This section ensures that goods sold into intervention will continue to be excluded from the meaning of goods for the purpose of manufacturing relief. Section 41 of the Finance Act, 1990, among other things, defined meat processed within the State as goods for the purposes of manufacturing relief. It was not intended, however, that this provision should override the long standing statutory exclusion of goods sold into intervention from the scope of the manufacturing relief scheme. This section ensures that the exclusion of section 39 (3) (a) of the Finance Act, 1980, of goods sold into intervention from the meaning of goods for manufacturing relief shall continue notwithstanding the provisions of subsection (1) (c) (vi) inserted by section 41 of the Finance Act, 1990, of section 39, that certain meat processed within the State qualified as such goods. In other words, it is to correct the situation that arose.
(Limerick East): Does it apply to butter as well as milk, or is butter excluded because it is mostly cooperatives who are involved in the butter market?
It applies to everything.
(Limerick East): Is this provision being brought into the Finance Bill because of potential avoidance where meat is sold into intervention or because of actual avoidance? Are we closing potential loopholes or actual loopholes that have been availed of?
No, there is no avoidance; it is to restore the position as it was.
I am not sure that I still understand this section. This arises from the very specific change we made in last year's Finance Act.
There was some ambiguity left as a result of last year's Finance Act.
That is what I do not understand. What is this ambiguity about? Why did we not get it right?
We did not get it totally right last year. The Finance Act, 1990, in section 41 provided that meat processed in certain premises will qualify for manufacturing relief. Subsection (3) of section 39 of the Finance Act, 1980, stated that sales into intervention will not qualify for manufacturing relief. Thus, in the case of meat which is processed in a qualifying factory but which is sold into intervention it can be argued that they are two contradictory provisions: one saying that manufacturing relief is due and another saying that manufacturing relief is not due. Manufacturing relief was never given in respect of intervention sales nor was export sales relief given either. This section merely restores the position to what it was prior to the enactment of the 1990 Finance Act, that is that sales of goods into intervention do not qualify for manufacturing relief. In other words, there was ambiguity in that section last year, and this is to correct that ambiguity. Sales into intervention were never believed to be in that category. There is an argument left as a result of last year's section, and this takes away the argument.
We had a great deal of argument last year about the definition of "manufacturing", reaching fantastic heights at some stages.
I cannot remember that well.
Do I take it now that sales into intervention since the enactment of the 1990 Finance Act qualify for manufacturing relief and that we are now putting it right in this Bill?
(Limerick East): That is what it looks like.
No. Section 27 (2) deems a section to have come into effect as respects accounting periods beginning on or after 1 April 1990. This is to ensure that there can be no doubt as to the treatment of intervention sales of meat as from 1 April 1990, the date of effect of the amending provisions of section 41 of the 1990 Act.
That is what I thought the Minister said. This is entirely contrary to what we debated here last year. We specifically gave this relief last year in this section. If this measure is now necessary, then this relief was available last year, but we are now inserting this new amendment with retrospective effect to 5 April 1990.
My recollection is not as clear as the Deputy's. Last year we may have been talking about two different situations. In relation to the definition of "manufacturing", meat is covered provided the work is carried on in qualifying premises, but intervention beef never qualified for export sales relief. The definition of "manufacturing" is one thing but intervention sales of meat is quite another. In the area of intervention the rate is 40 per cent as against 10 per cent and that is what I wanted to clear up.
(Limerick East): It is a bit early in the week to start the judicial inquiry but in relation to the EC scheme where meat is put into private storage, would this apply, or would APS get relief at 10 per cent?
Once an intervention agency takes it, it does not matter where it is stored. Yes, it qualifies.
If the Minister did not advance this section 27 of the Bill and if I was a beef processing company using the intervention system could I, for the last tax year, have claimed manufacturing relief on meats gone into intervention?
The Deputy could certainly claim it but whether or not he would be allowed it is another matter. It could be argued as a result of last year's section that there are two contradictory provisions. The Deputy could certainly claim it and argue it but I could not anticipate what the Revenue Commissioners might say. To remove any argument and to put certainty back into it we backdated this to 1990. That period would only be appearing before the Revenue now for adjudication and accounts purposes.
Is there a precedent in the knowledge of the Minister or his Department for this kind of thing? Is it possible, in enacting the Finance Bill, 1991, to bring in a measure the effect of which goes back over the preceding tax year? We have just talked about not breaking faith with companies and the importance of being seen to be certain about what we are doing and so on. If this ambiguity exists and if it is considered necessary to bring it forward, it would seem reasonable if one were in the business over the last year to claim manufacturing relief at the higher rate for goods going into intervention, and have a reasonable expectation of getting it.
Every year we bring forward technical amendments to strengthen the Bill or to remove ambiguity or to put more certainty into tax legislation. It is never the intention that such ambiguity might arise. It was not noticed. This happens many times and will continue to happen because none of us is perfect and can produce sections which do not leave some room for argument. It was never the intention that this ambiguity should arise and when somebody questioned the situation we decided to rectify it, to remove doubt. It was never the intention to give this relief in relation to intervention beef anyway and anyone in the trade would know that intervention products have always been treated separately. There was a High Court case claiming export sales relief on intervention products some years ago. The position was cleared up a long time ago. This section is to make sure the old position stands. In other words, if a person is killing beef and putting it into intervention he is liable to 40 per cent corporate tax rate as against somebody who is killing beef, exporting it, or selling it otherwise, who is subject to a 10 per cent corporate tax rate.
I would like to hear the Minister's argument for advancing this section. What are the technical difficulties which might affect Shannon if this section was not brought forward?
It is a bit disconcerting that we make up industrial policy — if the Minister will excuse the analogy — on the hoof. Here we are again extending concessions that were intended to be temporary. In sections 28 and 29 they are gradually becoming permanent. They were good ideas at the time to stimulate employment and wealth creation in particular areas. They were temporary measures designed for that purpose and now we are extending them. Last year we extended the special manufacturing regime applying in respect of IDA industries. Meanwhile, we do not seem to be able to tackle the question of industrial policy in a comprehensive sense. We are making tax arrangements irrespective of a more fundamental re-think that may be necessary as a result of current reviews of industrial policy. It now looks as if the temporary measure in section 28 is becoming permanent. I am not sure as to what are the technical difficulties which specifically affect the Shannon 10 per cent certification. Can the Minister indicate more precisely who will benefit, or who will lose if this section is not brought forward?
Before the introduction of the Finance Act, 1990, there may have been doubt about whether the repair and maintenance of aircraft constituted manufacture for the purpose of a 10 per cent rate. A company carrying out those activities in the Shannon Airport zone would have been entitled to receive a certificate under section 39A of the Finance Act, 1980, entitling them to the benefits of certification. Section 41 of the Finance Act, 1990, made it clear that repair work did not constitute manufacture and specifically provided that the repair and maintenance of aircraft was to be treated as the manufacture of goods. As certification under section 39A of the Finance Act, 1980, was available only to a company that was not otherwise entitled to the 10 per cent manufacturing rate, that provision had the unintended effect of disqualifying any Shannon company that carried out those activities from certification under section 39A of the Finance Act, 1980. The provision restores the position so that the Minister for Finance is not prevented from issuing a certificate for an activity that is specifically referred to in the Shannon certificate legislation. The new proposal for the Shannon zone will be a major beneficiary of that provision. Deputy Rabbitte and all other Members would welcome that proposal, and would wish there were more like it.
(Limerick East): Our region has a specific interest in the measure because of a proposal that could involve up to 2,000 jobs. Shannon Aerospace are already training young people in the repair and refurbishment of aircraft. It is hoped that the progress already made by the organisation will continue. Work is being carried out on the site and young people are in Germany on training programmes. If the project is the success that its promoters believe it will be, an enormous number of jobs will be created in the region. Jobs are badly needed there. I thank the Minister for bringing in the legislation and for removing any doubt that the project which is, like so many Shannon projects, tax driven, will not be ruled out through a technicality.
We are all agreed on the seriousness of the unemployment rate. I raised the point of whether it was the best approach to make things up as we go along. I ask the Minister that again.
When speaking to section 84, Deputy Quinn asked the Minister whether there was a strategy for the medium term. He did not get a reply. Under the provisions of section 28 and the extension in time from the year 2000 to 2005, does the Minister expect such an extension to be a permanent feature of the landscape rather than a temporary measure designed by the circumstances referred to by Deputy Noonan? If we are all still here in five years, will the date be again extended, to 2010? Does the Minister have a plan in that regard?
It is not for me to enter a debate on industrial policy, new industrial policy, or revisions that might come into being. That is a matter for another Minister in charge of another Department. In relation to that strategy, as far as I am concerned I have made it clear that section 84 is being phased out, that accelerated capital allowances finish in April 1992, and that export sales relief has gone. In other areas I have managed to get as close to the minimum corporate tax rate as possible. That is the strategy, it is working and it is clearly shown to work.
In relation to the extension of the 10 per cent rate for Shannon in the year 2005, it is not open for any Minister for Finance — not me nor anyone else — to speculate on what will happen beyond that time because that depends upon what will have to be done in regard to national incentives for industry. That was renegotiated with the present Commissioner, Sir Leon Britten, for the financial services centre and the Shannon region. There is no doubt that the issue will be examined before 2005. It will also be studied under the whole revision of national incentives that is taking place at Commission level. It is not open to anyone to speculate on what might happen after that time.
My arguments in relation to this section are similar to those I have already made. Could the Minister say why it is necessary to extend the period for the Custom House Docks area? I would like him to comment on the rate of success of that temporary arrangement — if I may describe it as such.
I do not think that would be the proper description for it. The measure provides for an extension to the period. Section 39B of the Finance Act, 1980, enables certain certified training operations carried on in the Custom House Docks area in Dublin to qualify for manufacture relief. The section extends the final date for qualification for manufacturing relief in the Custom House Docks area by substituting the new date of 31 December 2005, as approved by the EC, for the existing end date of 31 December 2000, provided in subsection 39B (2) of the Finance Act, 1980.
I should like to ask the Minister for a little more information on the reason for making the extension. Could the Minister talk about the rate of success of the project and give the reason for now making the time extension?
The issue arose over time. It was decided that new projects would be considered. If my recollection serves me correctly, they were to finish up at the end of the year. That date had to be extended, otherwise the service would have had to withdraw from the marketplace and stop selling the centre as it stood. I consider the measure to be a further extension and a major boost to the whole area of financial services.
Already about 165 companies, with a job retention of about 2,600, have been approved for the centre itself. In relation to the Shannon extension, there are already 60 companies employing 1,479 staff — and that is only one sector of the Shannon zone, where the total employment figure is 5,000. There are already 750 jobs in place in the financial services centre. Nobody would deny that it has brought a regeneration of activity into that part of the city. The operation is very successful. It has attracted big names from around the world, providing jobs and revenue that would not otherwise have been provided. It brings Dublin and Ireland into international focus. It does not matter what part of the world one comes from in the financial services area now, one knows about the financial services centre in Dublin. It will contribute significantly, not only in the creation of jobs but also in the provision of revenue. In reply to the question raised earlier by Deputy Noonan, I have some estimate figures on the financial services, corporate tax on which is probably running at about £25 million at the moment. All in all, the centre is doing the job that it was put up to do and has certainly provided new growth in the economy. It has a significant contribution to make.
Speaking to section 29 and, to a certain extent, to section 30, I note that there seems to be an incremental increase in the time limits on both of those matters. Again, could the Minister say whether there is a strategy? In two or three years' time are we again likely to be extending the period from 2010 to 2020? Is there a policy behind these amendments? If so, what is the aggregate intent of that policy?
In deference to the Chair and to the sanity of the debate, I shall not go into the fantasy of the number of jobs promised for creation in the construction of the financial services centre. That belongs to a different Gubu period of literary fiction. In fact, the promises for 3,000 or 4,000 jobs on the site never came to pass. Members can go into that matter at another time. In relation to section 29 and section 30, I ask what is the thinking behind the incremental increase, the reason for the extension, and whether there will be any other extensions. Will there be a longer period in the years ahead and, if so, why do we not build it in now? What is the policy strategic thinking behind these two changes, which must be taken together?
On behalf of the Green Party, I formally oppose this section and other sections in the Bill which extend the over-generous tax reliefs to what are, in many cases, large multinational companies which have no concern for this country, create as little employment as possible — I suppose they cannot help creating some jobs — and repatriate their profits. These companies do not benefit this country and indeed distract attention from the need to develop indigenous industry based on home ownership and control.
I am totally opposed to any further extension of the tax reliefs and other benefits in the Custom House docks area.
(Limerick East): Will the Minister explain why the figure is 2005 in respect of the financial industry and 2010 in respect of the manufacturing industry? Was there a problem at EC level?
Yes, there was a problem at EC level and, as part of the negotiations between Sir Leon Brittan and me, the 10 per cent tax rate was introduced in 1980 for the financial services sector. That would have been a very short time for people to make investment decisions of the sort which have to be made in regard to the financial services centre and that is why I looked for an extention of time. In reply to Deputy Quinn, it was an extremely tough battle to get it done this year and if it had not been for our high rate of unemployment and the discussions on peripherality, I am not sure that the EC would have acceded to it. I do not know what will happen in the future but it certainly gives a new lease of life in that the lead time will be ten years or more.
Deputy Garland's suggestion would not benefit the economy, it is the weirdest thinking I have heard yet. Multinational companies, to a large extent, have come to Ireland to transact normal banking business. If the financial services centre did not exist, Mitsubishi, Trust or Commerzbank in Germany would not have come. It is incremental business as far as our economy is concerned. It will create decent revenue and jobs which would not otherwise have been created in the growth area of international financial services. The whole strategic thinking behind it was to grab a section of that growth in relation to which Ireland was ideally situated. We have the telecommunications infrastructure and the right time zone; people are coming out of third level colleges and going to New York and London financial centres to make a living. Who would begrudge them the opportunity to earn their livelihoods here? Ancillary services will also benefit. To suggest that our economy will not benefit is not living in the real world.
(Limerick East): He is a bit green.
I have explained the strategic thinking and the policies but I do not know how the EC will regard it in the years to come.
In page 38, before section 32, to insert the following new section:
"32. —Section 25 (as amended by section 38 of the Finance Act, 1990), of the Finance Act, 1989, shall have effect as respects dividends paid on or after the 6th day of April, 1991, as if in subsection (3) (a) for ‘6th day of April, 1991' there was substituted '6th day of April, 1992':
Provided that a company shall not be entitled, by virtue of this section, to specify, in accordance with subsection (1) of the said section 25, that a distribution, being an interim dividend, or part of it is to be treated as made for the accounting period in which it is made where—
(a) the circumstances of the company are such that, if the distribution or the part of it, as the case may be, were treated as made for the accounting period in which it is made the company would be unable, at the time when the interim dividend is paid, to determine without recourse to estimation, how much of the distribution or the part of it, as the case may be, would, in accordance with subsection (1) of section 45 (as amended by section 24 of the Finance Act, 1989) of the Finance Act, 1980, be treated as a specified distribution for the purposes of subsection (2) of the said section 45, or
(b) that treatment of the distribution or the part of it, as the case may be, as made for the accounting period in which it is made, would facilitate any arrangement whereby the tax credit in respect of a dividend received by a shareholder could exceed the tax credit, if any, in respect of a dividend received by another shareholder notwithstanding that the shareholdings of those shareholders carry the same or substantially similar rights in respect of dividends and capital.".
Company profits are effectively subject to a double charge to tax. They are charged to corporation tax in the hands of the company and then to income tax as dividends in the hands of shareholders. Tax credits attaching to dividends give a measure of relief from the double taxation of such income.
The credit given to the shareholder for corporation tax paid by the company is equal to half of the corporation tax paid on the profits represented by the dividend. The other half of the corporation tax is the company's net contribution to the Exchequer in paying such tax.
Since the tax credit attaching to a dividend is equal to half of the corporation tax paid on the profits paid out by the company, the rate at which the company paid corporation tax on the profits will make a substantial difference to the amount of the tax credit. Clearly the tax credit in respect of a dividend paid out of profits charged at 40 per cent will be greater than the tax credit attaching to a dividend paid out of profits charged at 10 per cent.
Where there is a mix of 10 per cent and 40 per cent profits in a company, the tax credit in respect of a dividend paid out of those profits will be made up of a similar mix of 10 per cent and 40 per cent tax credits. In general, therefore, dividends are treated as paid out of the profits of completed years of account so that the mix of 10 per cent profits and 40 per cents profits is known for the purposes of calculating the tax credit.
There are companies which will know the precise mix of 10 per cent and 40 per cent income for a year well before the year is over. Examples of such companies would include most IFSC companies whose income is all charged at 10 per cent and most holding companies which can restrict their receipt of 10 per cent and 40 per cent income in any year from the reserves of subsidiaries to specific amounts agreed in advance.
Such companies will have no problem calculating tax credits in respect of an interim dividend on the basis of the mix of 10 per cent and 40 per cent income in the year in which the dividend is paid and which is not yet over. In recognition of this, section 32 will allow such companies elect to calculate the tax credit attaching to an interim dividend on the basis of the corporation tax which will be payable for the year in which the dividend is paid. In this way the interim dividend tax credit will reflect the corporation tax payable on the profits out of which the dividend is actually paid. However, there are companies with income charged at both 10 per cent and 40 per cent who could not predict the final mix of that income for any year before the end of the year. Accurate calculation of tax credits for interim dividends for such companies on the basis of current profits is simply not possible. Accordingly, such companies will have to base those calculations on the finalised mix of profits for preceding, completed years of account.
In addition, companies which would obtain assistance for certain "dual-share" arrangements, which are under review by officials of my Department in consultation with the Revenue Commissioners, will not be allowed elect for "current-year" treatment of interim dividends. The arrangements in question involve different rates of tax credit being paid in respect of the same dividend, depending on the shareholder receiving the dividend. Such arrangements seek to maximize tax benefits to shareholders in an unintended way at the expense of the Exchequer.
Section 32 prohibits companies from using the extension of "current year treatment" provided by the section for the purposes of such arrangements.
The main provision of section 32 extends until 6 April 1992 a company's option to elect to treat an interim dividend as paid out of the profits of the year in which it is paid — for the purposes of calculating the tax credit to be carried by the dividend.
The proviso excludes two categories of company from the one year extension of current year treatment of interim dividends.
The rules for calculating tax credits in respect of dividends essentially involve three steps, (a) treat the dividend as paid out of the distributable income of a particular year, (b) establish the mix of income taxed at 40 per cent and income taxed at 10 per cent in that year, and (c) give the dividend the same mix of 40 per cent and 10 per cent tax credits. There are companies for which step (b) — establishing the mix of 10 per cent and 40 per cent income — will not be possible until after the end of any year. Calculating tax credits for interim dividends by reference to the expected mix of 10 per cent and 40 per cent income of a year not yet ended involves such companies in estimation. They cannot calculate tax credits on that basis "without recourse to estimation". Such companies will not be allowed avail of the extension of the option to treat interim dividends as paid out of current profits for tax purposes. However, they will continue to be able to choose to treat the dividends as paid out of the profits of any of a number of years ending before the payment of the dividend.
It would appear that some companies are offering "dual shares" to their shareholders as part of an arrangement intended to give tax benefits to their shareholders at minimum cost to the company and therefore maximum cost to the Exchequer.
A "dual share" is a £1 ordinary share in respect of which a 1p bonus share has been issued. If the shareholder so elects, he will receive his annual dividends paid on the "penny" shares with a full 25/75ths tax credit. The well informed institutional investors who do so will be entitled to have the tax credit paid to them by the Exchequer. Although the company have to pay advance corporation tax, ACT, to match the tax credit, the tax exempt institutional shareholders will receive a payment of the full tax credit from the State.
Individual shareholders who make no such election will fare equally well in receiving the same dividend paid on the £1 ordinary shares. The same net dividend will in their case carry not a 25/75th but rather a 1/18th tax credit. To the extent that the section would facilitate such arrangements by a company, that company will not be entitled to exercise the option provided by the section.
In summary, section 32 will allow companies to opt for another year to treat interim dividends as paid out of current profits for the purpose of calculating tax credits. The proviso rules out that option (a) where the company exercising it would be unable to calculate tax credits attaching to their dividends accurately on the current profits basis and (b) where it would assist the company in arrangements designed to target tax benefits to institutional and individual shareholders at maximum cost to the Exchequer.
(Limerick East): In introducing a new section, the Minister has left us at a serious disadvantage. The time allocated for the debate on the Finance Bill is quite short and it is very difficult to give it the searching scrutiny required in the House. I have come around to the view that we would be much better off if a committee of the House dealt with the Committee Stage of the Finance Bill in the future. They could have due regard to all sections of the Bill. When a major new section is introduced by way of amendment we are left at a total loss.
It is a holding operation for another year. We will be back to it again next year.
(Limerick East): I gathered that from what the Minister said but he will appreciate that we are given an opportunity when changes to the Finance Bill are circulated to analyse and seek advice on them. However, when major new sections are introduced by way of amendment circulated near the day we take Committee Stage, which is the case in this instance, we are left at a total disadvantage. What the Minister said seems to be very reasonable but then all Ministers briefing notes are reasonable. I have yet to see a briefing note which was not reasonable but this does not mean that the section to which the briefing note refers is reasonable. We are at a disadvantage but it seems to be all right.
This is a holding operation for a year.
(Limerick East): What I am suggesting to the Minister is that if in the future — if he is still in his present job — he has something serious to bring forward he should try to include it in the text of the Bill rather than introduce it by way of amendment later.
I reacted in the same way, Deputy, but basically this is a holding operation for 12 months. It is a very intricate operation. Unfortunately, the Revenue Commissioners have to try to come to grips with the various devices used by the tax planners. They thought that they would be ready. Consequently, this is a holding operation for a year.
I move amendment No. 95:
In page 39, before section 35, to insert the following new section:
"35.—(1) In this section—
‘agency' means a charitable body providing development aid or emergency relief in developing countries and designated by the Minister for Foreign Affairs by order made under this section;
‘tax' means income tax or corporation tax, as the case may be.
(2) This section applies to a gift of money which, on or after the 6th day of April, 1990, is made to an agency and is not deductible in computing for the purposes of tax the profits or gains of a trade or profession or is not income to which the provisions of section 439 of the Income Tax Act, 1967, apply.
(3) The Revenue Commissioners may consult with an agency in relation to any question which may arise in connection with subsection (2).
(4) Where a person proves he has made a gift to which this section applies and claims relief from tax by reference thereto, the provisions of subsection (5) or, as the case may be, subsection (6) shall apply:
Provided that in determining the net amount of the gift for the purposes of those subsections, the amount or value of any consideration received by the said person as a result of making the gift, whether received directly or indirectly from an agency or any other person, shall be deducted from the amount of the gift.
(5) For the purposes of income tax for the year of assessment in which a person makes a gift to which this section applies, the net amount thereof shall, subject to subsection (6), be deducted from or set off against any income of the person chargeable to income tax for that year and tax shall, where necessary, be discharged or repaid accordingly; and the total income of the person or, where the person is a wife whose husband is assessed to income tax in accordance with the provisions of section 194 (inserted by the Finance Act, 1980) of the Income Tax Act, 1967, the total income of the husband shall be calculated accordingly:
Provided that relief under this Act shall not be given to a person for a year of assessment if the gift (or the aggregate of the net amounts of gifts) made by him in that year, being a gift or gifts, as the case may be, to which this section applies, does not exceed £100.
(6) Where a gift to which this section applies is made by a company—
(a) the net amount thereof shall, for the purposes of corporation tax, be deemed to be a loss incurred by the company in a separate trade in the accounting period of the company in which the gift is made, and
(b) the references in subsection (5) to a year of assessment shall be construed as references to an accounting period of the company.".
The intent of this amendment is quite clear. It attempts to ensure that charitable organisations such as Concern, Goal, or any such body which provides development aid or emergency relief in Third World countries benefit from corporate contributions which may be claimed against tax. There is an advertisement in The Irish Times today which states that the Publicity Club of Ireland intend to pay due tribute to Mr. John O'Shea of Goal. He is just one of the many people who have responded to the instincts of the Irish nation's concern for the Third World.
During the years we have failed badly to meet the United Nations' target. Indeed, during the term of office of the present Coalition and that of their predecessors we have gone backwards in relation to our commitment to increase ODA. I suggest that this is one way of tapping into the compassion, charity and the sense of solidarity which Irish people have for The Third World. I know that it would broaden the tax base and runs counter to the arguments offered previously but consistency is not something that this House is renowned for. There is a good reason for considering it. I do not think this is the first time such an amendment has been considered. I await the Minister's response.
Deputy Quinn's amendment proposes tax relief for donations to charities which provide development aid or emergency relief in developing countries.
I would share the Deputy's concern about the plight of those in the Third World and I am sure that all Deputies will join with me in paying tribute to the tremendous work done by Third World charities. I am glad to say that in 1991 £43.7 million has been allocated for official development assistance, representing an increase of some £9 million over 1990. This amount includes grants for educational, agricultural and infrastructural projects on a bilateral basis, mostly in Africa, as well as contributions to multilateral agencies such as the United Nations, and this now brings our overseas development assistance up to 0.18 per cent of GNP.
The provision will enable us to meet all the mandatory commitments for this year and also to increase the value of our bilateral aid in real terms.
I should like to emphasise that the Government's policy remains one of commitment to the maintenance and expansion of overseas development assistance as soon as economic circumstances permit. However, the continuing serious budgetary and economic problems facing the country make it impossible for the Government at this stage to expand the aid programme to the United Nations' target of 0.7 per cent of GNP.
While our overseas development assistance contributions have been given in the form of financial assistance, we should not forget the immense unofficial contribution made by the many Irish voluntary workers overseas, as well as the voluntary contributions made by the Irish public.
However, as a Government we have gone to the limit on what we can afford, and to give tax concessions of the type suggested would represent a very real additional cost to the Exchequer which could not be afforded in the present budgetary situation and if conceded would, of course, have to be recovered elsewhere. Everyone will agree that our current levels of tax are too high and I am very reluctant to look for more revenue from any source to make up the deficiency. We are trying to widen the tax base, not narrow it.
In the circumstances, Deputies will appreciate that I am not in a position to make the concessions sought by Deputy Quinn.
I am stunned and surprised by that response.
May I ask the Deputy how stands the amendment?
I am not pressing it.
I move amendment No. 96:
In page 40, paragraph (b), line 13, after "family company" to insert "or a member of a trading group of which the holding company is that individual's family company".
This is a technical amendment which simply ensures that the definition of "qualifying assets" contained in paragraph (b) of section 36 of the Bill, includes an amendment to the text of that definition which was provided for in section 84 of the Finance Act, 1990.
The amending words, introduced by the 1990 Act, were inadvertently omitted from the draft of section 36 and this amendment corrects that drafting defect.
I move amendment No. 97:
In page 40, between lines 18 and 19, to insert the following subsection:
"(2) The amount specified in subsection (1) (a) shall be increased each year by the annual increase in the Consumer Price Index in the period ending November of the previous year.".
This amendment is self-explanatory. The present subsection effectively increases the previous threshold. I am suggesting that we be consistent in this instance and link it to the price index. I am wondering what the Minister's response is.
In view of his comments yesterday, I am somewhat surprised that Deputy Quinn has proposed this amendment. He seeks in this amendment to link to the consumer price index the limit of £200,000 on the consideration received on disposal of assets in order to qualify for relief under section 27 of the Capital Gains Tax Act, 1975. The threshold has stood at £50,000 since 1975 and is now being increased to the more realistic figure of £200,000. The figure provided in section 36 is adequate to meet present needs and to encourage the transfer of enterprise to younger and more dynamic hands.
To tie the limit to the consumer price index may appear to give certainty to taxpayers. However, it would also tie the Government's hands in the event of a difficult budgetary situation. If it was found necessary in such circumstances to change the legislation it would have achieved nothing more than raising false expectations.
I believe that periodic reviews, taking the wider policy issues into consideration, are the way to approach the issue. The threshold will be kept at an appropriate level in this way. I do not see the value in providing for an inflexible approach and, accordingly, I am not prepared to accept the amendment.
This section relates to the vitality and vibrancy of small family owned businesses in this economy, a sector that is being very dramatically ignored and abandoned by successive administrations. We only have to look at the dynamism in the economy of northern Italy to see the potential resource that family-owned businesses offer to this economy. We have concentrated exclusively, in my estimation, on multinational companies and on large plcs here and have not given the kind of sensitive hands-on support that family companies require. I welcome the Minister's amendment in so far as his response does realistically lift the threshold and, therefore, enables a transition, not just of ownership, but of managerial decision-making and power. I am sure the Minister can relate to the concerns I am expressing. If the Minister is prepared to say the threshold will be kept under regular review and that the figure of £200,000 will not become an impediment — there are other areas that were the subject of a very interesting seminar that was cosponsored by one of our newspapers — I would be prepared to withdraw my amendment. However, a marker should be put down by the Labour Party that we see small and medium-sized enterprises in general, but family-owned enterprises in particular, as enterprises that have been neglected to the detriment of the vibrancy of this economy.
For the record, I am listed as opposing the section but that was not my intention and I do not know why that is there. I am sure it was not the fault of the officials.
I understood that this related to a specific case that came up last year. Does this apply in the case of a farm being passed on?
It could, but it is not the case the Deputy is thinking of.
Anything that encourages the passing on of business earlier than happens at present, as envisaged here, ought to be welcomed. For that reason I support the amendment and the figures are, presumably, no more than a modernisation to take today's figures into account.
(Limerick East): I welcome this section and Deputy Quinn's amendment. Will the Minister give him the commitment he is looking for?
I thank all the Deputies for giving support to this amendment. It is in response to the sentiments expressed by Deputy Quinn. I attended the seminar and from my own experience I certainly saw the problem. It has done damage in the past.
I listened to the Minister with interest.
I did not know the Deputy was at the seminar. It is only right to move and I have no hesitation in saying that it should be and will be reviewed at intervals. The principle of indexing is a matter for argument.
Deputy Rabbitte raised the question of capital acquisitions tax where a father had transferred all his assets, including his farm, with all tax paid to his only son who was killed in an accident, and consequently, would be caught again on the reverse. That matter will arise later.
I thank the Minister for his response. Is this the only area of change we can anticipate in the general area of facilitating the transfer of ownership from one generation to another, not just within a blood connection but within a small business, to facilitate dynamic management, enterprise and risk-taking within that whole area? The seminar to which the Minister referred identified a number of impediments. I would not expect the Minister to deal with all of them in one go but may I take it from what the Minister said that his Department are aware of these impediments and are prepared to look at them with a view to having self-imposed constraints removed?
Deputy Quinn can take it that we are looking at other impediments. Another one will be dealt with later. It was raised at the seminar — the difficulties small businesses encounter in relation to qualifications for capital gains tax. We are looking at what other impediments may be there.
(Limerick East): This section deals with the artistic world and gives certain exemption to people who loan artistic works to the State, provided they are in a place that is open to the public for a period of six years. It is the kind of section politicians will rush to support. None of us would like to be called a philistine and I will not be opposing the section because I do not want to be stamped as a philistine. However, I should like to put forward a philistine argument for the purposes of debate which the Minister may reflect on between now and Report Stage.
There are people who invest in works of art, the same way as people invest in any commodity, whether it is hogs, cotton, olive oil, alumina, tin, copper or currency they are going to buy into it. I am thinking in particular about paintings because it is the area where there is most value. People are buying paintings as an investment and are buying on a capital gains. People are buying paintings who would not know the back of a picture from the front of it. At least the ultimate owner of the picture would have no particular interest in the artistic merits of it; it is simply another commodity. A painting valued at, say, £200,000 at present day prices — that example was brought to my attention — could have been bought ten years ago for £15,000. In six years' time it could be worth about £400,000. When one allows for inflation, under the present tax code the capital gains tax that would apply would apply on the sum of £250,000. A painting bought at £25,000, now worth £200,000, in six years' time could be worth £400,000. If the owner gives it to the State, it is hung in the National Gallery, in the Minister's office or any place to which the public have access for six years the tax break will be huge. I have no problem with the tax break for people who own artistic works and who want to lend them to the State so that they are not locked up in a vault or under the kind of security in a house which we know has to be put in place to ensure that artistic works are not stolen. To bring these paintings to the public notice for their enjoyment is great. But, on the other hand, if this is simply to be used as a method of avoiding capital gains tax by people who have no particular interest in the arts, it is a different kettle of fish. I want to point out that the potential for avoidance of capital gains tax is very great indeed. I have no doubt it will encourage investment in the arts and in artistic artefacts here and they will be loaned to the State.
I want to refer to another point I touched on. From reading the newspapers, it would seem that it is increasingly difficult to have valuable artistic works hanging in private homes — I say "hanging" because I am thinking of pictures rather than other works of art — because there are enormous security problems. We are led to believe that there is an international ring operating in Ireland at present who are stealing pictures on commission, if certain reports are true, and almost stealing paintings to order. There are advantages for people who possess valuable works of art and give them to the State for six years, the State will have to pick up the bill for security, there is a big tax advantage and, I presume, the State will also have to insure the works of art in their possession over the six year period. I have no doubt that it will encourage investment in the arts and artistic artefacts which will be lent to the State.
This section has very big advantages. Even though the thrust of my comments has been about paintings, of course, it would not apply just to paintings. The section says that this provision will apply to any picture, print, book, manuscript, sculpture, piece of jewellery or work of art. Would a piece of antique furniture be considered to be a work of art? Is the section drafted to include antiques which, it can be argued, are works of art? I want to ask the Minister, first, what the scope of the section will be and, second, if he has taken into account the fact that while art is for all our enjoyment — a thing of beauty is a joy forever — some people regard it as a commodity to be bought and sold, something which can preserve the value of money. They will regard this provision as a risk free mechanism for securing their asset at State expense over a six year period and avoiding the payment of capital gains tax, which is very important.
If we are to accept this section, I should like to make a comment from the other end of the argument. While a limit of £25,000 is reasonable for paintings. perhaps it is too high for other works of art. It is suggested in a submission made to me that in the case of period furniture, jewellery, china, glass, books, prints, manuscripts and other works of art a ceiling of £3,000 would be appropriate. I am advised that artistic objects along the lines I have mentioned of great value can be bought for £3,000 or more. By pitching the value at £25,000 for every category listed in the opening sentence of this section, one might cut out many acquisitions which would be very desirable and add to our store of national treasures.
I ask the Minister between now and Report Stage to look at the implications for tax avoidance which he is opening up, and which are very real indeed. Secondly, he should look at the section to see if it can be redrafted so that there would be different ceilings for different artistic areas. While the limit of £25,000 might be appropriate for paintings it is not necessarily appropriate for a book or manuscript, even though it might be of great cultural value to the State and the people of this country.
I am conscious that it is almost 12.30 p.m., at which time these matters have to be disposed of. I think we will hear much about this section on Saturday afternoon when the Taoiseach, the cultural Tsar of this nation, will make great play of it. I welcome the inclusion of this provision. We should let it sit for the first year or so to see how it works. It is to be welcomed that our visual art heritage is appreciating in value, particularly in the international world, a recognition we previously did not give ourselves. There was a certain view that while there was a great literary tradition and skill in this country that there was no visual or plastic arts tradition, skill or competence here. I think that is no longer the case.
I want to say to Deputy Noonan that this provision will require a museum or gallery to accept such a work of art. We are not talking about thousands of institutions in the State; realistically they could be counted on the fingers of one person. Therefore, the ability to exploit this provision will be constrained by the fact that a work has to be accepted by a museum or museums. While I accept the concern Deputy Noonan has about the abuse of this provision, I think it can be very carefully monitored.
During the year when Dublin holds the title of European City of Culture we need to increase the store of cultural assets in the city. Cultural tourism is increasingly a major asset for employment, particularly among people with low skills. Dublin is a European capital city which could benefit from an increase in its number of cultural venues, including the Museum of Modern Art which will be opened on Saturday. The revenue generated within Paris, Rome or Glasgow, which has the Birrell Museum and which attracts an enormous number of visitors, is an indication of the macro-economic effects a measure like this might have.
I welcome this provision and perhaps on Report Stage the Minister will be able to give us a response on it. We should watch how the provision operates over the next few years.
Deputy Noonan is to be congratulated for breaking the taboo we all feel about being branded as Philistines when we want to be like the Taoiseach, who has acquired the reputation of lo roi de soleil in his nearby sun palace.
A very serious point has been raised by Deputy Noonan and there is no doubt, especially with this exemption limit, that works of art are bought and sold as commodities. It will be interesting to see how this provision will operate. It is certainly much better to allow a work of art to be available for public access in a gallery or museum for a period of six years rather than availing of the current offer from An Post to put your few bob into post office bonds. The deprivation a person will suffer from for five or six years will not be great either, particularly if he belongs to the section of purchasers who do not know whether a painting is hung up side down or otherwise. This provision will not do anything for struggling living artists whose work as of yet is a long way off the threshold set in this section. It will not encourage people who have the finance at their disposal to purchase works of art from struggling, living Irish artists. It will not encourage people to put their money into that area as distinct from the quality art envisaged in this section.
I am glad Deputy Noonan raised this point as there are questions that can be asked about it. This provision will unquestionably be used as a tax shelter. For all our talk about broadening the base and giving relief to the PAYE sector, when we look at what we have done so far on the corporation tax section and the capital gains tax section we can see that all we have done is give additional reliefs.
This section seeks to encourage people to make works of art available to the general public, who will benefit from their display. As Deputy Quinn said, this area can and will be monitored. I will look at some of the points raised by Deputy Noonan between now and Report Stage. I think it will be a case of monitoring the operation of this provision. It will not apply all over the country. I expect there will only be a relatively small number of museums involved, which will have to be approved and monitored by the Revenue Commissioners. It will be a matter of learning from experience but in general terms it will give some impetus to increasing people's appreciation of art, which, as Deputy Rabbitte said, can only serve to help struggling artists who have not yet reached the pinnacle of their careers. In the Year of European Culture it is some recognition that we are indeed conscious of what needs to be done and, hopefully, it will help those museums to draw more attention and get more people's appreciation for them.
As it is now 12.30 p.m. I am required to put the following question in accordance with an order of the Dáil of this day: "That the amendment set down by the Minister for Finance to Chapters IV, V and VI of Part I of the Bill and not disposed of is hereby made to the Bill, and in respect of each section undisposed of and in the said chapters that the section or as appropriate, the section as amended, is hereby agreed to".
- Ahern, Bertie.
- Ahern, Dermot.
- Ahern, Michael.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Gerard.
- Brady, Vincent.
- Brennan, Mattie.
- Brennan, Séamus.
- Browne, John (Wexford).
- Burke, Raphael P.
- Callely, Ivor.
- Clohessy, Peadar.
- Connolly, Ger.
- Coughlan, Mary Theresa.
- Cowen, Brian.
- Cullimore, Séamus.
- Daly, Brendan.
- Davern, Noel.
- Dempsey, Noel.
- Dennehy, John.
- de Valera, Síle.
- Ellis, John.
- Fahey, Frank.
- Fahey, Jackie.
- Fitzgerald, Liam Joseph.
- Fitzpatrick, Dermot.
- Flynn, Pádraig.
- Geoghegan-Quinn, Máire.
- Harney, Mary.
- Haughey, Charles J.
- Hillery, Brian.
- Hilliard, Colm.
- Hyland, Liam.
- Jacob, Joe.
- Kelly, Laurence.
- Kenneally, Brendan.
- Kitt, Michael P.
- Lawlor, Liam.
- Lenihan, Brian.
- Leyden, Terry.
- Martin, Micheál.
- McCreevy, Charlie.
- McDaid, Jim.
- McEllistrim, Tom.
- Molloy, Robert.
- Morley, P.J.
- Nolan, M.J.
- Noonan, Michael J.
- (Limerick West).
- O'Connell, John.
- O'Dea, Willie.
- O'Donoghue, John.
- O'Keeffe, Ned.
- O'Leary, John.
- O'Rourke, Mary.
- O'Toole, Martin Joe.
- Power Seán.
- Quill, Máirín.
- Reynolds, Albert.
- Roche, Dick.
- Smith, Michael.
- Stafford, John.
- Treacy, Noel.
- Tunney, Jim.
- Wallace, Dan.
- Wallace, Mary.
- Walsh, Joe.
- Wilson, John P.
- Woods Michael.
- Wyse, Pearse.
- Ahearn, Therese.
- Boylan, Andrew.
- Bradford, Paul.
- Browne, John (Carlow-Kilkenny).
- Bruton, Richard.
- Byrne, Eric.
- Connaughton, Paul.
- Connor, John.
- Cosgrave, Michael Joe.
- Cotter, Bill.
- Creed, Michael.
- Crowley, Frank.
- Currie, Austin.
- D'Arcy, Michael.
- Deasy, Austin.
- Deenihan, Jimmy.
- De Rossa, Proinsias.
- Doyle, Joe.
- Dukes, Alan.
- Durkan, Bernard.
- Farrelly, John V.
- Nealon, Ted.
- Noofnan, Michael.
- (Limerick East).
- O'Keeffe, Jim.
- O'Shea, Brian.
- O'Sullivan, Gerry.
- Owen, Nora.
- Quinn, Ruairí.
- Rabbitte, Pat.
- Ferris, Michael.
- FitzGerald, Garret.
- Flaherty, Mary.
- Flanagan, Charles.
- Garland, Roger.
- Gilmore, Eamon.
- Harte, Paddy.
- Higgins, Jim.
- Hogan, Philip.
- Howlin, Brendan.
- Kemmy, Jim.
- Kenny, Enda.
- Lowry, Michael.
- McCartan, Pat.
- McCormack, Pádraic.
- McGahon, Brendan.
- Mac Giolla, Tomás.
- McGrath, Paul.
- Mitchell, Gay.
- Mitchell, Jim.
- Moynihan, Michael.
- Reynolds, Gerry.
- Ryan, Seán.
- Sheehan, Patrick J.
- Sherlock, Joe.
- Spring, Dick.
- Stagg, Emmet.
- Taylor, Mervyn.
- Taylor-Quinn, Madeleine.
- Timmins, Godfrey.
- Yates, Ivan.
(Limerick East): We come to Chapter VII, which deals with “Urban Renewal: Temple Bar and Other Areas”. I would like the Minister to outline what arrangements are being put in place for the establishment of a company to run the Temple Bar — I know the Minister has difficulty hearing what I am saying at the moment. When this matter was raised in the House the Taoiseach indicated that the Minister might be able to tell us what the arrangements would be for the Temple Bar company, which we need to know before we can debate these sections adequately. How far advanced are the arrangements for setting up the Temple Bar company and what exactly will be involved?
While the Minister is gathering his thoughts and assembling some information, let me say I appreciate that we are to finish at 1.30 p.m. and there are other items in this time period to which Members may want to draw some attention. Without going into the specifics of the various sections that make up Chapter VII, Part I of the Bill, let me say I would like to hear — because it was indicated as recently as today on the Order of Business — that very soon a statutory semi-State company for urban development purposes will be established by law. Can the Minister indicate how that company will function and in particular how specific applicants — developers, property owners — will be scrutinised and evaluated by Temple Bar Renewal Limited, if I have that title correct? There are two companies, the Temple Bar property company and the Temple Bar renewal organisation, who will have a scrutiny or advisory role. Can the Minister explain the relationship between the Temple Bar company, the Temple Bar renewal company, his own Department and the Revenue Commissioners?
(Limerick East): And the Taoiseach.
The Taoiseach is pervasive in all these things.
(Limerick East): He will want to base the company in himself, will he not?
Also, will the company in question have special exemptions in relation to planning permission requirements and building by-law requirements that normally pertain in the Dublin city area?
On the role of Temple Bar Renewal Limited, as I said on Second Stage the aim of the tax incentive package for Temple Bar is that existing buildings in the area should be refurbished and conserved in a manner which maintained their character, that new construction will only be allowed where it complements the architecture of the area and that the activities to be encouraged in the area would be those which are in keeping with its ambience. In order to ensure that this happens, a special role is being given to Temple Bar Renewal Limited, and the approval of this company will be necessary before refurbishment or any new construction expenditure can qualify for the special tax reliefs. This procedure is wholly appropriate in the circumstances of the tax incentives package for Temple Bar.
The Revenue Commissioners would not have the knowledge or the expertise required to decide whether or not particular construction or refurbishment work would be in keeping with the character and fabric of the area. On the other hand Temple Bar Renewal Limited, which is chaired by the Lord Mayor of Dublin, has a board of directors which is made up of high ranking officials of Government Departments, municipal and other State bodies and members of Temple Bar Development Council who represent people from the area itself.
Given the composition of the board of directors of the company, it can be safely assumed that only projects which will contribute in the right manner to the revitalisation and development of the area will be approved by Temple Bar Renewal Limited. There can be no suggestion that ill-conceived projects will gain approval for tax purposes. Furthermore, under the terms of the forthcoming Temple Bar Renewal and Development Bill, Temple Bar Renewal Limited will be required to lay their decisions before both Houses of the Oireachtas for their information.
The involvement of a body other than the Revenue Commissioners in approval of tax reliefs is not without precedent. For example, under the BES legislation if a company carrying on qualifying tourist activities wish to raise BES funding, they must first obtain Bord Fáilte approval for a three-year marketing and development plan. Similarly, to qualify for section 84 lending, a company must be on the list approved by the IDA. I would add that the Revenue Commissioners will, of course, be the final arbiters as regards compliance with the terms of the Temple Bar legislation in the Finance Bill.
There are two companies involved: Temple Bar Renewal Limited, a company chaired by the Lord Mayor of Dublin, to be the policy company referred to in the Finance Bill, and Temple Bar Properties Limited, which will be the property development company; both will be provided for in the Temple Bar Area Development Bill, which the Taoiseach has said will come to the Oireachtas shortly. So far as I know it is at the final stage of drafting.
I will not repeat what I said rather extensively on Second Stage, but it is very hard to evaluate the effectiveness of these very generous measures if the Bill, for which no doubt the Minister for Finance will have an input, does not clarify a certain set of specific procedural relationships. In other parts of Dublin city different sets of officials are second guessing, improving and in some cases setting up contradictory impediments in the way of a particular project. Let me be precise. The Minister said in reply that the Temple Bar Renewal Company will have a role in evaluating the architectural suitability of a particular project. If that project subsequently has to go for planning permission to Dublin Corporation another set of officials, who will not necessarily agree with the officials in the Temple Bar Renewal Limited, may determine that in their view it is not architecturally suitable. If a ring is drawn around this extensive area of Dublin city where planning permission will not be required and if it is to be administered in a manner similar to the Custom House Docks area, then that eliminates a possibility for conflict.
There is another area of conflict that is even much worse than that to which I have referred, that is in relation to the application and the administration of building by-laws. The situation in this area is outrageous, and in deference to the time constraints I will not take up the time of the House. There is something that is less predictable in terms of its outcome than the prospect of winning the Lotto in relation to getting a clear response from the building control section of Dublin Corporation because they are trying to adjudicate between different kinds of by-law approvals. The tax incentives are heavily geared towards encouraging the owners of an existing property to refurbish that property, and all the benefits of the tax allowances are geared in that way, which I welcome — that was a weakness in the original designated areas — but you will not be able to renew existing buildings unless you get a specific set of exemptions from the building by-laws control section of Dublin Corporation.
The building by-laws themselves, which are the statutory instruments that currently apply have been superseded by the draft building regulations, which still do not have the effect of law because the Building Control Act has not established the mechanism for their administration. In other words, there is an immensely complex, Byzantine, bureaucratic mine-field and if it is not cleared in advance through the legislation to give effect to these provisions — because these provisions do not come into play until the legislative bodies come into it — then the positive intent will be very seriously frustrated. I do not know if that point has been adequately made by other people. It is not an inspired, original point; anybody who knows the territory will understand it, but I would like to hear the thinking of the Minister for Finance on this matter and what action he proposes to take in relation to it.
I welcome the proposals in the Finance Bill for the Temple Bar area. When we were drawing up the draft development plan at the initial stages I, and a colleague of mine, moved that the buildings in Temple Bar be listed. That was the first interest that anyone had in the Temple Bar area three years ago, but since then everyone has taken a great interest in it, including the Taoiseach and the Department of Finance. There are tax incentives now for a number of areas in Dublin including the designated areas, the Custom House Docks site area and now the Temple Bar area.
While I welcome the incentives for development in the inner city, it takes from development outside these areas. What other role will Dublin Corporation have — with the exception of the Lord Mayor — in this matter? Deputy Quinn has pointed out that the Custom House Docks do not have to seek planning permission from Dublin Corporation, they merely have to notify Dublin Corporation of what they intend to do and ask the planning authority to rubber stamp it. Will the new council which the Minister is setting up for Temple Bar be a planning authority in their own right for the Temple Bar area or will they be subject to the local authority? Will any of the elected members of Dublin City Council, with the exception of the Lord Mayor, be on the council for the Temple Bar area?
First of all, in response to Deputy Quinn's points about planning and by-laws approval, this Company will be subject to Dublin Corporation planning the same as everybody else. There will be no exemption——
We might as well go and have our lunch now.
——similar to those that exist in the Custom House Docks. That does not apply in this area.
We might as well break early and have a decent lunch because this matter is dead.
An official from Dublin Corporation will be part of the Temple Bar Renewal Company. The legislation will specify in detail the uses and activities that Temple Bar Renewal Limited can approve. It is not envisaged that any elected member of Dublin Corporation will be part of that new company. At the end of the day Dublin Corporation will make their own planning decisions.
May I suggest to the Minister that it would be of benefit to have a permanent member of Dublin Corporation on the management committee for the setting up of the Temple Bar area, because the Lord Major changes every year? Some kind of permanency would be required for the view of Dublin City Council to be expressed through their elected member.
There will be two permanent officials, one from the planning area and one from another area on the Temple Bar Renewal Ltd. Board to co-ordinate efforts between Temple Bar Renewal Ltd., and the corporation.
The Minister knows that officials do not always represent the views of elected members.
The Lord Mayor, I hope, would bring those views to bear in the negotiations.
I appreciate that these matters will have to come before the House again, so I will not go into them in detail. However, in section 48 the area described as the Temple Bar area is set out in the Second Schedule and it specifically excludes the area currently owned by Dublin Corporation civic offices. It is bounded by Fishamble Street, Winetavern Street and Wood Quay. The success of the Temple Bar area necessities the provision of two large car parks. A cursory examination of the property shows that there is no available space, with one or two exceptions, on which to build the kind of multi-storey car park that would be needed to give the throughput of numbers to make this a success. The only cleared area, which has already destroyed or excavated, depending on which word one wants to use, the archaeological remains that once were there, is the notorious property owned by Dublin Corporation.
Will the taxation provisions which generally apply for a multi-storey car park apply to a car park that could be built adjacent to the designated area? Looking at this project from the point of view of including provision for a large car park, which is generally conceded to be necessary, there is no space in the area designated attached to section 48. The nearest space available is owned by Dublin Corporation which, if the grand design is to be completed, would hold two more of those nuclear, bunker-type office blocks, but nobody would seriously advocate that. It is currently used as a car park. This is an obvious opportunity to include it and the beneficiary would be the State. I am not sure if an operator coming in to build a multi-storey car park in that area would gain the various tax reliefs specified in other sections. If they would not, I invite the Minister to consider the matter before coming back on Report Stage, to extend the Schedule to include the property owned exclusively by Dublin Corporation, in other words, to move the boundary westwards from Fishamble Street to Winetavern Street.
Is Deputy Quinn prepared to leave that invitation in suspense?
Absolutely. It is a Report Stage matter.
We all accept that we will have another opportunity to deal with the detail of this. I am a long time non-executive director in a company in this area. What is the Minister's response to the view that a less lavish package of incentives would in any event have boosted this area which is on the way up, and that it will now be developed at the cost of other designated areas in the city where the existing incentives have not worked, and that they in fact will slip into further dereliction whereas this area will be boosted unnecessarily? On the question of the discretion as to who qualifies for relief, who will ultimately make the decision? The shares will be vested in the Taoiseach. Does that imply that ultimately the Taoiseach will make the decision? It is unfair to put any Taoiseach in a situation where ultimately he will make the decision about who will benefit from the reliefs.
The Comptroller and Auditor General in his report on the performance of the BES scheme was extremely critical of the lack of monitoring, of the lack of any independent authority to say what value for money was given as a result of the BES. Is it envisaged that there will be an independent body, for instance the Revenue Commissioners, to monitor progress and to give this House some kind of report other than what we get directly from the companies concerned about value for money and the progress on projects envisaged here?
In relation to the car parks, one car park is already designated by Dublin Corporation on an ESB/Bank of Ireland site and another is being considered in the area between Fishamble Street and Parliament Street.
On the question of the generosity of the tax incentives package, the development of the Temple Bar area has been undertaken by the Government on the basis of unanimous proposals and recommendations made by Temple Bar Renewal Ltd., which represents people from the area, in Dublin Corporation's action plan for the area and by representative groups chaired by the two most recent Lords Mayor of Dublin. The development also has the support of the Arts Council, which will eventually be involved in its implementation. The special tax reliefs scheme provided for Temple Bar are generous. They represent a significant contribution to architectural conservation. I reject any contention that the reliefs are over-generous. The needs of the area require a particular set of incentives. These have been devised after a lot of consideration and following advice from expert groups. The tax incentives are tailor-made for the Temple Bar area. For the first time on the urban renewal front the Government have shifted the balance in favour of refurbishment and against construction, something this area requires. I do not see how anyone can object to this approach, since refurbishment is the key to the sensitive development of the Temple Bar. The application of the incentives will be selective and will require the approval of Temple Bar Renewal Ltd. and, in the final analysis, the Revenue Commissioners will determine whether or not people have complied with the law.
In relation to Deputy Rabbitte's comments on the BES, I sometimes do not know where he stands because I remember looking at amendments being tabled trying to increase the availability of the BES in spite of the fact that most people think it is right to curtail it.
I have no idea what the Minister is referring to. I have amendments down urging the Minister to stand by his announcements.
That is not what the Deputy said during the debate on the first night of the budget.
That is not true at all.
You cannot have your loaf and eat it.
We will deal with it under the BES, but my amendments are to the effect that the Minister should stand by the restrictions he announced on budget night.
(Limerick East): How long does the Minister envisage that the redevelopment of the Temple Bar area will take? Some of the tax concessions are in section 48 and 49 but there are other concessions of a similar nature on section 23 type activity. I notice that an exception is being made in section 23 of the Temple Bar area, that it will be possible to claim for the building of residential accommodation right up to 1996. Is it envisaged that the project will take five, six or seven years?
Yes, that is about the period.
Amendments Nos. 101 to 104, inclusive, and amendment No. 106 are related to amendment No. 100 and may, therefore, be taken together for discussion.
I move amendment No. 100:
In page 48, subsection (1) (a), line 9, after "section 48 (3)", to insert ", if paragraph (a) of the definition of ‘qualifying premises' in subsection (1) of the said section 42 had not been enacted".
These amendments relate to the application of accelerated capital allowances and double rent allowance to certain industrial buildings in the Temple Bar Area. In the Bill as published, section 49 provides that accelerated capital allowances will be given in respect of expenditure incurred on the refurbishment of existing commercial buildings and on the construction of new commercial buildings in Temple Bar. The section also provides that a double rent deduction will be granted as an expense in computing trading profits for tax purposes to a trader renting either a newly constructed or a refurbished commercial building.
Section 49 excludes industrial buildings from these tax allowances. This was indicative of the active discrimination which Temple Bar Renewal Limited would exercise in their role of approving suitable developments as eligible for the special tax reliefs. Large warehouses, factories and similar industrial buildings were to be discouraged as not being in keeping with the character and intended development of Temple Bar.
On reconsideration, it has been realised that this blanket exclusion of industrial buildings would also affect certain categories of activities which it is felt should be encouraged in the overall plan for the Temple Bar Area; for example, small workshops and craft manufacturing, the premises of which would be classed as industrial buildings for tax purposes. It is accepted that newly constructed craft workshops or existing buildings in Temple Bar which are refurbished for such activites could, if in keeping with the character and fabric of the area — and this question would be a matter for Temple Bar Renewal Limited to decide — have a significant role to play in the revitalisation of the area.
To achieve this it is necessary to amend section 49 to ensure that certain industrial buildings may, at the discretion of Temple Bar Renewal Limited, qualify for the reliefs available in respect of approved non-industrial buildings, namely, accelerated capital allowances and the double rent deduction. These amendments reflect the criteria, which are included in the Temple Bar Area Development Bill, for approval of the construction or refurbishment of buildings or premises by Temple Bar Renewal Limited.
I commend the amendments to the House.
I move amendment No. 101:
In page 48, subsection (1) (b), line 13, after "section 42 of the Finance Act, 1986," to insert "other than paragraph (a) of the definition of ‘qualifying premises' in subsection (1) of that section,".
I move amendment No. 102:
In page 48, subsection (1) (b), lines 25 to 27, to delete "as if clause (1) of subsection (1) (a) (i) of that section had not been enacted".
I move amendment No. 103:
In page 48, subsection (2) (a), line 34, after "section 48 (3)", to insert ",if paragraph (a) of the definition of ‘qualifying premises' in subsection (1) of the said section 42 had not been enacted".
I move amendment No. 104:
In page 48, subsection (2) (b), line 45, after "other than", to insert "paragraph (a) of the definition of ‘qualifying premises' in subsection (1) and".
I move amendment No. 105:
In page 49, subsection (2) (b) to delete lines 5 to 19 and substitute the following:
"(II) as if the reference in subsection (2) of the said section 44 to ‘5 per cent.' were a reference to ‘10 per cent.',".
This amendment relates to section 49 of the Bill.
Section 49 provides in Clause (II) of subsection (2) (b) (ii) for the extension to Temple Bar of the owner-occupier allowance in respect of expenditure incurred on residential buildings. As Deputies will know, such an allowance already exists in the other designated areas. The section provides that expenditure on the construction or refurbishment of a building in the Temple Bar Area which is first used after construction or refurbishment as the sole or main residence of the individual who incurred the expenditure will qualify for tax allowances by way of a deduction from the individual's total assessable income. In the case of new residential buildings in Temple Bar the allowance granted is the same as that given in the other designated areas, that is, 50 per cent available at 5 per cent per year for ten years. For refurbished residential buildings in Temple Bar, however, the section allows a 100 per cent accelerated allowance.
Views have been expressed that this 100 per cent allowance is excessive, particularly in being so front-loaded — the entire cost of a refurbished residential premises could be set off against income tax in year one. I accept that the 100 per cent once-off tax allowance in respect of expenditure incurred by owner-occupiers on the refurbishment of residential premises in the Temple Bar area is indeed too generous. In addition, the fact that the full allowance is available in year one does not act as an incentive for residents to remain in the area — and, after all, that is one of the principal objectives of the whole package of reliefs. Accordingly, the Government have decided that instead of a full 100 per cent allowance being available in year one, the 100 per cent allowance should be given in increments of 10 per cent over ten years. Furthermore, as is the position with relief on expenditure incurred by owner-occupiers on residential premises in other designated areas, the yearly allowance will be available only for each year in which the premises is the sole or main residence of the individual who incurred the expenditure. The allowance will thus be spread out in a manner reflecting the relief available in the case of new residential premises in Temple Bar. The amendment will also emphasise the concept of a commitment by owner-occupiers of residential buildings in Temple Bar to remain in the area.
I commend the amendment to the House.
Good luck to the Minister on its administration. I welcome the sentiments behind the amendment, but I foresee great practical difficulties in supervising its provisions.
I move amendment No. 106:
In page 49, subsection (2) (b), lines 23 and 24, to delete "as if clause (1) of subsection (1) (a) (i) of that section had not been enacted".
I move amendment No. 107:
In page 49, subsection (2) (b), line 39, after "January, 1991,", to insert "other than any amount of such value as is attributable to, or to rights in or over, any land,".
This amendment, which is of a technical nature, relates to the proviso to subsection 49 (2) (b). Its purpose is to ensure that site cost is excluded from the market value as of 1 January 1991 of premises in the Temple Bar Area when that amount falls to be included with the amount of refurbishment expenditure on premises on which tax relief is to be given.
The proviso to section 49 (2) (b) deems capital expenditure incurred on a refurbished commercial building or the expenditure incurred on a refurbished owner-occupied residential building to include the lesser of the purchase price paid for the building, exclusive of site cost, or its market value as at 1 January 1991, on condition that the refurbishment expenditure is at least equal to the purchase price or market value, whichever is relevant. This amendment ensures that for the purposes of the tax reliefs valuations of buildings as at 1 January 1991 will not be dealt with on the same basis as the determination of the amount of the purchase price of a building the purchase cost and market value must each be calculated exclusive of site value.
I commend the amendment to the House.
I am concerned that the Minister considers this lavish package to be necessary. The removal of the ring-fencing, as I understand it, applies not only to the Temple Bar Area but also to other designated areas in the city and to the Custom House Docks site as well. Why does the Minister consider it necessary to remove the ring-fencing? In other words, there can be a setoff not only against income from the refurbished building but also against income from any other building in the designated area. I do not understand the reason for such a wide provision. It is difficult enough, if not impossible, to estimate the loss to the Exchequer of tax incentives of this kind. The BES has proved that. I fail to understand the necessity for that provision. It seems to be very much overgenerous.
(Limerick East): What we used to call section 23 is really a section again. The Minister is extending the dates. Is the date to be January 1993 for the Custom House Docks site?
(Limerick East): The date for other designated areas is to be 31 May 1993 and for the Temple Bar Area it will be 1996. Does it include all areas which have already been designated?
I think it does.
(Limerick East): To go back to the point made by Deputy Rabbitte, I presume income arising from rent for properties outside designated areas can be claimed against residential accommodation built under the reliefs available in this section. It is extremely generous; I never objected to a section 23 arrangement which allowed rental income deriving from building or refurbishment to be set off against the cost of construction, but when it is so wide that income coming from any other rented accommodation anywhere in this State can be offset against costs, it is extremely generous indeed.
It is one of those mechanisms calculated to make people with a reasonable income wealthy and the device used is that if you can convert income to an asset you are not taxed on it. If you have a property in Cork for which you are collecting £10,000 in rent, that sum can be converted into an asset by the acquisition of an apartment in one of the designated areas or in the Temple Bar Area. You skip the bit in the middle about having the use of the income. That is the manner in which people to a large degree are accumulating wealth at present. It creates problems because, naturally, only people with income surplus to their day to day needs get involved in such activities. The tax system is geared to assets and buildings and there is very little employment content, apart from the construction stage.
The same was true of the business expansion scheme and when it went off the rails it was because of the assets backing of certain projects. If you give the taxpayer a choice in relation to tax breaks he or she will always opt for the break which is asset backed rather than the break in which there is a risk, which is reasonable. However, when it runs across a series of tax breaks, from the BES to section 23, it means that people's surplus income is not going to investment which creates ongoing jobs, it is going to the accumulation of assets which add to the wealth of individuals; in effect, it is taken out of the real economy and, apart from a boost at the construction stage where some jobs are created, there is no long-term effect. It is not an exaggeration to say that the combination of reliefs in the Temple Bar Area are so generous that they could lead to a situation where it would be worth people's while to erect a building purely to avail of the tax breaks on rental income which could arise elsewhere in the State. That is an extreme example as, under normal circumstances, it does not happen.
It is far more difficult to identify section 23 accommodation which is totally under-used. If someone builds a block of flats, turns the key in the door and appoints a security man, it is obvious that the flats are empty. Of course that does not happen but the section certainly leads to the under-utilisation of accommodation and tying up resources which could be used elsewhere. This might sound a bit long-winded but, as our unemployment levels are in excess of 19 per cent and heading for 300,000 people unemployed, one of the fundamental issues which must be addressed is the uses to which the savings of citizens are put. Many of these savings are being encouraged into activities in which there is no employment return.
Our party leader, Deputy John Bruton, has been talking about having a rule at Government level where every proposal put to Government should be subject to an employment audit, which is not a bad idea. I remember when we were in Government Ministers could bring in proposals and they did not have to state the financial cost, it was up to the Department of Finance to identify the cost. That has now changed and every proposal to Government must be accompanied by an estimate of the cost, including ongoing costs. It would be appropriate if the Government could in future, as part of Cabinet procedure, say that every proposal which comes from any Department would have to have an employment audit and show how it would affect employment.
There is only a given quantum of savings in any country and if they are directed into non-productive asset building, is it any wonder our unemployment levels are high? We must measure all these tax avoidance schemes, not only on a Keynesian scale of how much we will get when the investment is made but the ongoing employment effects and what alternative methods of investment would be used if these devices were not there. We are house and building mad in this country. There is 85 per cent home ownership——
That is not bad.
(Limerick East): It is terrific at a social level and we have many incentives which encourage more building. However, one could argue that at one end of the market the amount of space is totally under-utilised.
The other side of it is that the IDA give all sorts of grants for plants rather than for employment and there are a whole series of schemes in this regard which encourage building. The designated areas are working well but we must measure the impact on employment, not only of the direct activity but the impact on employment if the savings were used in alternative ways.
There is a misunderstanding in relation to section 23. It was never ring-fenced since expenditure from 1988 incurred in construction of rental accommodation is available to offset against all profits from the levy on premises anywhere in the State. It is not being changed here today. However, in regard to expenditure incurred on the conversion or refurbishment of such accommodation, the position is that the expenditure can be offset only against profits from the levy on the particular premises involved, in other words, a ring-fencing of the relief applies.
Chapter VII of the Bill now proposes to remove this ring-fencing for Temple Bar and other designated areas and it will remain in place for all other areas. The reason the ring-fencing is being removed for Temple Bar is to give a kick start to development in the area. As Deputies know, the development of Temple Bar is the Government's flagship project for Dublin's Year of European City of Culture, 1991. We are anxious, therefore, to get the development under way as quickly as possible. In so far as the other designated areas are concerned, the House will be aware that the urban renewal scheme will expire in 1993; conservation and refurbishment of existing housing is a particularly desirable objective of the urban renewal programme. In order to stimulate such work before the expiry date of the scheme, the Government decided to remove the ring-fencing in section 23, conversion and refurbishment expenditure in the designated areas, in other words, to bring back communities to live there.
It is the second option the Minister read to which we are referring. The question is whether it is necessary. It is extraordinarily generous that rather than being able to set off against the specific building which was the subject of the refurbishment, it is to be extended in the manner we described. Why? It is a bit like the argument about the art section earlier, it is, similarily, to be an outcast to be seen to oppose urban renewal and nobody wishes to do that. This is a temptation to go down the road of the BES experience.
I must put the question.
What about situations which anticipate designation which was accorded, for example, to The Square, Tallaght, and where there is a similar expectation in respect of Clondalkin and Blanchardstown? Will the measure which the Minister is seeking to enact here apply to——
We do not have time to go into that now. I must put the question in accordance with the Order of the Dáil: "That the amendments set down by the Minister for Finance to Part I of the Bill, if not disposed of, are hereby made to the Bill; and in respect of each of the sections undisposed of in the said Part, that the section or, as appropriate, the section as amended, is hereby agreed to."