Written Answers. - Small Business Tax Exemptions.

Seamus Brennan


60 Mr. S. Brennan asked the Minister for Finance the proposals, if any, he has to introduce further tax relief on dividends from small companies; and if he will make a statement on the matter. [8492/96]

Mary Harney


70 Miss Harney asked the Minister for Finance if he will introduce an exemption for small businesses in relation to the taxation of royalty dividends; and if he will make a statement on the matter. [8710/96]

I propose to take Questions Nos. 60 and 70 together.

I do not consider that the introduction of divided relief for small companies would be justified in the circumstances. Previous experience with this type of relief has shown that it is of limited value in generating additional equity investment, that it is prone to widespread abuse and that, at best, anti-avoidance safeguards may only be partially effective. Also, the provision of dividend relief, even on a restricted basis, could be very costly. Revenue estimate that the introduction of relief for the small business sector would cost a minimum £10 million in a full year, but the cost could be substantially higher owing to the scope it would provide for tax avoidance on a wide scale.

As regards relief in respect of dividends paid out of patent royalty income, Deputies will be aware that the Finance Bill currently before the House amends the rules governing this relief. The amendments are being introduced to curtail abuses of the relief within the manufacturing sector. The aim is to refocus the relief on the area for which it was originally intended viz. genuine innovation and inventiveness. The Finance Bill provisions will apply only in respect of royalty payments between connected parties. In such circumstances, taxpayers will be entitled to claim dividend relief by reference to the level of group R & D expenditure in a three year period. Alternatively, they will be entitled to unlimited dividend relief where they satisfy the Revenue Commissioners that the relevant invention involved a radical innovation and was patented for bona fide commercial reasons rather than primarily for the purpose of avoiding tax. The provisions are reasonable and I see no need for a special exemption for particular types of firms.
A wide range of tax incentives have been introduced in recent years for equity investment and enterprise development in the small business sector. Among the measures included in this year's Finance Bill are:
—the renewal of the business expansion scheme with a rebalancing of the scheme in favour of small business and employment creation.
—a broadening of the 27 per cent rate of capital gains tax on equity investment in SMEs,
—a further increase (to 75 per cent) in the capital acquisitions tax relief on the transfer of a business, and
—a reduced 30 per cent rate of corporation tax for the first £50,000 of annual company income.