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Dáil Éireann díospóireacht -
Wednesday, 8 Mar 2000

Vol. 516 No. 1

Finance Bill, 2000: Report Stage (Resumed) and Final Stage.

Notice taken that 20 Members were not present; House counted and 20 Members being present,Debate resumed on amendment No. 48:
In page 94, to delete lines 4 and 7 and substitute the following:
"(b) by the substitution for subsection (2)(c) of the following:
‘(c) The specified percentage shall not exceed—".
–(Minister for Finance)
Amendment agreed to.

I move amendment No. 49:

In page 94, line 8, to delete "(I)" and substitute "(i)".

Amendment agreed to.

I move amendment No. 50:

In page 94, line 9 and 10, to delete "60 per cent" and substitute "66 per cent".

Amendment agreed to.

I move amendment No. 51:

In page 94, line 11, to delete "(II)" and substitute "(ii)".

Amendment agreed to.

I move amendment No. 52:

In page 94, line 18, to delete

“60

E£100,000”

and substitute the following:

“66

(11 × E)£1,000,000”.

Amendment agreed to.

I move amendment No. 53:

In page 94, line 22, to delete "(III)" and substitute "(iii)".

Amendment agreed to.

I move amendment No. 54:

In page 94, line 23, to delete "50 per cent" and substitute "55 per cent".

Amendment agreed to.

I move amendment No. 55:

In page 94, lines 24 and 25, to delete "clause (I), (II) or (III)" and substitute "subparagraph (i), (ii) or (iii)".

Amendment agreed to.

I move amendment No. 56:

In page 94, line 27, to delete "£7,500,000." and substitute "£8,250,000.".

Amendment agreed to.
Amendment No. 57 not moved.

I move amendment No. 58:

In page 94, to delete lines 28 and 41.

Amendment agreed to.
Amendments Nos. 59 and 60 not moved.

I move amendment No. 61:

In page 94, between lines 41 and 42, to insert the following:

"(2) This section shall have effect from such day as the Minister for Finance may appoint by order.".

Amendment agreed to.
Amendment No. 62 not moved.

I move amendment No. 63:

In page 100, line 44, after "acquisition" to insert "or the market value on the date of acquisition, whichever is greater".

We had a brief discussion about this on Committee Stage. It deals with particular circumstances which arise under an SAYE scheme whereby the benefit-in-kind element is discounted after the three year period but there is a charge to CGT. Does the charge to CGT arise immediately as it could do if this position was immediate or does it arise on the basis of market value on the date of acquisition? Does one pay CGT on the price one pays for the shares or on the reduced price?

This amendment relates to the SAYE share option scheme introduced last year. Under normal tax law, an employee exercising a share option is charged with income tax on the difference between what he paid for the shares and their market value at date of acquisition. Any further gain on a subsequent disposal is chargeable to capital gains tax.

Under the SAYE scheme the income tax charge on exercise of the option does not apply but on a subsequent disposal of the shares the employee is chargeable to capital gains tax on his or her full profit from the shares, that is, the difference between what he or she paid for the shares and what he or she receives for them. Effectively, what would otherwise be a charge to income tax – at possibly 44% – is converted into a capital gains tax charge at 20%.

What Deputy McDowell is requesting is that the profit on the exercise of the share option should be removed altogether from the tax charge and that the capital gains tax charge should be confined to the profit arising from the date of acquisition of the shares only.

As I indicated on Committee Stage last week the Programme for Prosperity and Fairness recognises the importance of various forms of employee financial participation, including share options and gainsharing, in developing and deepening partnership and in increasing performance and competitiveness. To give practical effect to this recognition a consultative committee has been set up under the PPF to prepare proposals for consideration in the context of Budget 2001. I am sure the committee will consider this proposal as well as others being put forward on the question of employee financial participation.

Deputy McDowell's amendment is, therefore, somewhat premature and in the circumstances I cannot accept it at this time. However, as I indicated on Committee Stage, and earlier in this debate, I will give full and careful consideration to the outcome of the consultative committee's deliberations for Budget 2001.

I am happy with the Minister's response. The CGT rate at 20% is only two points lower than the standard rate of income tax. We also want to give some benefit to people who are paying income tax at the standard rate when dealing with these sorts of options rather than only give considerable benefit to people who pay income tax at the higher rate. The Minister might consider that point.

It will not be long before the CGT rate and the standard rate will be the same.

Amendment, by leave, withdrawn.
Bill recommitted in respect of amendments Nos. 64 and 65.

I move amendment No. 64:

In page 102, between lines 7 and 8, to insert the following:

"‘basis period' has the same meaning as in section 127(1);".

This amendment relates to section 52 which is concerned with the introduction of the 20% rate of tax for profits from dealing in residential development land which I announced in the budget last December.

The income tax element of the proposal is intended to apply to profits arising on or after 1 December 1999 where it has been suggested that there may be an ambiguity in the way in which the provision is framed which, in certain circumstances, might result in the new rate applying to profits arising before that date.

This is because while unincorporated traders are chargeable to income tax for a year of assessment – 6 April to 5 April – the profits to be assessed are those for the period of account ending in that year. One interpretation of the commencement provision put forward to Revenue, but not accepted by it, is that a portion of the profits to be assessed for the year 1999-2000 should be charged at 20% even though these profits would have been calculated by reference to profits which accrued before 1 December 1999. This amendment removes any possibility of that ambiguity arising and I, therefore, commend it to the House.

Amendment agreed to.

I move amendment No. 65:

In page 103, to delete lines 35 to 40 and substitute the following:

"(a) to the extent to which profits or gains of a basis period for a year of assessment consist of profits or gains to which this section applies, those profits or gains–

(i) shall be chargeable to income tax for that year at the rate of 20 per cent, and

(ii) shall not be reckoned in computing total income for that year for the purposes of the Income Tax Acts,

and".

Amendment agreed to.
Bill reported with amendments.

I move amendment No. 66:

In page 112, line 46, to delete "assigned." and substitute the following:

"assigned, without having regard to any amount of appropriate tax (within the meaning of section 730F) in connection with the chargeable event.".

This amendment is to section 730D which is being inserted into the Taxes Consolidation Act, 1997, by section 53 of the Bill. Section 730D sets out how to compute in the new gross-roll-up regime, the amount of a taxable gain on an investment policy with a life assurance company when various events occur, for example, total or partial encashment of the policy. The amount of the gain is provided in the section by various formulae. This amendment ensures that the value of a policy at any time for use in those formulae is the value of the policy without taking into account the tax liability that may arise at that time. I commend this amendment to the House.

Amendment agreed to.

Amendment No. 75 is related to amendment No. 67 and they may be discussed together by agreement.

I move amendment No. 67:

In page 125, to delete lines 21 to 26 and substitute the following:

"intermediary" means a person who–

(a) carries on a business which consists of, or includes, the receipt of payments from an investment undertaking on behalf of other persons, or

(b) holds units in an investment undertaking on behalf of other persons;”.

These amendments are to section 58, which provides the new gross-roll-up regime for collective investments which will apply in the IFSC and in the domestic market. The amendments arise from further discussions with the funds industry and extend the definition of "intermediary" to include a person who holds units in an investment undertaking on behalf of others. In the international funds industry it can be the case that an intermediary in a foreign jurisdiction holds units as a nominee for investors in that jurisdiction. Under the section, an intermediary is entitled to make a declaration of non-residence on behalf of his or her customers who invest in an Irish domiciled investment undertaking. I commend the amendment to the House.

What policy consideration gave rise to this?

This particular amendment?

It was tabled to clarify the definition of an intermediary as a nominee holder. It was sought by the industry and it was agreed by the industry and Revenue to clear up an issue of definition.

Amendment agreed to.

Amendments Nos. 69 to 71, inclusive, are related to amendment No. 68 and they may be taken together by agreement.

I move amendment No. 68:

In page 133, to delete lines 36 to 38 and substitute the following:

"worth payable to the unit holder on the cancellation, redemption or repurchase of units, without having regard to any amount of appropriate tax (within the meaning of section 739E) thereby arising,".

Under the new gross-roll-up regime for collective funds there is no, annual tax on the profits and gains of the funds investments. Instead a tax liability is calculated and payable when a payment is made to a unit holder by the fund. The amount of such tax is provided by formulae in the section and depends on the event which gives rise to the payment. Fox example, the payment could arise from an annual income payment or the transfer or redemption of units.

These four amendments ensure that when a taxable gain is being calculated on the disposal of units by an investor, the value of the units to be used inColour RGB 171,0,0 the formulae is their value before taking into account the tax which may arise on the disposal. I commend these amendments to the House.

Amendment agreed to.

I move amendment No. 69:

In page 134, line 9, after "2000," to insert "without having regard to any amount of appropriate tax (within the meaning of section 739E) thereby arising,".

Amendment agreed to

I move amendment No. 70:

In page 134, line 26, after "transfer," to insert "without having regard to any amount of appropriate tax (with the meaning of section 739E) thereby arising,".

Amendment agreed to.

I move amendment No. 71:

In page 135, line 2, after "2000," to insert "without having regard to any amount of appropriate tax (within the meaning of section 739E) thereby arising,".

Amendment agreed to.

Amendments Nos. 73 and 74 are related to amendment No. 72 and they may be taken together by agreement.

I move amendment No. 72:

In page 137, line 42, before "investment" to insert "collective".

Amendment agreed to.

I move amendment No. 73:

In page 138, line 22, to delete "(5)" and substitute "(6)".

Amendment agreed to.

I move amendment No. 74:

In page 138, lines 40 and 41, to delete "fully completed".

Amendment agreed to.

I move amendment No. 75:

In page 139, lines 6 and 7, to delete "receives payments from" and substitute "holds units of, or receives payments from,".

Amendment agreed to.

Amendment No. 77 to 82, inclusive, are related to amendment No. 76 and they may be taken together by agreement.

I move amendment No. 76:

In page 143, to delete lines 40 to 56, and in page 144, to delete lines 1 to 11 and substitute the following:

"(a) where the unit holder is not a company and the payment is a payment from which appropriate tax has been deducted, the payment shall not be reckoned in computing the total income of the unit holder for the purposes of the Income Tax Acts and shall not be treated as giving rise to a chargeable gain under the Capital Gains Tax Acts,

(b) where the unit holder is not a company and the payment is a payment from which appropriate tax has not been deducted, the amount of the payment shall be treated for the purposes of the Tax Acts as income arising to the unit holder, constituting profits or gains chargeable to tax under Case IV of Schedule D,

(c) where the unit holder is a company, the payment is a relevant payment and appropriate tax has been deducted from the payment, the amount received by the unit holder shall, subject to paragraph (g), be treated for the purposes of the Tax Acts as the net amount of an annual payment chargeable to tax under Case IV of Schedule D from the gross amount of which income tax has been deducted at the standard rate,

(d) where the unit holder is a company, the payment is a relevant payment and appropriate tax has not been deducted from the payment, the amount of the payment shall, subject to paragraph (g), be treated for the purposes of the Tax Acts as income arising to the unit holder, constituting profits or gains chargeable to tax under Case IV of Schedule D,

(e) where the unit holder is a company, the payment is not a relevant payment and appropriate tax has been deducted therefrom, such payment shall, subject to paragraph (g), not be taken into account for the purposes of the Tax Acts,

(f) where the unit holder is a company, the payment is not a relevant payment and appropriate tax has not been deducted from the payment, the amount of such payment shall, subject to paragraph (g), be treated for the purposes of the Tax Acts as income arising to the unit holder, constituting profits or gains chargeable to tax under Case IV of Schedule D,”.

These amendments substantially rewrite section 739G, inserted in the Taxes Consolidation Act by section 58. Section 739G, as amended, will set out the tax treatment of a payment made by an investment undertaking to a unit holder under the new gross-roll-up regime. The tax treatment depends on the nature of the payment, the status of the unit holder and whether tax has been deducted from the payment by the investment undertaking. For example, where the unit holder is an individual and tax has been deducted from the payment by the investment undertaking there is no further tax to pay. In the case of a company the tax treatment depends on whether the units are held as an investment or as part of trading stock of a financial trade. In the case of a company which is not resident in the State or an individual who is neither resident nor ordinarily resident in the State, there will be no tax to pay in the State. I commend these amendments to the House.

This is an area of tax law with which I am not very familiar.

There are very few areas with which the Deputy is not familiar.

Is the dividend withholding tax applicable to shares held in a unit trust?

So there is an alternative way of taxing them on this roll-up procedure?

Yes. We discussed this to some extent on Committee Stage. The same position applies to Irish insurance funds as applies to the funds in the IFSC area, in order to comply with EU law. The system used in that situation is known as gross roll-up. In other words, while the funds are accumulated within the fund they do not attract any tax, but they are taxed on the way out. That is the way it was with the IFSC industry. We have been prepared to do the same for Irish life assurance as well. We have come up with that procedure which involves an exit tax based on the standard rate of tax plus 3%. As I explained on Committee Stage, existing policies will continue to be taxed on the normal basis. Up to now there has been a special mechanism which was very complicated and very few people were conversant with it, apart from the Deputy and myself. That will continue for existing policies while new policies starting on and after 1 January 2001 will be taxed on the new gross roll-up mechanism which is an exit tax at the standard rate plus 3%. After some discussions I announced this in the budget. Various proposals were put forward as to how to do it. On Committee Stage I said we would evaluate all the existing policies but after further negotiations we decided that the new gross roll-up method would be for new policies as and from 1 January next. Deputies will also remember that on Committee Stage we inserted certain provisos so that people could not benefit from now to 31 December. All these amendments on Report Stage are tidying up that aspect.

I recall the discussion on Committee Stage and I understand the context.

The regime for collected funds starts as and from 1 April.

As to why the Minister has set the standard rate plus 3%, I take it the 3% penalty is because the tax does not apply at the date of liability?

Because it is rolled-up to the point of exit, the Minister feels justified in applying another 3%.

Exactly. The industry would want a lower figure of course but I think it was a reasonable charge to make. The funds will be able to accumulate every year without any tax deductions. We thought the fairest way would be to apply the standard rate at the end plus a percentage. Various percentages were put forward, some higher than 3%. The industry wanted a lower figure, or none at all, but it is a fair compromise to have funds that can grow without any tax deduction. On account of that deferral of tax, when the funds mature they are subject to an exit tax plus 3%. The customer will not be involved in those calculations; it is something the industry will do with the various policies.

Amendment agreed to.

I move amendment No. 77:

In page 144, to delete lines 12 to 17 and substitute the following:

"(g) where the unit holder is a company chargeable to tax on the payment under Case I of Schedule D–”.

Amendment agreed to.

I move amendment No. 78:

In page 144, lines 22 and 23, to delete "of appropriate tax so" and substitute "(if any) of appropriate tax".

Amendment agreed to.

I move amendment No. 79:

In page 144, lines 43 and 44, to delete "amount of appropriate tax" and substitute "amount (if any) of appropriate tax deducted".

Amendment agreed to.

I move amendment No. 80:

In page 144, line 51, to delete "and".

Amendment agreed to.

I move amendment No. 81:

In page 144, between lines 51 and 52, to insert the following:

"(h) the amount of a payment made to a unit holder by an investment undertaking, where the unit holder is a company which is not resident in the State or the unit holder, not being a company, is neither resident nor ordinarily resident in the State, shall not be chargeable to income tax, and”.

Amendment agreed to.

I move amendment No. 82:

In page 144, line 52, to delete "(d)” and substitute “(i)”.

Amendment agreed to.

I move amendment No. 83:

In page 156, line 6, to delete "2003" and substitute "2005".

Was this an extension of the taxation on farm pollution control scheme?

We are simply proposing an extension of the date from 2003 to 2005. There have been some representations from farming organisations. I wonder if what the Minister has done is in accord with their understanding of the partnership agreement.

It is now, although it was not last week. We have had negotiations. This amendment by Deputies Noonan and Deenihan which relates to the scheme of capital allowances for farm pollution control, proposes to extend this scheme to 5 April 2005. The scheme was introduced in 1997 for farmers in respect of expenditure incurred by them in necessary pollution control measures. Under that scheme, which applied for three years from 6 April 1997 to 5 April 2000, a special year one allowance of the lesser of 50% of expenditure incurred or of £20,000 was provided for and the balance of the expenditure was written off over seven years. In 1998 the year one extended limit was increased to the lesser of 50% of expenditure or of £30,000. This pollution control scheme was amended in section 30 of the Bill as initiated to extend the scheme for a further three years to 6 April 2003, and also to provide for an increased first year expenditure limit of £40,000 which I announced in my budget speech on 1 December last.

Arising from the farm taxation undertakings in the Programme for Prosperity and Fairness, I am committed to the further enhancement of the scheme as follows: a reduction in the writing down period from eight years to seven years, an increase in the first year expenditure limit to £50,000 and the option to claim the lesser of 50% of expenditure or of the increased expenditure limit of £50,000 in a more flexible way over the writing down period. The next amendment, in my name, provides for this flexibility.

As I have outlined, this scheme has been in existence since 1997. In my budget speech I extended the scheme for a further three years and I increased the year one expenditure limit. The terms of the scheme have been further generously enhanced under the Programme for Prosperity and Fairness. I do not consider it prudent or necessary at this stage to extend the scheme further and must reject the amendment.

I would point out that amendment No. 84, in my name, has been agreed with the farming organisations. It gets over any difficulties we had up to last week.

Is amendment No. 83 being pressed?

It is not being pressed in view of what is in amendment No. 84.

Amendment, by leave, withdrawn.

I move amendment No. 84:

In page 157, to delete lines 11 to 54 and in page 158, to delete lines 1 to 5 and substitute the following:

"(iii) by the insertion of the following subsections after subsection (3):

‘(3A) The farm pollution control allowances to be made in accordance with subsection (2) during the writing-down period referred to in subsection (2)(b)(ii), in respect of capital expenditure incurred in a chargeable period, where that expenditure is incurred on or after 6 April 2000 shall, subject to subsection (3B), be an amount equal to–

(a) 15 per cent of that expenditure incurred for each of the first 6 years of the writing-down period, and

(b) 10 per cent of that expenditure for the last year of the writing-down period.

(3B)(a) In this subsection–

"residual amount", in relation to capital expenditure incurred in a chargeable period, means an amount equal to 50 per cent of that expenditure or £25,000 whichever is the lesser;

"specified amount", in relation to capital expenditure incurred in a chargeable period, means the balance of that expenditure after deducting the residual amount;

"specified return date for the chargeable period" has the same meaning as in section 950.

(b) Notwithstanding subsection (3A), where farm pollution control allowances are to be made to a person in accordance with that subsection during the writing-down period referred to in subsection (2)(b)(ii), such person may elect to have those allowances made in accordance with this subsection and, where such person so elects, the allowances shall be made in accordance with this subsection only.

(c) Where paragraph (b) applies to a person, the farm pollution control allowances to be made to such person during the writing-down period referred to in subsection (2)(b)(ii) shall be an amount equal to:

(i) 15 per cent of the specified amount for each of the first 6 years of the writing-down period, and

(ii) 10 per cent of the specified amount for the last year of the writing-down period, and

(iii) subject to paragraph (d), the whole or any part of the residual amount, as is specified by the person to whom the allowances are to be made, in any year of the writing-down period.

(d) The allowances to be made in accordance with subparagraphs (i) and (iii) of paragraph (c) or subparagraphs (ii) and (iii) of that paragraph, as the case may be, for any year of the writing-down period, shall not in the aggregate exceed the residual amount.

(3C)(a) An election by a person to whom this section applies in relation to the farm pollution control allowances claimed in subsection (3B) shall be made in writing on or before the specified return date for the chargeable period in which the expenditure is incurred and shall be included in the annual statement required to be delivered under the Income Tax Acts of the profits or gains from farming as set out in subsection (5).

(b) An election made under the provisions of paragraph (a) cannot be altered or varied during the writing-down period to which it refers.'.”.

This amendment also relates to the scheme of capital allowances for farm pollution control. As I have stated, the scheme was introduced in 1997 for farmers with respect to expenditure incurred by them in necessary pollution control measures. The pollution control scheme was extended in section 50 of the Bill as initiated to extend the scheme for a further three years to 6 April 2003 and also to provide for an increased first year expenditure limit of £40,000 which I announced in my budget speech of 1 December last.

Arising from the farm taxation undertakings in the Programme for Prosperity and Fairness, I am committed to the further enhancement of the scheme as follows: a reduction in the writing down period from eight years to seven years, an increase in the first year expenditure limit to £50,000 and the option to claim the lesser of 50% of expenditure or of the increased expenditure limit of £50,000 in a more flexible way over the writing down period.

I brought forward the amendment on Committee Stage to give effect to these changes in commitments. In the case of the extra flexibility sought, that amendment provided that the year one allowance could be taken in either of the first two years of the writing down period instead of being taken in year one only. During the debate on Committee Stage I undertook to look at this matter again with a view to providing even greater flexibility as to when this allowance could be claimed. I am glad to say that I have been able to make the necessary changes to ensure this allowance can now be taken at any time during the writing down period at the discretion of the farmer who has incurred the expenditure. Thus, a farmer will now be in a position to claim the allowances in the way that best suits his or her needs. My amendment ensures that the farm taxation undertakings in this area given under the Programme for Prosperity and Fairness are fully met and I therefore commend the amendment to the House.

I thank the Minister for tabling that amendment. There was certainly concern, particularly among the ICMSA.

It seems that the Minister has taken into account their concerns and that the amendment fulfils their understanding of the commitments given in the partnership negotiations. Will the Minister clarify one outstanding issue, which he may or may not have covered? I was concerned about a kind of limbo period emerging for the first five days of April.

That problem relates to the milk quota which will come up later.

Is the Minister amending that later?

We will be discussing it later, but this amendment relates to farm pollution.

I know but I have a number of concerns. The Minister has met the ones concerning pollution. I understand that the farmers' only other concern was that five or six day period.

My official tells me that it is more theoretical than real.

Will the Minister put that on the record and will the Revenue see it as a theoretical difficulty, thus deciding in favour of the farmers?

We will be discussing the matter later. I would like to take this opportunity to thank my officials, and one in particular, who dealt with the farm organisations, on reaching a satisfactory agreement on this matter.

Amendment agreed to.

Amendments Nos. 85, 86 and 87 are related and may be discussed together.

I move amendment No. 85:

In page 159, line 51, to delete "milk producer" and substitute "person on or".

These amendments relate to section 61 which I introduced on Committee Stage to provide a new scheme of capital allowances for expenditure incurred in the purchase of a milk quota under the proposed new national quota restructuring scheme which my colleague, the Minister for Agriculture, Food and Rural Development is introducing from 1 April next. The allowance will apply to a milk quota purchased from co-operatives or dairies as well as in the case of certain milk quota purchased directly from lessors who are currently leasing that quota.

Amendment No. 85 is a technical amendment to ensure that a person who has only commenced as a milk producer and who has purchased a milk quota will be entitled to the CAP allowance under the scheme. With effect from 1 April next, as part of the new national quota subsidy scheme, a milk quota will no longer transfer with land with some exceptions, such as in the case of a family transaction or the sale of a holding as a going concern. Amendment No. 86 is an anti-avoidance measure to ensure that the transfer of a quota between families does not benefit from the new capital allowances regime. With effect from 1 April 2000, it will no longer be possible for quota holders not engaged in milk production to temporarily lease their milk quota. With regard to a milk quota lease that expires on or after 31 March 2000 the lessee may purchase the milk quota from the lessor without the relevant land. Amendment No. 87 is a technical amendment to the definition of a qualifying milk quota purchased by a lessee and clarifies the two relevant Council regulations as separate and distinct and that the qualifications in relation to a leased quota can be under either regulation and not necessarily both.

Deputy Noonan expressed some concern on behalf of some of the farming organisations about the period between 1 April and 5 April.

The effective date, according to the Minister, is 31 March, but the tax year does not begin until 6 April. It is that no man's land.

One of my officials has given me a photo-copy of an article from The Farmer's Journal which states that this relief will be available for expenditure on or after 6 April 2000, that Pádraig Walsh said farmers should be aware of this, that new quota rules apply from 1 April 2000 and that farmers should plan their purchases accordingly.

The Department of Agriculture, Food and Rural Development has said that in any event there will not be a problem in practice. If there are problems the Revenue Commissioners can look after them under their discretionary powers.

Amendment agreed to.

I move amendment No. 86:

In page 160, line 3, after "agreement" to insert "with a lessor who is not a person connected (within the meaning of section 10) with that lessee".

Amendment agreed to.

I move amendment No. 87:

In page 160, line 11, to delete "and" and substitute "or".

Amendment agreed to.

Amendment No. 88 is consequential on amendment No. 90 and both may to be discussed together.

I move amendment No. 88:

In page 172, line 49, to delete "and".

In last year's Finance Act I gave the Revenue Commissioners new powers of access to financial institutions. The definition of financial institution in the relevant section only covered institutions licensed by the Central Bank and does not extend to institutions doing business here under the EU second banking co-ordination directive of 1993. Under this directive, credit institutions authorised by a member state of the EU may provide services either on a branch or cross-border basis to other members states without further authorisation from the regulatory authorities of the host country. I understand there are some 21 EU credit institutions operating on a branch basis in this State. These amendments revise the definition of a financial institution to bring these institutions within the ambit of the Revenue powers.

A section in last year's Finance Act gave the Revenue Commissioners special powers in investigating an offence. This power – which is in section 908A of the Taxes Consolidation Act, 1997 – involves obtaining a District Court order to allow access to material in a financial institution for the purposes of investigating an offence. It was modelled on a similar power available to the Garda under the Bankers' Books (Evidence) Act, 1879. Unfortunately, an amendment to that power in the Disclosure of Certain Information for Taxation and Other Purposes Act, 1996, was not taken into account. That amendment extended the type of material which could be accessed under a District Court order. These amendments rectify that omission and I commend them to the House.

Are these credit institutions which come under the supervisory control of the Central Bank? I understand that subsidiaries of foreign based banks are not controlled or supervised by the Central Bank.

They are authorised by the Central Bank. To ensure the Deputy gets the correct information I may come back to him about that. I recall something in the recesses of my mind that is along the lines of the Deputy's points. The officials with me are experts in taxation, not regulation. To be absolutely sure we will come back to the Deputy later.

Amendment agreed to.

I move amendment No. 89:

In page 173, line 39, after "audit" to insert "and the number of accounts which gives rise to this additional tax".

The sub-committee of the Committee of Public Accounts made a number of recommendations in its report and one was that the banks would pay the full amount of DIRT owed and that the Revenue would make an assessment of that. This amendment seeks to amend a section which implements another recommendation of that sub-committee, which was that Revenue would report back to the PAC. It details the headings under which that report would be made, including the amount of tax owed by each financial institution. This amendment provides for the Revenue to report on the number of accounts which gave rise to this tax.

I put this amendment down for debating purposes more than anything else, but I want a clear statement from the Minister on what the Revenue Commissioners are doing in assessing the financial institutions, to calculate the outstanding liability of DIRT not paid. How many financial institutions are being examined? I understand from the Committee Stage debate that Revenue had some kind of sampling system in place whereby a sample number of accounts were examined and the evidence was then extrapolated from that to raise an assessment against the bank. I understand from one bank, however, that every account with a deposit of more than £25,000 is being checked systematically. The senior banker who spoke to me said that Revenue had already checked more than 50% of the accounts with more than £25,000 in them and was proceeding. He did not have categorical information that every account would be checked, but if it was a sample it was extraordinarily large.

I want clarification on the modus operandi of the check. When it reaches the point where Revenue is satisfied it knows the outstanding liability of an individual bank, will the Minister outline what the procedures will be? Will there be a discussion at that point? If Revenue and the bank agree figures, is it automatic that both interest and penalties will apply or may Revenue exercise discretion? Is there a policy decision on interest charges and penalties?

When that hurdle is cleared, whatever the decision is, will Revenue settle with an institution that is willing to settle? Can we talk in terms of a full and final settlement without appeal mechanisms or recourse to the courts if both Revenue and the financial institution are inclined to settle and if the institution is willing to write the cheque to finish the matter? Can they finish the matter?

Will the Minister indicate the time frame? I gather from one of the Minister's earlier comments that Revenue expects to be finished some time in June or July and to report to the Public Accounts Committee by September. Will settlements with the financial institutions have to await the report back to the Public Accounts Committee or can they be done in the period between the end of the check and the report back – in other words, can a settlement be reached in the summer months, between June and September as I understand? Many people feel pressured at the moment. The publicly quoted companies involved have had a series of difficulties with share prices. There are newspaper stories that the main banks have an overhang of £1 billion. If that is believed in the financial capitals of Europe, one could understand why there would not be a great demand for shares in the principal banks. I would have thought that one of the main bank's potential overhang from DIRT liabilities would be quite small from what I saw in the Public Accounts Committee report. I know there is only so much the Minister can do in advance of going through the process, but he could give us as much comfort as he can by making the procedures transparent.

I am not clear about the interaction of the committee. Do the Revenue Commissioners intend to wait until the process we are going through is effectively finished or do they intend to give an interim report to the committee? Do they intend to say to the committee that they are continuing to debate a disputed assessment with an institution and that they will come back as soon as they have reached an agreed assessment? In the event of an assessment not being agreed without court proceedings, do they intend to report that to the committee? What information can the committee expect to receive from the Revenue Commissioners next September or October?

Section 904B empowers and requires the Revenue Commissioners to report before 1 November 2000 to the Committee of Public Accounts, the results of the look-back DIRT audit in the case of each financial institution, specifying the DIRT arrears levied, interest charged and penalties imposed, any comments considered to be appropriate and if any appeal has been lodged. This is, in essence, what the Committee of Public Accounts recommended in its report.

The power given to the Revenue Commissioners to conduct DIRT audits is set out in section 904A which I included in last year's Finance Bill. The focus of DIRT audits under that section is on checking a sample of non-resident accounts. The information gathered from checking the sample of non-resident accounts, together with the other information obtained by inspectors in the course of their audits, will lead to the estimation of the level of DIRT under-deducted by the financial institution. That, I imagine, would lead to discussions with the financial institutions concerned to seek agreement as to the DIRT liability. If such agreement was not forthcoming, an assessment would be raised by Revenue and if the assessment was appealed by the financial institution, it would be necessary for each side to put its case to the Appeal Commissioners for their determination.

The focus of the report to be made by Revenue to the Public Accounts Committee in November is on the DIRT arrears, interest and penalties arising from the look-back exercise and fully reflects the recommendation of the PAC. I cannot accept the amendment.

Deputies Noonan and McDowell raised various questions and we tried to cover these aspects on Committee Stage. There are more than 40 financial institutions at present. We are carrying out a stratified sampling exercise whereby there will be a weighted concentration on accounts of greater quantum. It is possible that certain financial institutions have a great concentration of deposit accounts above a certain figure. It is hoped to complete the investigation process by June or July of this year. The sampling work will be done by that date but the negotiations with the individual financial institutions will not be done at that stage. There will be the same discussions with the financial institutions as would apply in the case of individuals. If the financial institutions agree with the assessment and with the proposed interest penalties and costs, Revenue will have the power to agree these with the particular financial institutions. The Revenue Commissioners have the power at present to mitigate penalties which frequently happens in relation to individuals and other institutions. They will continue to have these powers. There is an appeals mechanism whereby if a financial institution does not reach agreement, the Revenue will raise an assessment, the assessment will be appealed and it will then go through the normal procedures.

The settlement will not be reviewed by the Committee of Public Accounts. However, various provisions in the Bill will be reported back to the committee. Section 68 amends Chapter 4, Part 38 of the Principal Act and section 904B at paragraph (3) reads:

". in respect of each such audit

(a) the name of the relevant deposit taker concerned,

(b) the amount of additional appropriate tax payable by the relevant deposit taker as a result of the audit,

(c) the amount of interest payable in respect of any such amount,

(d) the amount of any fine or penalty imposed by a court on the relevant deposit taker under the Tax Acts, or accepted by the Revenue Commissioners in place of initiating proceedings for recovery of such fine or penalty,

(e) whether an assessment has been made in respect of appropriate tax and, if so, whether the assessment has been appealed,

(f) whether the audit has been completed as at the date of the report,

(g) the amount of any payment on account of appropriate tax paid by the relevant deposit taker in anticipation of an audit being carried out or during the course of an audit, and

(h) such further particulars as the Revenue Commissioners consider fit.”

The Revenue Commissioners do not have to produce an interim report but they can publish the information at any time. If they decide on or before 1 November to publish the information, they can do so. They will report to the Committee of Public Accounts on 1 November but I hope the negotiations will be concluded by that date. It would be amazing if the negotiations had taken place and everyone was in agreement by that date, but Revenue will report back to the Public Accounts Committee on its progress by that date. The Public Accounts Committee will not decide on how the banks should be penalised but the Revenue will give it a full report. Revenue will then agree a settlement and proceed as it sees fit.

I thank the Minister for his helpful information. Has Revenue a policy that full interest charges and full penalties will apply or will it vary from institution to institution or from case to case?

I do not wish to get involved in what the Revenue will do in the case of each financial institution.

Is there a general policy?

Before the DIRT inquiry ever took place there was a code of conduct in existence as to how such matters should be proceeded with in relation to individuals and companies. That is the general policy which has been published.

By definition, the banks would have a liability in respect of bogus non-resident accounts and each bogus non-resident account has someone's name on it. When Revenue is finished with the institutions, is the intention to go after the individual account holder for the outstanding tax? Is it also the intention to go after them to establish the source of the money which was on deposit in the first instance?

That will have to be considered by the Revenue Commissioners in due course when they finish with the DIRT audit of the financial institutions. As to the pursuance of individual account holders, that issue will arise in the normal course. Handling that aspect is not top of the Revenue agenda at present. It takes many man hours to deal with one particular back duty case to which I referred earlier today. If one is dealing with a couple of hundred thousand cases dating back over 20 or 30 years, I do not know in what century would it be completed. This is something Revenue will have to consider. This was not referred to very often during the Committee of Public Accounts inquiry but I am pleased the Deputy raised it. The financial institutions were at fault in turning a blind eye to bogus non-resident accounts. However, the depositors of the money were guilty of tax evasion in the first instance. In 99.9% of cases the worry was not whether gross or net interest should be paid or whether there were bogus non-resident accounts, the worry was the underlying source of the deposits. There are thousands of bogus non-resident accounts. In an earlier debate today I referred to the multiplicity of accounts and tax evasion in general. That is something that the Revenue Commissioners will have to address in due course because it is their job to pursue each and every individual taxpayer without fear or favour. During the Committee of Public Accounts inquiry, in the lead up to it and in all the debates over the past two years, politicians in this House have taken it upon themselves to say quite often and quite stridently that the Revenue should go after everybody without fear or favour. That is a matter the Revenue Commissioners will have to consider in due course. It is possible that everybody who evaded tax will be investigated in due course. It is for the Revenue Commissioners to decide how they will go about it.

May I probe this a little further? I take it the Revenue now has authority to look at each and every non-resident account on deposit in this country. Is that simply for the purpose of assessing DIRT or does the Revenue have to seek further authority to look at any other tax matters which might arise in respect of those deposit holders?

We had to give them powers under the DIRT look back. This is getting down to the liability of the financial institutions. This was recommended by the Committee of Public Accounts inquiry as the way to go about it. When that exercise is completed, hopefully this year, the question then arises as to the underlying deposit holders and how the Revenue will go about that particular matter. I gave them plenty of powers in the Finance Act, 1999, to go after individual account holders, etc.

That is the point I am getting at.

There are plenty of powers.

For the sake of argument, if I have a non-resident account – which I do not – the Revenue obviously considers it currently has authority to look at that account as part of the look back procedure. Does it require further authority to look at where I got the money and at any other tax matters that might arise out of that account or the money held in that account?

Section 904(4)(a) of the Finance Act, 1999, provides that where an authorised officer in exercising or performing his or her powers or duties under this section has reason to believe that in respect of one or more deposits the relevant deposit taker has incorrectly treated them as not being relevant deposits, the authorised officer may make such further inquiries as are necessary to establish whether there is a liability in relation to any person.

There is a liability under any heading.

We will be visiting these matters again.

Amendment, by leave, withdrawn.

I move amendment No. 90:

In page 180, line 37, to delete "continues.'." and substitute the following:

"continues.',

(c) in sections 906(1) and 908A(1), by the substitution for the definition of ‘financial institution' of the following:

"‘financial institution" means–

(a) a person who holds or has held a licence under section 9 of the Central Bank Act, 1971,

(b) a person referred to in section 7(4) of the Central Bank Act, 1971, or

(c) a credit institution (within the meaning of the European Communities (Licensing and Supervision of Credit Institutions) Regulations, 1992 (S.I. No. 395 of 1992)) which has been authorised by the Central Bank of Ireland to carry on business of a credit institution in accordance with the provisions of the supervisory enactments (within the meaning of those Regulations);',

and

(d) in section 908A by the substitution for subsection (2) of the following:

‘(2)(a) In this subsection “documentation” includes information kept on microfilm, magnetic tape or in any non-legible form (by use of electronics or otherwise) which is capable of being reproduced in a permanent legible form.

(b) If, on application made by an authorised officer, with the consent in writing of a Revenue Commissioner, a judge is satisfied, on information given on oath by the authorised officer, that there are reasonable grounds for suspecting –

(i) that an offence which would result in serious prejudice to the proper assessment or collection of tax is being, has been or is about to be committed (having regard to the amount of a liability in relation to any person which might be evaded but for the detection of the relevant facts), and

(ii) that there is material in the possession of a financial institution specified in the application which is likely to be of substantial value (whether by itself or together with other material) to the investigation of the relevant facts,

the judge may make an order authorising the authorised officer to inspect and take copies of any entries in the books, records or other documents of the financial institution, or of any documentation associated with or relating to an entry in such books, records or other documents, for the purposes of investigation of the relevant facts.'.".

Amendment agreed to.

I move amendment No. 91:

In page 181, to delete lines 27 to 47 and substitute the following:

"‘(2B) Subparagraph (III)(B) of subsection (2)(a) shall not apply to –

(a) interest paid on or before 29 February 2000,

(b) an allowance to be made in respect of expenditure incurred on or before 29 February 2000, or

(c) a loss sustained in the year of assessment 1999-2000 which would have been the loss sustained in that year if–

(i) that year of assessment had ended on 29 February 2000, and

(ii) the loss were determined only by reference to accounts made up in relation to the trade for the period commencing on 6 April 1999 or, if later, the date the trade commenced and ending on 29 February 2000 and not by reference to accounts made up for any other period.

(2C)(a) In this subsection–

"excepted expenditure" means expenditure to which the provisions of section 409A apply and expenditure to which the provisions of that section or section 409B would apply but for the provisions of –

(i) section 409A(5), or

(ii) paragraph (a) of the definition of “specified building” in subsection (1) or (4) of section 409B,

as the case may be;

"specified deduction" means the deduction referred to in section 324(2), 333(2), 345(3), 370(3), 372E(3) or 372O(3) as the "second-mentioned deduction" or in paragraph 13 of Schedule 32 as the "further deduction";

"specified individual", in relation to a partnership trade, means an individual who is a limited partner in relation to the trade by virtue only of paragraph (d) of the definition of “limited partner”, and a reference to a specified individual shall be construed accordingly.

(b)(i) Subsection (2)(a) shall not apply to a specified individual to which paragraph (c), (d) or (e), as the case may be, applies to the extent that–

(I) the interest referred to in subparagraph (i) of paragraph (a) of that subsection is interest paid by the individual by reason of his or her participation in a trade referred to in paragraph (c), (d) or (e), as the case may be, in a relevant year of assessment,

(II) the loss referred to in subparagraph (i) of paragraph (a) of that subsection is a loss sustained by the individual in a trade referred to in paragraph (c), (d) or (e), as the case may be, in a relevant year of assessment,

(III) the allowance referred to in subparagraph (ii) of paragraph (a) of that subsection is an allowance to be made to the individual for a relevant year of assessment either in taxing a trade or by means of discharge or repayment of tax to which he or she is entitled by reason of his or her participation in a trade referred to in paragraph (c), (d) or (e), as the case may be.

(ii) Subsection (2)(a) shall not apply to a specified individual to the extent that –

(I) the interest referred to in subparagraph (i) of paragraph (a) of that subsection is interest paid by the individual on a loan where the proceeds of the loan were used by the partnership to incur excepted expenditure in a relevant year of assessment,

(II) the loss referred to in subparagraph (i) of paragraph (a) of that subsection arises from the taking into account for the purposes of section 392(1) of an allowance to be made in respect of excepted expenditure, or

(III) the allowance referred to in subparagraph (ii) of paragraph (a) of that subsection is an allowance to be made to the individual for a relevant year of assessment in respect of excepted expenditure.

(c) This paragraph applies to a specified individual where –

(i) the partnership trade consists wholly of the leasing of machinery or plant to a qualifying company within the meaning of section 486B, and

(ii) the expenditure incurred on the provision of the machinery or plant was incurred under an obligation entered into by the lessor (within the meaning of section 403) and the lessee (within the meaning of section 403) before 1 March 2001.

(d) This paragraph applies to a specified individual where in charging the profits or gains of the individual's several trade an allowance in respect of capital expenditure on machinery or plant to which the provisions of section 284(3A) apply has been or is to be made to that individual; but this paragraph shall not apply to such an individual as respects –

(i) interest paid by that individual on a loan taken out on or after 4 September 2000,

(ii) an allowance to be made to that individual for capital expenditure incurred on or after 4 September 2000, or

(iii) a loss sustained in the trade in the year of assessment 2001-02 or any subsequent year of assessment to the extent that the loss does not arise from the taking into account for the purposes of section 392(1) of an allowance to be made in accordance with the provisions of section 284(3A).

(e) This paragraph applies to a specified individual where in computing the amount of the profits or gains, if any, of the partnership trade a specified deduction has been or is to be allowed in respect of a premises occupied by the partnership for the purposes of the partnership trade, and –

(i) the individual became a partner in the partnership before 29 February 2000,

(ii) the individual made a contribution to the partnership trade before that date, and

(iii) the qualifying lease in respect of which a specified deduction has been or is to be allowed was granted to or acquired by the partnership before that date;

but–

(I) subject to clause (II), this paragraph shall not apply to such an individual as respects –

(A) interest paid by that individual in,

(B) an allowance to be made to that individual for, or

(C) any loss sustained in the trade for, any year of assessment for which a specified deduction in respect of the premises is not allowed in arriving at the amount of the profits or gains of the individual's several trade to be charged to tax or, as the case may be, the loss sustained therein or any subsequent year of assessment, and

(II) where in computing the amount of the profits or gains, if any, of the partnership trade a second-mentioned deduction (within the meaning of section 354(3)) may be made by virtue of section 354(3), this paragraph shall not apply to such an individual as respects–

(A) interest paid by that individual on or after 6 April 2004,

(B) an allowance to be made to that individual for the year of assessment 2004-05 or any subsequent year of assessment, or

(C) any loss sustained in that trade in the year of assessment 2004-05 or any subsequent year of assessment.'.".

The amendment modifies the transitional arrangements contained in section 70 of the Bill, which was introduced on Committee Stage. This section restricted the "sideways" set-off – that is set-off against other income – of certain partnership trading losses, capital allowances and entitlement to interest relief where a partner is merely a passive investor and is not actively involved in a partnership trade. I stress that the new section did not in any way impact on a taxpayer who is actively engaged in a partnership activity.

The purpose of my amendment on Committee Stage was to close off, once and for all, the use of passive partnerships for tax avoidance purposes. Deputies may recall that in the Finance Act, 1998, I closed off passive partnership tax shelters specifically involving films and oil/gas exploration. At the time I also issued, in a press release dated 28 February 1998, a very clear "yellow card" as regards new schemes. That press release stated:

If further similar abuses come to light in any other area of activity, the Minister said he will not hesitate to legislate against them with immediate effect.

Unfortunately the targeted and focused approach adopted in 1998 did not work. Variants of the same schemes have reappeared involving different activities and some changes in order to get around the 1998 Act restrictions. There are serious potential losses to the Exchequer if these schemes go unchecked. In one example given to me by Revenue a tax deduction of £113,749 – representing an actual tax saving of £54,600 – was available to a partner who had made a contribution of £25,000 – a 118% tax-free return on the partner's investment.

There is a long history of attempts by various Ministers for Finance to tackle the problem of avoidance schemes involving partnerships. Deputy Dukes started the process in 1986. His anti-avoidance measure in the Finance Act of that year was focused on limited partnerships – under the Limited Partnerships Act, 1907 – which were engaged in investment activities as diverse as ships, hotels and television series, and which were costing the Exchequer £35 million at that stage.

In February 1991, when Deputy Albert Reynolds was Minister for Finance, another avoidance scheme was launched which would have involved Irish limited partners investing in services to property companies in the United States. However, this scheme was abandoned due to unfavourable media publicity.

In 1992, when the Taoiseach was Minister for Finance, further action had to be taken against limited partnerships under section 23 of the Finance Act of that year. This provision further limited the offset of losses and capital allowances arising out of a limited partnership.

In 1994, the Taoiseach, as Minister for Finance at that time, had again to introduce further measures under section 29 of the Finance Act, 1994. That section brought certain schemes involving general partnerships within the scope of the limited partnerships anti-avoidance provisions.

As well as the action I took against film and oil/gas partnerships in 1998, Deputies may also recall that in 1998 I shut down the open-ended availability of capital allowances for passive investment in certain tax favoured buildings, such as hotels and buildings located in tax designated areas. At that time I completely ring-fenced capital allowances for passive investors in the case of hotels, except for seven north-western counties, and capped allowances available for sideways set-off at £25,000 in the case of buildings in tax designated areas.

While my amendment on Committee Stage this year was primarily aimed at very aggressive tax avoidance schemes involving film and music partnerships, I decided, in light of the history of partnership schemes which I have just outlined, to adopt a broad brush approach to the problems in this whole area. This includes property based or asset based partnership schemes set up to maximise special incentive reliefs, such as double rent relief. While tax incentives are there to be used and to encourage investment which would not otherwise be made in areas such as films, urban/rural renewal and high risk business expansion, I have a difficulty when incentives are used in highly artificial and "packaged" ways which can reduce effective tax rates on very high incomes to very low levels. That would be unfair to the general body of taxpayers and would work against the progressivity of the tax system. What I am doing in this area is entirely consistent with what I did in 1998 as regards ring-fencing capital allowances for passive investors.

However, since the text of the amendment on Committee Stage was published on 29 February I received a number of representations to the effect that the transitional arrangements may be too harsh in relation to certain property based or asset based partnership schemes, particularly schemes involving seaside resorts, car parks and other projects qualifying for double rent allowances, the white fish fleet, and renewable energy projects.

I understand that the Opposition spokespersons have also received similar representations. Having considered the various representations the Government has decided to bring forward the following amendments to the transitional arrangements. As regards existing seaside resort area partnerships, where a double rent allowance is being claimed the amendment provides that the ring-fencing restrictions for partnership losses, capital allowances and interest relief will not, in those cases, apply until the tax year 2004-5.

As regards existing partnership schemes involving car parks and other double rent projects outside the resort areas, the amendment provides that the ring-fencing restriction will not apply to partnerships qualifying for the double rent allowance until such time as the entitlement to that deduction ends. These transitional measures only apply to existing partnerships who have a qualifying lease, under the double rent allowance provisions, in place before 29 February.

As regards the white fish fleet, I brought in a scheme of accelerated capital allowances in 1998 for expenditure on BIM approved vessels, provided the expenditure is incurred before 4 September 2000 in the case of individuals leasing such vessels to fishermen. The amendment provides that the transitional arrangements for the white fish fleet will mirror the availability of accelerated capital allowances for that scheme – that is, expenditure before 4 September 2000 will be unaffected.

As regards partnerships involved in leasing equipment – for example, windmills – to renewable energy companies, the amendment provides that the ring-fencing restrictions will not apply where the expenditure was incurred under an obligation entered into between the lessor and lessee before 1 March 2001. I commend the amendment to the House.

I thank the Minister for a very full explanation, the first full explanation of this initiative. The Minister has traced the pedigree of the use of partnerships for tax avoidance purposes back to the 1980s when Deputy Dukes was Minister for Finance. The Minister has estimated that at that time the loss to the Exchequer was £35 million. He has traced the re-emergence of the difficulty through the periods when Deputy Reynolds and the Taoiseach were Ministers for Finance, to the present.

Since the roots of the use of partnerships for tax avoidance purposes is so deep and the practice so prevalent, the House requires an explanation of why this measure was introduced as a Committee Stage amendment. If this measure is a considered policy position, why did it not appear as a section in the Finance Bill as published? If this had been done, Opposition Deputies would have had an opportunity to take advice on the matter. It is difficult enough for Opposition spokespersons to deal with the Finance Bill when we learn of its contents in time, but when we learn of measures by way of Committee Stage amendments it is even more so. This case was particularly difficult. While the amendment was published on 29 February, it was taken in committee without debate and was dealt with by way of time motion when only amendments in the name of the Minister were taken. Therefore, this is the first discussion of this issue on the record of the House.

I thank officials of the Department of Finance and the Revenue Commissioners who put themselves at the disposal of the Opposition privately and took us through this informally. That was very helpful. Opposition Deputies who only learned of this measure on Committee Stage are being lobbied by tax practitioners who are far wiser in the way of tax avoidance than I am. This presents us with a difficulty.

The Minister's policy was to outlaw everything that could be avoided by way of partnership and then to allow injured parties to make their case so that adjustments could be made on Report Stage. This is what the Minister is doing by way of this amendment. The House decided that certain activities should be encouraged through the use of tax breaks. If the House decided that partners in multi-storey car parks should have a tax break, a catch-all provision should not remove that tax break. If it is Government policy to encourage multi-storey car parks by means of tax breaks, that should stand. The Minister has restored the policy sufficiently. The same should apply to holiday homes, the white fish fleet and so on.

I can accept the amendment. The Minister has done the best he can in the circumstances but his method of proceeding was less than satisfactory. If the House had had more notice of this, Deputies would have been better able to cope with it.

The Minister has extended the proposed double rent allowance to the year 2004-5. I suggest that the Minister extends it for another year. The period was originally ten years and the Minister has reduced it to four. Five years would be an acceptable compromise. The people who are lobbying Deputies could feel that their efforts had achieved something and we could accept the measure.

The Minister has been reasonable in amending the Committee Stage amendment. Is it reasonable for someone to claim allowance in respect of money actually invested, whether in holiday homes, multi-storey car parks or other projects? It is not reasonable when the losses on the investment are, through various mechanisms, overstated. The Minister tells us that it is not possible to prevent the ritual overstatement of those losses. As Deputy Noonan has said, we have no choice but to take the Minister at his word. I am in no position to suggest an alternative mechanism.

I accept the amendment. I agree that we have not had an opportunity to consider it in detail but it appears that the Minister has reached a reasonable compromise on the four issues he talked about earlier this evening.

There are many advantages to the self-assessment system. However, one of its disadvantages is that many tax avoidance mechanisms do not come to light until they have been put in place. In February when tax inspectors examine the files of individuals, the claims under various schemes come to light.

Tax breaks are given for multi-storey car parks, seaside resorts, urban renewal and so on. None of this has been changed. They are legitimate tax breaks for investments which the Government wishes to encourage. Members of my profession have used artificially contrived arrangements to create further tax breaks for their clients. I believe all is fair in love and war and that the taxpayer is entitled to minimise his tax liability to the best extent possible, using the law. Some time ago a section was inserted in a Finance Act to allow for any form of tax avoidance to be wiped out. In general, I believe that if a taxpayer can find a way of minimising his tax liability he is entitled to do so. On the other hand, when we find a tax avoidance mechanism we try to close it off.

I have given the history of the use of artificial partnerships going back to Deputy Dukes's time. In my first Finance Bill I introduced an overnight amendment which I thought would put an end to this abuse. I gave a warning about the use of artificial partnerships and particularly the use of limited partnerships after 1987 which were never intended for the purpose to which they have been put in the past ten years. When I find that warnings are not being heeded and that abuse is continuing, my policy is to abolish the tax incentive scheme completely. That was the effect of the Committee Stage amendment.

The present amendment introduces reasonable transitional arrangements and I believe this is the proper course. Many interesting schemes have been used over the years and people have made enormous returns. We will leave those for another day. I give a general warning to tax practitioners. If I signal that I suspect abuse of a particular scheme I will abolish the scheme completely if the abuse continues.

Will the Minister extend the transitional arrangement to 2005-6?

No. The transitional arrangement is quite generous.

Amendment agreed to.

I move amendment No. 92:

In page 184, lines 52 and 53, to delete "paragraph (a)” and substitute “subparagraph (i)”.

This amendment corrects a minor technical drafting error involving an incorrect cross-reference.

Amendment agreed to.
Amendment No. 93 not moved.

I move amendment No. 94:

In page 236, to delete lines 41 to 51, and in page 237, to delete lines 1 to 18 and substitute the following:

"(b) in respect of expenditure incurred on the construction or refurbishment of a building or structure or a qualifying premises where such building or structure or premises is in use for the purposes of a trade, or any activity treated as a trade, carried on by the person who is entitled to the relevant interest, within the meaning of section 269, in relation to that expenditure and such trade or activity is carried on wholly or mainly–

(i) in the sector of agriculture, including the production, processing and marketing of agricultural products,

(ii) in the coal industry, fishing industry or motor vehicle industry, or

(iii) in the transport, steel, shipbuilding, synthetic fibres or financial services sectors,

or

(c) in relation to any building or structure or qualifying premises which is provided for the purposes of a project, the regional aid for which is limited under the 'Multisectoral framework on regional aid for large investment projects' prepared by the Commission of the European Communities.”.

Amendment agreed to.

We now proceed to amendment No. 95. Amendment No. 96 is related to amendment No. 95 and they may be discussed together by agreement.

I move amendment No. 95:

In page 237, between lines 46 and 47, to insert the following:

"90.–The Principal Act is hereby amended in Schedule 8A by the insertion of the following after Part 5:

‘PART 6

Description of qualifying rural areas of Kerry

The District Electoral Divisions of Tarbert, Carrig, Asdee, Beale, Gullane, Killehenney.'.”.

These amendments are dictated by constituency considerations. They seek to extend in Deputy Deenihan's constituency the upper Shannon tax scheme to districts in the lower Shannon Estuary in north Kerry – Tarbert, Carrig, Asdee, Beale, Gullane and Killehenney. Deputy McGrath wants the administrative County of Westmeath included in the same scheme for tax break purposes.

The Minister knows exactly what I am going to say. The upper Shannon rural renewal scheme is meritorious. Deputy McGrath and I have been trying for the past two years to have it extended to include, for technical reasons, the administrative County of Westmeath but the Inny basin in north Westmeath, in particular, which is a defined segment. The River Inny is one of the major tributaries of the Shannon. I salute all the areas included but I was flabbergasted and astounded when the Inny basin was excluded given that the population of the area has fallen significantly by between 35% and 40% as a result of mass migration.

I am very surprised that Senator Cassidy who lives in the area has not brought this matter to the attention of the Minister. When it was raised by Deputy McGrath and I at Westmeath County Council we took it as read that Senator Cassidy would bring it to the attention of the Minister, that our worries would be eased and that we would not have to worry him on a night like this, but lo and behold nothing has happened. We make this appeal for the third time. Why was the area in question, which stretches from my village of Ballynacargy through Rathowen, Lisryan, Lismacaffry, Multyfarnham, Coole and Castlepollard, excluded from the scheme?

It has come to my notice that industries which might otherwise be attracted to the area are gravitating towards a neighbouring county which is included in the scheme in its entirety. Such industries are required to arrest the significant decrease in population. The area, which suffers from other disadvantages such as the lack of transport services, was the hub of activity at Coolnagun Bord na Móna and suffered huge job losses in the 1980s. Much work is being done at county level to attract industry to the area. It would be very disheartening if industries which might otherwise be attracted to it located in areas covered by a rural renewal scheme.

What is the take up in those areas which have been included in the scheme? The Minister should take Deputy McGrath and I at our word and as a gesture of goodwill include the defined segment of north Westmeath to which I have referred. If need be we can supply him with a map.

I am happy to support the amendments in the hope the Minister might be generous and in a good mood at this late hour on 8 March, Ash Wednesday, and see fit to include part of County Westmeath in the scheme. As Deputy Penrose said we had a difficulty framing the amendment in the sense that a defined area had to be included. It is being made very clear however that there is a major crisis in a small portion of north Westmeath – to a great extent, the Coole electoral area but the area that borders on counties Cavan and Longford, in particular, from which there has been significant migration which has resulted in devastation. The statistics show that the population of the area declined by 23% in the late 1980s.

The beautiful village of Finnea on the County Cavan border is divided by a bridge with which the Leas-Cheann Comhairle is very familiar. One side of the village is in County Cavan while the other is in County Westmeath. County Cavan is included in the rural renewal scheme. Thankfully, a number of industries have been attracted to the area. I mention the Crumb Factory in particular which was built from nothing by a local man who now employs about ten people. He has reached the stage where he wants to invest and expand. The question he has to look at is whether he should relocate 100 yards away on the far side of the bridge in County Cavan. Because of its tax designation status this would certainly prove worthwhile. As things stand he cannot avail of the same tax breaks in County Westmeath.

What I find depressing about canvassing in the main village is that many houses are unoccupied. The same applies to the main street of Clonmellon on the County Meath border but in the same electoral area and, to a lesser extent, Delvin, which is starting to pick up. Ideally the entire Coole electoral area which includes Finnea, Delvin, Rathowen, Lismacaffry, Clonmellon and Castlepollard should be included in the rural renewal scheme. Should it not prove possible to include it the Inny basin, which is a defined segment, should be considered as an alternative. About ten years ago a study of the area was conducted. It highlighted the need for improvements and the need to attract projects to the area. That study is available as are the various maps, etc., associated with it.

The biggest disappointment from our point of view was that when the Finance Bill was published there was no mention of this area. We had been led to believe it was in the bag. Senator Cassidy, the Leader of the Seanad, indicated clearly that this was just a matter of him talking again to his good friend, the Minister for Finance, Deputy McCreevy, and there would be no problem delivering in this area. Regretfully when the Bill was published we saw that it was left out. We are really helping the Minister because I know Senator Cassidy has strongly made the case to him; it obviously slipped the Minister's mind. We tabled that amendment and the Minister will be able to accept it knowing the commitments which have been given in County Westmeath. Knowing of the need for it in County Westmeath and the representations which have already been made to him by his good friend in the Seanad, I ask the Minister to possibly include the Coole electoral area or, if not, at least the Inny basin in County Westmeath for rural renewal.

On amendment No. 95, this scheme is one which I promoted strongly when I was Minister of State at the then Department of Agriculture, Food and Forestry. At that stage I set up a task force on rural development policy which led to the subsequent White Paper of this Government. This is a scheme which I suggested should be put in place and the Minister, Deputy McCreevy, to his credit, did so without pressure from anyone, as he said himself.

Against advice from everyone.

I totally agree with him anyway.

It shows the wisdom of disregarding advice.

I was inspired by one place, in particular, and the Minister, because of his knowledge of football, would be familiar with this particular place, Ballylongford. Great footballers came out of there, but unfortunately they may not be coming out of there in the future because the population has halved.

The O'Donoghue's are from there.

Yes, and the Walsh's and all those great people. Deputy McGrath spoke about the villages in Westmeath, but the population of Ballylongford has halved. All along the Shannon Estuary, from Tarbert and Ballylongford right back to Asdee, Beale and Ballybunion, which was once a densely populated area, the population has declined because the traditional indigenous sources of employment like hardware stores, bakeries, local creameries, etc., have closed and there is nothing to replace them. As a result the population is completely demoralised.

There were great expectations that something would happen in the Shannon Estuary. There are approximately 600 acres held in public ownership there but, despite various promises, nothing has materialised. For that reason, this scheme, which is a saviour for rural areas, should apply to other parts also.

I know the Minister is under a great deal of pressure to extend this scheme to north Cork, for example – I met a delegation coming in to meet the Minister fairly late one evening – and to other parts. The justification for the inclusion of this particular area and the DEDs which I am proposing at this part of the River Shannon, that is, the Shannon Estuary, is that the scheme should not be confined to just one part of the River Shannon, that is, the upper River Shannon. It should also be equally applied to the lower regions of the River Shannon. If it can be applied to that part of north Kerry, that is, Ballylongford and Tarbert, it can also be applied to the Clare area. My amendment applies to Kerry only. I look forward to the Minister's comments on this proposal.

The purpose of these amendments is to extend the definition of "qualifying rural area" for the proposes of the scheme of tax reliefs which has as its aim the renewal and invigoration of certain rural areas on the lines of the renewal schemes which had previously been available in an urban context.

This scheme is targeted – on a pilot basis – at parts of the upper Shannon region. The pilot scheme, as introduced, covers all of the counties of Leitrim and Longford as well as certain areas in counties Cavan, Roscommon and Sligo based on a district electoral division basis. In all, 150 such divisions are included: 38 in west Cavan, 77 in Roscommon and 35 in south Sligo. This, by any standard, is a significant area of the country in the context of a pilot scheme.

Amendment No. 95 seeks to add certain district electoral divisions in County Kerry to the scheme and amendment No. 96 would add County Westmeath to the scheme. A similar proposal to add this county was made on Committee Stage of the Finance Act, 1999.

I was not in a position to increase the area in 1999 and the position remains the same now. The greater the area that is designated, the more diluted the impact of the incentive scheme. If the geographical scope of the measure is too wide, it will not achieve the aim of the scheme, which is an attempt to renew and invigorate parts of the upper Shannon region.

To follow the line proposed in the amendments could result in rural areas from all parts of the country seeking to come within the scope of the rural renewal initiative. Additions to the scheme in this manner would be incompatible with the proposals for rural renewal as envisaged when I announced the scheme. At that time I stated clearly the area in which the new arrangements would apply, that is, in the upper Shannon. I do not doubt for a moment that there are other areas which would benefit from this type of incentive package, but I am not in a position to provide for an enlargement of the area already earmarked for the scheme. I regret, therefore, that I am not in a position to accept the amendments.

I was asked a question about the up-take of the scheme. The business incentives were agreed by the European Commission only in July 1999. Therefore, I would not have any figures in that regard. From my travels around the country I know that in certain parts of the designated area there has been considerable up-take.

It is a generous scheme. I explained on many occasions that I have been advised to proceed accordingly otherwise I would have to extend it to the whole country. I have received representations to have other areas included from the time I announced the scheme. One of the most decent Deputies is Deputy Matt Brennan and I split his parish in half because it is done on a DED basis and he lives just outside the area. I have not been able to accede to the request of my very good friend, Deputy Matt Brennan, and have, in fact, partitioned his parish. When I was not able to succumb to the wishes of Deputy Brennan, I am not able to accede to these either. I know if I move the line by one inch, I would have to do so all over the country as the former Minister, Deputy Quinn, had to do with seaside resorts in the first place and then with regional airports. It is my intention to stick to the areas included in the pilot scheme until it runs out. I take Deputy Penrose's word that there are certain parts of his constituency which could do with this particular incentive, but it is my intention that the areas now defined will last until the end of the pilot scheme.

I support the principle underpinning the amendment. I do not have any difficulty with the idea of tax incentives focused on a particular geographic area to encourage economic activity. I suppose if the economy was not as prosperous as it is, some of these schemes would not work. It is hard to distinguish between what is being delivered by the tax incentive and what is being delivered by the general boom in the economy, which is reaching out now from the main centres of population into other areas. We are anxious to proceed to other sections of the Bill, but I ask the Minister to indicate that, when the period is completed for this pilot scheme, he would not be averse to making the kind of extensions in future along the lines suggested by the Deputies who spoke on behalf of their constituencies. Indeed, many of us could make a case for areas in all constituencies.

I suggest that the Minister set up yet another expert group, which in this case can be justified, to look at the effects of the pilot scheme and then look at its general application to other parts. It should do so in the context of falling population, underemployment and other factors rather than geographic criteria. Then he could put together an important scheme for rural areas.

I will certainly consider the points raised. I assure the Deputies that I am not averse to creating some future focused scheme. I am a little worried about expert groups because if I listened to them all, many of these schemes would never be created. Sometimes it is better to take the advice of one's political friends, even from across the floor. I will look at those matters.

Deputy Deenihan has touched on an important point. I made the point, not entirely facetiously, on Committee Stage regarding the urban renewal scheme and the town of Lisdoonvarna with which I am familiar. When we are looking at the effect of these schemes we must look not just at the area at which it is targeted but at the immediate adjacent areas. The difficulty for a town like Lisdoonvarna is that it will lose investment to adjacent towns such as Ennistymon that have the designation. The only way to get around it is to establish criteria that will be applied generally rather than doing it on a crude geographical basis.

Whether they deal with issues such as under-investment, loss of population or whatever, we must develop criteria rather than just picking out lines on maps.

Amendment, by leave, withdrawn.

I move amendment No. 96:

In page 237, between lines 46 to 47, to insert the following:

"90.–The Principal Act is hereby amended in Schedule 8A by the insertion of the following after Part 5:

‘Part 6

Description of qualifying rural areas of Westmeath

The administrative county of Westmeath.'.”.

Amendment, by leave, withdrawn.

I move amendment No. 97:

In page 240, line 46, after "such" to insert "other".

This is a technical amendment which clarifies section 94(3) for the purposes of allowing the Revenue Commissioners to prescribe a date by which claims for retrospection of payment of excise duty under the passenger road service fuel relief scheme must be made. The amendment is desirable to clearly distinguish between a date back to which provision is made for the Revenue Commissioners to be allowed to grant further retrospection and a date which the Revenue Commissioners may prescribe as a deadline by which claims for repayments may be made.

Amendment agreed to.

I move amendment No. 98:

In page 249, line 46, to delete "Subject to paragraph (e) and regulations, the” and substitute “The”.

This minor amendment to section 112 is necessary to delete a cross reference which was erroneously left in the text of the Bill as published. The cross reference is superfluous and the deletion of it gives more clarity and precision to the provisions contained in the paragraph.

Amendment agreed to.

I move amendment No. 99:

In page 250, line 38, after "residual tax" to insert ", determined by the formula in subsection (3),".

This minor amendment to section 114 is necessary to insert a cross reference into section 12C(1A) of the VAT Act. The cross reference clarifies that a taxable dealer who is entitled to deduct the residual tax contained in the purchase price of agricultural machinery should use the formula provided for in section 12C(3).

Amendment agreed to.
Amendments Nos. 100 to 102, inclusive, not moved.

I move amendment No. 103:

In page 253, between lines 11 and 12, to insert the following:

125.–Section 157 of the Principal Act is hereby amended by the deletion of ‘or oath' and the insertion therefor of ‘, oath or affirmation'.".

The Minister agreed on Committee Stage to look favourably on this and so on that understanding I will withdraw the amendment.

Amendment, by leave, withdrawn.
Amendment No. 104 not moved.

I move amendment No. 105:

In page 259, between lines 31 and 32, to insert the following:

137.–Section 53(1) of the Principal Act is hereby amended by the insertion after ‘taxable gifts' of ‘or taxable inheritances'.".

This deals with the issue of taxable gifts and inheritances and the minimalist rule. When we debated this on Committee Stage the Minister spoke about the need to restrict the payment out of trusts, discretionary trusts in particular. It seems, having spoken to tax practitioners since, that it should be possible to delimit this so that only one payment out of a small inheritance would be possible from a trust set up by a disponer rather than allowing for a payment out on an annual basis. That should allow us to introduce the concept of a minimum inheritance that could be taken tax free.

The intention of this amend ment is to introduce a small inheritance exemption similar to that which operates for small gifts. At present a gift up to £1,000 in any one year may be taken by a donee from a disponer without incurring a charge to capital acquisitions tax. No such exemption operates in relation to inheritance tax. The extension of such an exemption to include small inheritances could open up substantial possibilities for tax planning. A discretionary trust set up under a will trust could be used to appoint assets valued at £1,000 in successive years over a prolonged period and by doing so avoid a charge to mainstream inheritance tax.

The only way the Revenue Commissioners could envisage restricting a small inheritance exemption to a once-off case would be to apply the exemption to every inheritance and this would cost £4 million in a full year taking into account the substantial changes I am making to the capital acquisitions tax code in the Bill. However, the matter will be considered further before next year's Finance Bill. It is worth bearing in mind that the new group 1 threshold being introduced in this Bill will exempt an inheritance of up to £300,000 from tax. For these reasons I am opposing this amendment. However, as I said, I will consider it further in the light of next year's Finance Bill.

The minimalist rule would only come into play in circumstances where someone had already inherited, typically from a stranger in blood, the full amount of the threshold in that amount.

I see some merit in Deputy McDowell's argument.

Amendment, by leave, withdrawn.

I move amendment No. 106:

In page 259, to delete lines 32 to 42, and in page 260, to delete lines 1 to 9.

Amendments Nos. 106 to 108 deal with inheritance tax and the changes the Government and the Minister have made. I am in some difficulty in this regard. The amendments that I would have looked to propose have been ruled out of order. What I sought to do was provide that, while accepting the Minister's major reform in relation to a shared family home, that would, in fact, satisfy the entire threshold amount. If you were to inherit the home in which you lived from an aunt or uncle while that would be free from tax as long as you lived there, it would be considered towards your threshold amount and you would pay CAT on any amount in excess of the family home. Unfortunately, the amendment has been ruled out of order for reasons that are well established in precedent but which I do not understand so I am left, in a sense, just objecting to the Minister's proposals.

I put on record that the Minister has gone further than he needed to in reducing the impact of CAT. Inheritance tax is ultimately a redistributive tax. The Minister has torn the guts out of it and that is something I and my party cannot support. He has gone beyond what needed to be done in order to ameliorate the impact in particular cases on the family home.

Amendment, by leave, withdrawn.
Amendment Nos. 107 and 108 not moved.

I move amendment No. 109:

In page 267, line 35, to delete "£300,000" and substitute "£400,000".

The threshold for inheritances received by immediate relatives, sons or daughters or parents, is £150,000 and the present index value of that is about £198,000. The Minister proposes to increase that to £300,000. That does not reflect the rate of increase in property values. Deputy Deenihan and I propose a threshold of £400,000. I have also argued that instead of having three class thresholds it would be better to have two but the Minister dealt with that adequately on Committee Stage.

I had strong representations from the Kerry Hotels Federation on the issue of inheritance tax. I did not have an opportunity to mention it on Committee Stage. They believe that the threshold should have been increased to £1 million to reflect inflation over that period and also the increase in the value of hotels, guesthouses and bed and breakfast accommodation. Perhaps that is reflected more in the Killarney area than other parts. I realise they would have major business relief but the Minister might refer to that aspect. They believe the cost involved is prohibitive where it is being transferred on to a family member.

I support this. Given the major increases in property prices in recent years the measure should be updated and placed on a realistic footing. I hope the Minister will take the amendment into account, which is realistic given the increase in prices, etc. As Deputy Deenihan said, there is not much point in a person getting a business which will end up like an albatross around their necks for the rest of their lives. People find it hard enough to survive in business, and there is not any point in putting a business in jeopardy. It would be better for the State to allow people the opportunity to trade successfully without this hanging around their necks.

As the Minister will undoubtedly remind us, there are already provisions to deal with agricultural land and family businesses, with a substantial remission in tax. There is also an exemption in relation to a home in which a person lives and continues to live after the death of the disponer. It seems this is one of those taxes which people only support as long as it affects almost nobody.

That is a very fair point.

To a considerable extent this takes away the point of the tax in the first place. Deputy Belton asked why people should have to go through life with an albatross around their necks in terms of tax. Why should somebody be entitled to take a business, rather than having to go out and create one? There are people who must start from nothing, borrow money and build up a business. They are at a considerable disadvantage vis-à-vis somebody who simply gets handed a business because he was related to the person who owned and ran the business prior to death. Perhaps my view is too fundamentalist, but I regard inheritance as not much more than the cascade of privilege down through the generations. If that is to happen then the very least we can do is have a tax take as it cascades downwards.

In section 145 I have provided for increased thresholds and for a single 20% rate of tax. Taken together the new group thresholds, particularly the group 1 threshold of £300,000, and the 20% rate of tax will substantially reduce the liability of beneficiaries to capital acquisitions tax. When the dwelling house exemption provided for in section 151 is taken into account, the package of measures in the Bill constitutes the biggest single reduction in the incidence of capital acquisitions tax since its introduction in 1976. Accordingly, I oppose the amendment.

As Deputy McDowell recognised on Committee Stage, I have introduced fundamental changes to the capital acquisitions tax code. He said I had taken the heart out of the code. On Committee Stage and previously, and in line with what Deputy Belton said, I said I prefer to tax people when they are living and not worry about when they pass on.

We are talking about tax on the recipients.

The origins of this tax was estate duty, the premise of which was that much of the wealth of the country was confiscated by our near neighbours and we felt we should get a lump of their money when they passed on, and maybe that was good. However, I do not go along with the concept today, and I do not agree with Deputy McDowell's idea regarding CAT. That is why I have made significant changes this year.

Deputy McDowell's party leader also made very significant changes regarding CAT in terms of 90% business relief and 90% agricultural relief. It is surprising he did not go the full way and introduce relief of 100%, as the relief is very generous. In terms of business relief, I have introduced a new threshold of £300,000 in the context of a father and daughter or father and son. Under this a business up to £3 million could be transferred to a son or daughter. The rate of 90% relief was not initiated by me, but by Deputy McDowell's party leader, and I do not necessarily think the Deputy agrees with it.

On Committee Stage Deputy Noonan mooted the idea of two classes, something he also mooted some time ago before the budget. On account of all the changes to CAT, and given that the major money comes from the class 2 threshold, ie, between uncles and aunts to nephews and nieces, I decided not to make any move to reduce the classes to two. However, I am well disposed to narrowing it further and I may address this area in future Finance Bills.

Deputy Deenihan mentioned the Kerry Hotels Group. As Minister for Tourism and Trade I remember meeting the Kerry Hotels Federation on a number of occasions, and apart from tourism issues, this issue was raised on a few occasions in 1993 and 1994. They must be more pleased with the changes I have made this year to CAT.

Regarding Deputy Belton's point, due to business relief a pretty substantial amount of money can be transferred.

Amendment, by leave, withdrawn.

Amendment No. 110 is in the names of Deputies Noonan and Deenihan. Amendment No. 111 is related and both amendments may be discussed together by agreement.

I move amendment No. 110:

In page 270, line 8, to delete "£40,000" and substitute "£60,000".

I welcome the Minister's initiative to raise the threshold for exemption from probate tax from £10,000 to £40,000. However, in line with his general policy which favours doing things in big bites rather than nibbles, he should have reflected what a small estate is, and I think a figure of £60,000 would be more appropriate. Contrary to his own position he has pitched the figure too low. We would all agree to the increase as probate tax is a very serious imposition on persons who inherit very small amounts from parents, etc.

I propose to speak about amendments Nos. 110 and 111. Section 147 provides for an increase in the probate tax exemption from £11,250 up to £40,000, the largest increase of its kind since the tax was introduced in 1993. This increase must be taken in the context of the other major CAT changes which will be made this year. The package of measures in the Bill will do much to alleviate the burden of CAT. We have new group thresholds, with the group 1 threshold now being £200,000, with a new single rate of 20% and a new generous dwelling house exemption provided in section 151. For these reasons I cannot accept the Deputies' amendments.

I considered scrapping probate tax altogether. It was introduced in 1993 for very good reasons but I more or less thought it was a return to the old estate duty idea which involved lumping all the money together and taking an amount from it. I did not like it from the day it was initiated. However, when I added the cost of the various changes we are making to CAT I decided not to scrap the tax at this stage. However, my views on probate tax are on record and are exactly the same as my views when I was in Opposition. I do not like the notion of probate tax and like it even less than CAT.

Amendment, by leave, withdrawn.
Amendment No. 111 not moved.

I move amendment No. 112:

In page 270, between lines 19 and 20, to insert the following:

"(a) in subsection (1) of section 127, by the insertion of the following paragraph for paragraph (f):

‘(f) quoted shares in or securities of a company incorporated in the State.',”.

This is the result of a submission by one businessman and previously I put it informally to the Minister. It relates to a publicly quoted Irish company where the managing director/chief executive owns 24% of the shares. It has a very high capital value and employs between 2,000 and 3,000 people. Like any father he would like to transfer the business to his family, but he is not eligible for business relief because of the cut-off date, which I think is 1994. I am advised this amendment would get over that anomaly. I cannot understand why such an anomaly should exist, unless I am missing some policy consideration.

The purpose of the amendment is to grant CAT business relief of 90% to shareholdings in companies which are quoted on the stock exchange. CAT business relief was introduced in order to alleviate the problems with businesses caused by the imposition of a 40% CAT charge on capital values. In order to fund such a liability the business concerned might have to be sold, go into liquidation or else be re-financed to such an extent as to threaten its future viability. Quoted companies do not have to face the same problems. Share in such companies can easily be sold on the stock market. The fund's CAT liabilities do not have any effect on the viability of the underlying business. This is why quoted shares do not qualify for business relief. However, as the Deputy may be aware, certain quoted shares already qualify for relief provided they were unquoted when they were acquired by the disponer or on 23 May 1994, the date the Finance Act, 1994, was passed, whichever is the later date. The reason for this exemption was to avoid discouraging unquoted companies from subsequently floating on the Stock Exchange. However, I understand the purpose of this amendment is to grant relief to all quoted shareholdings, even those which were already quoted on the Irish Stock Exchange on 23 May 1994. Accordingly, I oppose the amendment.

There is a strong economic case to be made for encouraging companies to obtain capital through being publicly quoted and, in this case, it allowed a company to expand from a small base, make a major contribution to the economy and employ approximately 2,500 people. This is a penalty. If this man had made a decision to remain a limited company and did not expand as much as he did, the company would probably be worth less, but in terms of transferring it to his heirs he would get a much better deal because he would qualify for business relief. It is late now to debate it fully but I will forward the correspondence to the Minister and I would like him to consider it for next year.

I will consider it.

There is a real problem there.

Amendment, by leave, withdrawn.
Amendment No. 113 not moved.

I move amendment No. 114:

In page 272, line 44, after "or" where it firstly occurs, to insert ", in the case of an inheritance, that dwelling-house has been occupied by the individual as his or her only or main residence preceding".

I have serious doubts about the requirement for a person availing of the exemption from inheritance tax to be resident in the family home he or she inherits for several years before the death of the disponer. It is not necessary. The Revenue are fully familiar with the notion of principal primary residence and it seems that if it is a person's principal primary residence on the day of the death of the disponer and if the onus of proof that it is such a residence is on the beneficiary, that should be sufficient. The Minister will experience many problems. Someone will reside in the house for two years and 11 months and he or she will be excluded and there will be a great deal of lobbying.

It is not necessary because the other concept is one with which the Revenue is familiar. The onus of proof would be on the beneficiary. He or she would have to show that it was his or her residence on the day prior to the death of the disponer and that would be done in the traditional manner. In other parts of the tax code, people must do that.

If any problems arise in regard to this issue I undertake to examine them because it should be a matter of fact whether it is one's principal primary residence. One cannot have two. The Deputy is also making the case that the three year residency requirement might present a problem. I thought three years was quite a reasonable period in order to prevent people from getting involved in tax planning exercises but I am willing to examine the matter before next year's Finance Bill in light of some difficulties that might arise.

It is or it is not and the onus of proof should be on the beneficiary. It is then up to the Revenue to make the decision. There is no need for the three year requirement as it will give rise to great anomalies.

I will examine it again.

Amendment, by leave, withdrawn.

I move amendment No. 115:

In page 274, between lines 44 and 45, to insert the following:

"154.–Section 944A of the Taxes Consolidation Act, 1997 (inserted by section 134(1)(a) of the Finance Act, 1998) is hereby amended by the deletion of ‘may make arrangements for the publication of reports of such of their determinations as they consider appropriate,' and the substitution therefor of 'shall make arrangements for the publication of reports of their determinations,'.".

Have there been any developments since we discussed this on Committee Stage? The Minister indicated that it was the intention of the Revenue to publish a number of cases in the next week or two. Has that happened or has there been any further progress?

I have nothing to add to what I told the Deputy on Committee Stage, except that I am given to understand that with the assistance of the Institute of Taxation a website is available and the appeals commissioners will determine the date but it will be made available in the next two weeks. I understand that 30 determinations will be made available then.

Amendment, by leave, withdrawn.
Bill reported with amendments and received for final consideration.
Question put: "That the Bill do now pass".

Ahern, Dermot.Ahern, Michael.Ahern, Noel.Ardagh, Seán.Aylward, Liam.Blaney, Harry.Brady, Johnny.Brady, Martin.Brennan, Matt.Brennan, Séamus.Browne, John (Wexford).Byrne, Hugh.Callely, Ivor.Carey, Pat.Collins, Michael.Cooper-Flynn, Beverley.Coughlan, Mary.Cullen, Martin.Daly, Brendan.Davern, Noel.de Valera, Síle.Dennehy, John.Doherty, Seán.Ellis, John.Fleming, Seán.Flood, Chris.Foley, Denis.Fox, Mildred.Gildea, Thomas.Hanafin, Mary.Haughey, Seán.Healy-Rae, Jackie.Jacob, Joe.Keaveney, Cecilia.Kelleher, Billy.Kenneally, Brendan.

Killeen, Tony.Kirk, Séamus.Kitt, Michael.Kitt, Tom.Lawlor, Liam.Lenihan, Brian.Lenihan, Conor.McCreevy, Charlie.McDaid, James.McGennis, Marian.McGuinness, John.Martin, Micheál.Moffatt, Thomas.Moynihan, Donal.Moynihan, Michael.Ó Cuív, Éamon.O'Dea, Willie.O'Donoghue, John.O'Flynn, Noel.O'Hanlon, Rory.O'Keeffe, Batt.O'Keeffe, Ned.O'Kennedy, Michael.O'Malley, Desmond.O'Rourke, Mary.Power, Seán.Reynolds, Albert.Roche, Dick.Ryan, Eoin.Smith, Brendan.Smith, Michael.Treacy, Noel.Wade, Eddie.Wallace, Mary.Woods, Michael.Wright, G. V.

Níl
Allen, Bernard.
Barrett, Seán.
Bell, Michael.
Belton, Louis.
Boylan, Andrew.
Bradford, Paul.
Broughan, Thomas.
Bruton, Richard.
Burke, Ulick.
Carey, Donal.
Clune, Deirdre.
Connaughton, Paul.
Cosgrave, Michael.
Coveney, Simon.
Crawford, Seymour.
Creed, Michael.
Currie, Austin.
D'Arcy, Michael.
Deenihan, Jimmy.
Dukes, Alan.
Durkan, Bernard.
Farrelly, John.
Ferris, Michael.
Finucane, Michael.
Flanagan, Charles.
Gilmore, Éamon.
Gormley, John.
Hayes, Brian.
Higgins, Jim.
Higgins, Joe.

Higgins, Michael.Hogan, Philip.Howlin, Brendan.Kenny, Enda.McDowell, Derek.McGahon, Brendan.McGinley, Dinny.McGrath, Paul.Mitchell, Olivia.Moynihan-Cronin, Breeda.Naughten, Denis.Neville, Dan.Noonan, Michael.O'Keeffe, Jim.O'Shea, Brian.O'Sullivan, Jan.Penrose, William.Perry, John.Reynolds, Gerard.Ring, Michael.Ryan, Seán.Shatter, Alan.Sheehan, Patrick.Shortall, Róisín.Stagg, Emmet.Stanton, David.Timmins, Billy.Upton, Mary.Wall, Jack.Yates, Ivan.

Tellers: Tá, Deputies S. Brennan and Power; Níl, Deputies Barrett and Stagg.
Question declared carried.

The Bill, which is a Certified Money Bill in accordance with Article 22 of the Constitution, will be sent to the Seanad.

I would like to thank the Opposition spokespersons, in particular, for the way they dealt with this Bill on Committee and Report Stages. I also thank my officials and those of the Revenue Commissioners for their attention, co-operation and hard work. I thank you, a Cheann Comhairle, for your assistance.

I would like thank you, a Cheann Comhairle, the Leas-Cheann Comhairle and the Minister for his general good humour and his historic insights into social democracy and the principles underpinning his State duty. These were the high points of the debate for me. I also thank the Minister's officials and those from Revenue who, both formally and informally, were extremely helpful as always.

I would like to be associated with the expression of thanks, particularly to the officials from Revenue and the Department. The Minister gives good value in terms of his budgets and Finance Bills – perhaps too good value from his own point of view.

He is very shy though.

If it does nothing else, it illustrates to those who care to listen that there are still choices in politics.

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