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Dáil Éireann díospóireacht -
Tuesday, 13 Oct 2015

Vol. 892 No. 4

Financial Resolution No. 2: Capital Allowances

I move:

(1) THAT for the purposes of the State Aid de minimis rules the Taxes Consolidation Act 1997 (No. 39 of 1997) be amended with effect from 13 October 2015 as follows –

Industrial building allowances: aviation services facilities

____.The Principal Act is amended –

(a) in section 268 –

(i) in subsection (1F), by substituting “then, notwithstanding that subsection, that capital expenditure shall not, as regards a claim for any allowance under this Part by any such person, be regarded as specified capital expenditure for the purposes of this Part,” for “then, notwithstanding that subsection, that building or structure shall not, as regards a claim for any allowance under this Part by any such person, be regarded as an industrial building or structure for the purposes of this Part,”,

(ii) by substituting the following for subsection (5A):

“(5A) Subject to subsection (5C), expenditure incurred by a person on the construction of an industrial building or structure (within the meaning of subsection (1)(n)) shall be treated as specified capital expenditure for the purposes of this Part

(a) only to the extent that the aggregate of such expenditure does not exceed

(i) €5,000,000, where the person concerned is a company, and

(ii) €1,250,000, where the person concerned is an individual,

and

(b) where the following information has been provided to the Revenue Commissioners before the first claim for a writing-down allowance is made, in accordance with section 272, by the person:

(i) the name, address and tax reference number (within the meaning of section 477B(1)) of the person making the claim;

(ii) the address of the building or structure in respect of which the expenditure was incurred or deemed to have been incurred;

(iii) details of the aggregate of the amount of such expenditure which has been incurred or deemed to have been incurred by the person making the claim.”,

(iii) in subsection (5B) –

(I) by substituting “subsection (5A)(b)” for “subsection (5A)(c)”, and

(II) by substituting “necessary to ensure compliance with the provisions of this Part and any European Commission guidelines, regulations or other reporting requirements, as the case may be, that may be relevant.” for “reasonably related to achieving the following objective.”,

(iv) by substituting the following for subsection (5C):

“(5C) Where capital expenditure has been incurred, or deemed to have been incurred, on the construction of an industrial building or structure (within the meaning of subsection (1)(n)) by 2 or more persons, being either individuals or companies, or both, the amount of such expenditure which is to be treated as specified capital expenditure for the purposes of this Part shall, if necessary and notwithstanding section 279, be reduced such that the amount determined by the formula

(A x 50 per cent) + (B x 12½ per cent)

does not exceed €625,000, where –

A is the aggregate of all such specified capital expenditure which has been incurred, or deemed to have been incurred, by the individual or individuals concerned, and

B is the aggregate of all such specified capital expenditure which has been incurred, or deemed to have been incurred, by the company or companies concerned.”,

(v) by deleting subsections (5D) and (5E),

(vi) in subsection (9), by substituting the following for paragraph (k):

“(k) by reference to paragraph (n), as respects

(i) specified capital expenditure incurred in the period commencing on the date of the coming into operation of section 31 of the Finance Act 2013 and ending on the fifth anniversary of that date, and

(ii) capital expenditure other than specified capital expenditure incurred on or after the date of the coming into operation of section 31 of the Finance Act 2013.”,

and

(vii) by inserting the following after subsection (11):

“(11A) Notwithstanding any other provision of this Part, capital expenditure which has been incurred on the construction of an industrial building (within the meaning of subsection (1)(n)) shall not be treated as specified capital expenditure where any part of that expenditure has been or is to be met, directly or indirectly, by grant assistance or any other assistance which is granted by or through the State, any board established by statute, any public or local authority or any other agency of the State.”,

(b) in section 272

(i) by substituting the following for paragraph (k) of subsection (3):

“(k) in relation to a building or structure which is to be regarded as an industrial building or structure within the meaning of paragraph (n) of section 268(1)

(i) 15 per cent of the expenditure referred to in subsection (2)(c), if that expenditure is specified capital expenditure, and

(ii) 4 per cent of the expenditure referred to in subsection (2)(c), if that expenditure is not specified capital expenditure.”,

and

(iii) by substituting the following for paragraph (k) of subsection (4):

“(k) in relation to a building or structure which is to be regarded as an industrial building or structure within the meaning of paragraph (n) of section 268(1)

(i) where the expenditure is specified capital expenditure, 7 years beginning with the time when

(I) the building or structure was first used, or

(II) where the expenditure is incurred on refurbishment, the building or structure was first used subsequent to the incurring of that expenditure,

and

(ii) where the expenditure is not specified capital expenditure, 25 years beginning with the time when

(I) the building or structure was first used, or

(II) where the expenditure is incurred on refurbishment, the building or structure was first used subsequent to the incurring of that expenditure.”,

(c) in section 274(1)(b) by substituting the following for subparagraph (x):

“(x) in relation to a building or structure which is to be regarded as an industrial building or structure within the meaning of paragraph (n) of section 268(1)

(I) where the expenditure is specified capital expenditure

(A) 7 years after the building or structure was first used, or

(B) where the expenditure is incurred on refurbishment of the building or structure, 7 years after the building or structure was first used subsequent to the incurring of that expenditure,

and

(II) where the expenditure is not specified capital expenditure

(A) 25 years after the building or structure was first used, or

(B) where the expenditure is incurred on refurbishment of the building or structure, 25 years after the building or structure was first used subsequent to the incurring of that expenditure.”.

and

(d) in Schedule 25B –

(a) by substituting the following for clause (VIII) of paragraph (a)(i) of the matter set out opposite reference number 13:

“(VIII) section 268(1)(n) (inserted by the Finance Act 2013) to the extent that the writing-down allowances are referable to specified capital expenditure (within the meaning of section 268),”,

and

(b) by substituting the following for clause (VIII) of paragraph (a)(i) of the matter set out opposite reference number 15:

“(VIII) section 268(1)(n) (inserted by the Finance Act 2013) to the extent that the balancing allowances are referable to specified capital expenditure (within the meaning of section 268),”.

(2) THAT section 31 of the Finance Act 2013 be amended by substituting the following for subsection (2):

“(2) This section comes into operation on 13 October 2015.”.

(3) THAT section 33 of the Finance Act 2014 be amended by substituting the following for subsection (2):

“(2) This section comes into operation on 13 October 2015.”.

(4) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act 1927 (No. 7 of 1927).

In the budget of 2013 a scheme of accelerated industrial buildings allowances for certain aviation services facilities linked to the main aviation sector was announced. The scheme focuses on the construction and refurbishment of buildings and structures which could be used for the maintenance, repair and overhaul of commercial aircraft and the dismantling of such aircraft for the purposes of salvaging or recycling parts and materials. The relief, which provides for a seven year write-off for this capital expenditure, will operate for five years and is subject to all the normal rules for capital allowances. It was subject to a ministerial commencement order, principally to allow time to obtain European Commission approval for the scheme from a state aid perspective. In other words, it had to be in compliance with that regime.

I am happy to report that the discussions between the Commission and the officials of the Department of Finance have now been successfully concluded and this scheme will now take immediate effect, subject to a number of modifications which will be introduced by this financial resolution. The key change is to place an upper limit of €200,000 on the actual value of the relief available in any three year period for each individual project. This is to conform to EU state aid de minimis guidelines. In the case of a company, for example, this equates to overall construction expenditure of €5 million. The limit is on the amount of relief given, not on the amount of expenditure incurred.

For the information of Deputies, the other changes are as follows. First, the relief will apply to operations at all airports and is not limited under regional aid. Second, expenditure incurred in excess of the de minimis limit during the five-year period will qualify for normal capital allowances without any upper limit, as will expenditure incurred after the five-year period.

This is an important industrial sector which has the potential for significant job creation in the country. This scheme, which is commencing today, has the potential to create a favourable environment for the development of significant maintenance, repair, overhaul and dismantling operations. It will be of benefit to all airports, including regional airports like Ireland West Airport Knock, when presenting a business plan to potential investors, and will help to entice investment into the country in the aviation services sector at the airports around the country. Furthermore, section 31 of the Finance Act 2013, which introduced the scheme, and section 33 of the Finance Act 2014, which subsequently amended it, shall take effect as and from today, so the entire scheme is now operational. It is intended to put today's changes on a permanent statutory footing in the forthcoming Finance Bill and I, therefore, commend this resolution to the House.

I have problems with this proposal. In an era where we have been trying to get rid of tax reliefs and tax avoidance schemes, it seems strange we would encourage one of the most highly profitable sectors to avail of a tax incentive to locate in Ireland, in particular considering what has happened in the aviation services facilities sector in Ireland in recent years. In addition, we know of the debacle at what was originally Team Aer Lingus, which then changed to SR Technics, and there is also the Government's position in terms of privatising Aer Lingus.

I find it odd there would be a facility for commercial airlines and airports, or for individuals who have an aeroplane. We know some of the high-flying individuals who have aeroplanes in Ireland and who could also avail of this tax relief if they built a hangar, once it had facilities for servicing and whether the aeroplane was small or large. I find it bizarre that this type of industry would be allowed to benefit. The amendment would allow the individual behind a construction that is to be used for maintenance to avail of a write-off of up to €5 million.

We have seen some of the millionaires who own Gulfstream jets in this country. I remember recently looking at footage of what seems to be a habit now of people with helicopters floating up and down the country, thinking they own everywhere. As a helicopter is an aircraft, I presume a hangar for one of these helicopters might fall under this measure. Are we encouraging the elite in Ireland by facilitating private airports around the country? It is not just the aeroplanes themselves but the fact they have to be put into a hangar, and that hangar has to have a maintenance or services section. Nobody buys a Gulfstream and parks it in their back garden, although down the country, one of the helicopters recently tried to park next to a pub and ended up destroying half the pub.

That was a small drone.

It would not surprise me.

There are characters who will take a benefit from a tax relief that was originally set up to be beneficial to an industry. If it could be limited to the industry, we might then have some say. The problem is that many of these schemes are set up in good faith and are then abused by those who have made billions from our system of tax reliefs in the past. I have concerns about this.

I welcome the proposal. I want to acknowledge the work the Taoiseach and the other Deputies in Mayo have done in this regard. The proposal came before us in the House two years ago and we opposed it at the time because the focus was very much on Shannon Airport to the exclusion of Ireland West Airport Knock. I am glad the Taoiseach has clarified this and glad the Government has listened to the concerns of Members of this House on all sides who have put forward the case for Ireland West Airport. There is a significant landbank available at Ireland West Airport, so there is potential to attract an investor and to create jobs at that location. It was always the objective, with the establishment of Ireland West Airport Knock, that it would not just be an airport but would act as a stimulus to create jobs, not just in County Mayo but in the adjoining counties of Sligo, Leitrim Roscommon and Galway. I commend the Government for its proposal.

Hopefully, this can build on the initiative we saw during the summer when a charter aeroplane from the United States came to Knock with a pilgrimage, the first such flight to come from the United States. I want to flag with the Taoiseach that we should not be just looking west but also east. There are 12 million Catholics in China, for example, but we still do not have direct flights from China into Ireland. We are potentially losing out on €800 million per annum, which is what the New Zealand Government is bringing in, based on a strategic, targeted programme of bringing Chinese tourists into New Zealand. Ireland gets approximately 110 Chinese tourists per day whereas New Zealand gets approximately 820, despite the fact Ireland is nearer than New Zealand to mainland China. There is the potential to grow this figure. It is about establishing the relationship, opening up visas to allow access and getting direct flights from mainland China into Ireland. I would like to see Ireland West Airport play a role in that. It would be great if we could bring such tourists directly into our region and use this as a focus to develop the tourism sector across the western seaboard and the midlands.

I thank the Taoiseach for his clarification that Ireland West Airport will be able to avail of this support.

As there is no airport in the midlands, I am not too familiar with the details of this measure. Rather than criticise it, however, I will ask questions with the aim of putting more information on the record.

We are talking about a measure that deals with construction facilities, maintenance, repair and overhaul, where the investment of a company will be limited to €5 million and that of an individual to €1.25 million. The Taoiseach might explain whether the seven-year write-off is a straight write-off over the seven years, or whether a company can write off a large amount in the first year and then a little dribble in the remaining part of the seven years. These allowances can sometimes be front-loaded, which has a significant effect on cash flow.

Second, different dates are referred to in the documentation. We are dealing with an amendment to legislation but we have not had an opportunity to read the original section that is being amended, so it can be hard to follow the specifics. Can any of this be retrospective? I would be concerned if it was. I would hope it is only for new investment that takes place after the passing of the legislation. It would not be right or normal if somebody could get a tax relief on money that was invested last year or the previous year, so I would like this point clarified.

The Taoiseach said this will be finalised and made permanent in the Finance Bill. Will there be a requirement for statutory instruments to follow that legislation? Is this in any way connected to the aviation leasing industry, given the leasing industry is a very big industry in Ireland and the scale of its activities could at times nearly dwarf the national economy?

Is the measure strictly for regional and other airports? Is it unusual to talk about a tax incentive for these particular areas? If it helps regional development, that is good. Ultimately, the cost of what has been mentioned is only €0.3 million in a year. If that is all it is, it is not a big hill of beans. In that context, if it helps get something off the ground, I would welcome it. I would appreciate clarification on these questions.

I would like clarification also because there have been instances in regard to aircraft leasing which have been an utter scandal. These are just further examples of the way the Government has crushed people with austerity taxes, charges and other cuts while fostering a regime which facilitates extraordinary levels of tax write-offs to the corporate sector, in particular multinationals.

I did not have time to check back on the exact details of one instance I mentioned in this House on a couple of occasions in the past. One particular firm, GE Aviation, an aircraft leasing operation managed to pay 0.1% tax because of the tax regime of so-called incentives and allowances allowed by the Government then. I would like reassurance that this incentive is not just more of the same. I tried to get some clarification from the Taoiseach's officials before coming into the House as to what this incentive was and they told me something to the effect that it was being introduced to comply with EU state aid rules.

Of course, that rings alarm bells for me, because it is precisely because of our facilitation of large-scale tax avoidance that we have been investigated by the EU Commission regarding breaches of state aid rules to the benefit of Apple. We are in serious trouble and our reputation has been seriously besmirched for having facilitated large-scale tax avoidance by one of the most profitable companies in the world. Therefore, I want reassurance that this is not more of the same. When I hear of the possibility that wealthy people with private aircraft could benefit from this, I want reassurance that this is not another case of tax breaks for high fliers from the Government. I ask for clarification from the Taoiseach as to who exactly will benefit from this and to what extent.

I am deeply suspicious of these allowances, deductions and tax breaks for the corporate sector. As I said earlier in response to the budget, one of the shocking and outrageous proposals in it is the 6.25% tax rate in regard to the new knowledge box proposal, as if 12.5% was not low enough. We are going to halve that rate, essentially as a mechanism to replace the double Irish rule and insulate multinationals in this country from having to pay an increased tax contribution. We are replacing the double Irish rule with another tax scam, called the "knowledge box". Therefore, alarm bells ring when I see the sort of proposal we have here. I would like clarification from the Taoiseach as to exactly what this is and want reassurance that it is not just another tax scam that will benefit the big corporates and the super rich.

Deputy Boyd Barrett speaks about alarm bells, but he should look at the example of the business development on the land around Cork Airport, and Deputy Naughten spoke about Ireland West Airport Knock. In the business development park around Cork Airport, we saw 100 new jobs created last May as a result of enhancement of businesses and the land. This is at a time when the aviation sector, through the sale of Aer Lingus, is improving connectivity from Cork to other markets and there are also to be transatlantic flights.

I ask the Taoiseach to explain this resolution not just in the context of Ireland West Airport Knock, but also of Shannon and Cork Airports. We need to see thinking that goes beyond the norm in regard to lands associated with airports. In the context of Cork Airport, I am talking about the lands around the airport, the business park and about their development and the creation of jobs. If 105 new jobs send alarm bells ringing for Deputy Boyd Barrett, I will not visit his Nirvana but will happily stay in my land. That is employment and quality jobs being created within the city of Cork.

Deputy Naughten is correct in what he said about the aviation sector. We have been straitjacketed by Dublin and Shannon Airports for far too long. There is significant potential at Cork Airport in terms of the new CityJet and transatlantic routes being created. There is significant potential to use the lands available to create a second business park. I invite Members to visit Cork Airport, the second busiest airport in the country. In the context of this debate, it is important we look at the aviation industry as one that has gone through a quantum change. A vote of confidence is being given through the creation of new routes. The connectivity fund announced at the Joint Committee on Transport and Communications last week by the Minister of State, Deputy Simon Harris, provides an opportunity to the airport.

Today's resolution will, I hope, provide an opportunity to other airports, in particular Cork Airport, to avail of the opportunity to change and use the moneys to invest in the airport. I welcome this debate. This is about creating jobs and about sending a signal to the wider world that we are open and available. We must change and think differently. I challenge Deputy Boyd Barrett's perspective. The old ways have not worked. We are now in a new era, with a new model of delivery and creation of jobs. I spoke to a school principal last night when out canvassing. Five of his students received maximum points in their leaving certificate examination. In the past, each one of those students would have gone into medicine, but not one of them did. They went for computer programming and computer sciences. That is the future and we must be open to that and to delivering a different type of model of how we do business.

I thank the Deputies for their comments. This measure is an important element of job creation. We believe the aviation sector has significant potential for job creation and by providing this targeted incentive, we hope to encourage the establishment of the infrastructure that will allow us to attract significant maintenance, repair, overhaul and dismantling activities of aircraft to Ireland. This would foster the development of centres of excellence within this specialist engineering sector which we could build on in the context of future job creation. There is serious potential in that regard.

To put Deputy Boyd Barrett's suspicions to rest, the measure is not about tax relief for wealthy airplane owners. It is expected that it is mostly companies that will avail of this measure. The cost of an aircraft hangar will differ, depending on the size of the hangar. The smaller the hangar, the lower the cost. Depending on the construction type, estimates range from €1 million for a steel, single-bay hangar to over €10 million for a three-bay hangar suitable for larger aircraft.

Any costs that do not qualify for the accelerated capital allowances available under the scheme will qualify for the standard capital allowances regime. This would allow that the costs incurred on a hangar less than the value of €10 million could be written off in the following manner: €5 million to be written off over seven years, six years at 15% and one year at 10%; and €5 million to be written off over 25 years at 4%. I hope that clarifies the matter for Deputy Fleming. Owners of aircraft do not benefit from the relief. If the facilities do not qualify, the repair and the maintenance of such aircraft will be carried on outside the State.

Deputy Naughten mentioned Ireland West Airport Knock and I am happy to provide clarification on that. He also spoke about direct flights from China.

He is aware of the single visa for entry to Ireland and Britain, which is operating in a number of Eastern countries. Having spoken to President Xi Jinping and Premier Li earlier this year, I am aware that there is quite a deal of negotiation going on about direct flights from China to Ireland. I expect it to become a reality, although I do not want to put a time on it.

I have dealt with the reductions that Deputy Fleming mentioned.

Deputy Boyd Barrett mentioned aviation leasing. The measure is not targeted at aviation leasing, but a company could avail of a facility under the new arrangements, not retrospectively, but from the time from which it applies - namely, today. The measure is aimed strictly at maintenance, repair, overhaul and dismantling. While some aircraft leasing companies may involve themselves in these operations, there are companies which specialise in these very specialist activities. It means that young people get involved in this area of engineering, which is a legitimate career aspiration to have.

The resolution is giving effect to a statutory scheme which will be part of the Finance Bill. It is aimed at the particular areas of maintenance, repairs, overhaul and dismantling. It allows for targeted incentives which hopefully will become reality at different locations around the country, depending on where companies decide it might be most attractive for them to invest.

I commend the resolution to the House.

I find it strange. What the Taoiseach said has not fully allayed my fears. He talked about centres of excellence. I heard Deputy Naughten talk about Ireland West Airport. I have always wished our regional airports well. They should try to encourage as much business as possible.

To avail of the tax incentive the Taoiseach is talking about here, the projects that would need to be built at Ireland West Airport would have to be on a larger scale than the €5 million that is being discussed. It is a different ball game. We are talking about a different type of company. In the main, one- or two-bay hangars are being built in regional airports. There are 30 or 40 regional airports and aerodromes scattered throughout the country. There is nothing in this legislation to stop a private owner who has the wealth behind him from buying up an airport or just building one of these facilities to maintain and service his own Gulfstream jet or those of other wealthy people. Obviously, he would have to get planning permission.

There was a long and quite good tradition of specialist careers in aircraft maintenance and dismantling in Dublin Airport, through TEAM Aer Lingus, which was allowed to be amalgamated into SR Technics. The Government of the time then allowed that to collapse and did not do enough to protect it, despite offers from some of the companies that used that facility to maintain it. I am not going to go back over that, but there is a tradition there. The problem was that most workers in that industry had highly specialised skills which were not interchangeable. Unless they continued working in the field, they were excluded from continuing to work thereafter. Some had to emigrate to try to keep their skills valid as there was only one type of plane they were legally allowed to work on.

It is not as easy as just building one-, two- or three-bay hangars. Depending on what fits into the hangar, each plane brings its own speciality and licensing regime for those who would maintain it. If it is normal servicing - turning the plane around, looking after it and hosing it down - that can be done at any airport. According to the notes I have, an individual can benefit from a write-down of up to €1.25 million. Anyone investing that type of money is only building a shed to maintain his or her own aircraft. A company can benefit up to €5 million. For regional airports such as Cork or Ireland West, we are talking about a much larger scale. There would be a need to attract major business and not just small aircraft.

This is nothing but a tax relief or avoidance scheme that will attract the wrong element. The Taoiseach described whom he expects will benefit, but people have previously availed of tax schemes such as this to the detriment of the Irish taxpayer. Tax relief is tax forgone. There is a negative side to it. If the Government gives €5 million in relief to a company, there is €5 million less in the Government's coffers which could be spent on other more pressing concerns.

I welcome this measure. I want to take up what Deputy Ó Snodaigh has said. This is very much an employment measure. In the context of Shannon Airport, our local international airport, we are promoting the area of aircraft maintenance. Leasing has been very much central to what is done at Shannon Airport on the industrial side.

The measure feeds in to job creation, which brings further revenues back to the Exchequer, which we use to provide the services we all want. The measure is very much welcome in the context of Shannon Airport in the mid-west. We have an industry up and running and this will further it in terms of job creation. It should never be lost.

This is about the construction of hangars for repair, maintenance, overhaul and dismantling of aircraft. It is therefore about job creation and attracting skilled people to work there. The limit is €5 million per project. A small hangar could cost €1 million, while a double or triple hangar could cost €10 million or more. The €5 million reflects the limit set out in legislation. It is the maximum amount the EU would permit under the de minimis rule, which could apply under state aid relief. That is set out clearly in the legislation.

On Deputy Ó Snodaigh's point about private individuals, it would not make sense at all for a private individual to invest in a facility for his or her own use. It is much cheaper to pay for maintenance supplied by a centre of excellence, particularly where really skilled people would have to be employed to carry out that maintenance. This is not something that can be done by an apprentice mechanic. It has to be done by really skilled workers.

Question, "That Financial Resolution No. 2 be agreed to", put and declared carried.
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