We will proceed to Question No. 34, in the name of Deputy Brendan Griffin. He has 30 seconds to introduce it.
Other Questions
Tax Code
It is bizarre that this question was not grouped. There are five other related questions, Nos. 36, 38, 39, 42 and 82. All the relevant Deputies are present. The questions are pretty much on the same issue, the patronage shares. Why were the questions not grouped? Is it too late for them to be grouped now to ensure everybody gets in? Otherwise everybody may not get in.
This matter has been brought to my attention. I can see the points being made by Members. I have been given the list of replies, and they are produced on an individual basis. I do not know what flexibility I have. Are there five questions?
Of course it is five.
All the Deputies are here.
There are five linked questions. I accept that as I have examined them. The maximum time is still only 18 minutes so we have to get agreement. I am certainly not going to run over time.
Absolutely. It would be farcical if we were repeating questions on the patronage shares issue.
Does everybody agree that Deputy Brendan Griffin has 30 seconds in which to introduce his question and that the other Members all have a minute? The Minister will be given a chance to reply, and then we will allow the Members to come back in again.
Each person gets 30 seconds and then a minute afterwards.
I do not believe we can give everyone 30 seconds. I have to go by the rules.
To be helpful, what if we all had just 30 seconds in which to start? The Minister could respond to us all and then we would have a minute each afterwards. That is only five-----
There are 18 minutes in total. I want to be fair to the Members.
Of course. That is all we want.
To me, because the questions are linked, 30 seconds for one Deputy to introduce a question is the same thing. However, if the House wants 30 seconds for each Member in which to introduce his or her question, we will allow that.
If they were not grouped, Deputies would have 30 seconds each in which to introduce the questions.
That is not what I am told.
If we could deal with them together over 18 minutes, we would do fine.
On a point of order, I have no objection to following whatever procedure the House decides but the draft answers I have vary from Deputy to Deputy because there are variations in the questions.
I thought that myself.
I do not want to get up and read out five answers but I will try, in so far as I can, respond to all the Deputies in response to supplementary questions. The Deputies will get the answers anyway as written answers after this session.
I thank the Minister. Does the House want to group the questions? Am I correct in saying Questions Nos. 34, 36, 38, 39, 42, 59, 74 and 82 are to be grouped?
Twenty-four minutes now.
There are 18 minutes overall but there are still only five contributors.
When does Question Time conclude?
We have approximately 44 minutes left. Everyone must understand that there are 18 minutes overall for this grouping. Deputy Griffin should start his introduction. Otherwise, we will get nowhere.
Or we will be looking for a separate Kerry parliament to discuss such matters.
Brendan Griffin
Ceist:34. Deputy Brendan Griffin asked the Minister for Finance his views on whether industry may no longer be in a position to plan ahead with certainty if the Revenue Commissioners can review decisions already taken and change the tax interpretations on these decisions and implement changes retrospectively, such as seems to be the case with patronage shares of a company (details supplied); and if he will make a statement on the matter. [1496/17]
Michael Healy-Rae
Ceist:36. Deputy Michael Healy-Rae asked the Minister for Finance if he will provide a tax yield impact analysis of the recent Revenue Commissioners' change in policy with regard to patronage share schemes, taking into account the average effective rate of income tax of affected farmers, balanced against the adverse impact on capital gains tax yield at 33% and increased VAT flat rate addition payable to farmers; and if he will make a statement on the matter. [1606/17]
John Brassil
Ceist:38. Deputy John Brassil asked the Minister for Finance the controls his Department has with respect to the Revenue Commissioners to monitor retrospective tax demands particularly when audits have been carried out and persons are found not to be fully tax compliant; and if he will make a statement on the matter. [1742/17]
Martin Ferris
Ceist:39. Deputy Martin Ferris asked the Minister for Finance the average effective tax rate on income of farmers based in the south west; if he will provide an illustration of the impact on the average farmer on the Revenue Commissioners' treatment of patronage shares as income assuming they sell the shares and pay CGT at 33%; and if he will make a statement on the matter. [1613/17]
Danny Healy-Rae
Ceist:42. Deputy Danny Healy-Rae asked the Minister for Finance if, in the event of the Revenue Commissioners' position being upheld in a test case, he will change the legislation such that tax will not arise until the shares are sold, thus aligning it to the position now intended generally for share-based reward in an SME context, in view of the recent Revenue Commissioners' change in approach to patronage share schemes being prima facie inconsistent with the overall tax policy approach to the farming sector. [1607/17]
Martin Ferris
Ceist:59. Deputy Martin Ferris asked the Minister for Finance the tax policy logic in forfeiting capital gains tax at 33% in view of the fact that the effective income tax rate is 27%; and his views on whether it is appropriate that the Revenue Commissioners' resources should be deployed in circumstances which will result in a cost to the Exchequer if they are successful in sustaining their position. [1614/17]
Brendan Griffin
Ceist:74. Deputy Brendan Griffin asked the Minister for Finance if he will introduce legislation to ensure that patronage shares of a company (details supplied) will only incur tax when sold, in alignment with the position intended generally for share-based reward in a SME context; and if he will make a statement on the matter. [1495/17]
Danny Healy-Rae
Ceist:82. Deputy Danny Healy-Rae asked the Minister for Finance the way in which an industry plan can go forward if the Revenue Commissioners can review decisions taken and change the tax interpretations and implement them retrospectively. [1608/17]
I thank the Acting Chairman and appreciate his flexibility in allowing all Deputies to contribute. I acknowledge that my colleague from Limerick, Deputy Neville, tried to submit questions on this matter, but they were adjudged to be a duplication. This matter is equally important to him.
As the Minister knows, the Kerry shares issue is causing major concerns. Revenue's interpretation of the law sets a dangerous precedent. I ask that the Minister do everything within his power to address the matter. It is of concern to hundreds of people in Kerry and may have significant ramifications for people all over the country and other industries, given the lack of certainty created by Revenue's treatment of the individuals involved.
I thank the Deputy, but we are already running into time difficulties. The Deputies only have 30 seconds each.
This is a serious situation and it will affect the co-operative movement in Ireland if Revenue continues down this road.
I thank the Deputy for his co-operation. Has Deputy Michael McGrath raised a similar question?
My question relates to the same issue. What control does the Minister have over retrospective tax demands from Revenue? It seems that people have been audited and paid their taxes, there is no issue of non-compliance and they have made full declarations, but because someone has decided to interpret a patronage share issue differently, a further tax demand is being made. It is impossible for people to conduct business in this way. If the Minister's Department cannot sort it out, who can?
This debacle is causing a great deal of confusion. It is mind-boggling, to say the least. Has the Minister assessed the average tax rate on income for farmers in the south west? How will that manifest itself if patronage shares are classified as an income as distinct from an asset? How will it manifest in a return to Revenue in respect of income from such shares if they are taxed on a regular basis compared with capital gains?
I have asked Questions Nos. 42 and 82. It is clear that the farmers of Kerry who own the shares did nothing wrong. They took advice from their accountants, tax advisers and other professionals. The Revenue official who appeared before our committee at its meeting stated that this situation was new to Revenue. That is why it is only happening now. Many people who have undergone severe tax audits in the past two years were given clear sheets in September and October. Now, they are some of the 400 who have received letters demanding tax. How can this be right?
As to making tax laws retrospectively, does that mean that Revenue could look for taxes back from the tax amnesties that were granted and the urban renewal schemes under which people received tax back in towns and villages because they received lower tax facilities in the past? Surely that could not be right.
The Deputy has gone way over time. Come on.
All right.
I apologise. The Deputy may want to contribute again, but we must proceed now. I call the Minister. I will give him a few minutes. I am sure that he has got the message about this issue from all of the Deputies.
I have a written reply to Deputy Griffin's Question No. 34, so I will read that first, and I will see what I can do with the other issues that have been raised.
I am aware that a number of Deputies have tabled questions for answer today in connection with ongoing Revenue aspect queries relating to patronage shares issued by Kerry Co-op to some of its members. At the outset of the discussions, it is important to note that the Revenue Commissioners are statutorily independent in the exercise of their functions relating to the tax affairs of any individual under tax and customs legislation. That independence has long been recognised and respected by this House as being critical to maintaining the integrity of the taxation system and it forms a key pillar of Revenue's governance framework.
Regarding Deputy Griffin's question, I am advised by the Revenue Commissioners that there has been no change in policy in respect of this matter and that the position being adopted by Revenue is in accordance with long-established taxation principles to the effect that, where consideration is received for services rendered or produce sold, said consideration is subject to taxation as part of the individual's income in the relevant tax year. Accordingly, in the view of Revenue, there is no element of retrospection or change in interpretation.
Where there are different views as to the correct tax treatment of any particular item or transaction, an appeal may be made to the Tax Appeals Commission where the matter will be adjudicated on in the first instance by an Appeal Commissioner. Where the issue relates to a point of law, the matter can be further appealed by either party to the superior courts.
Deputies will be aware that officials of the Revenue Commissioners appeared before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on 7 December and engaged fully with the questions of Members of this House and the Seanad on the issue. I understand that, during that appearance, Revenue committed to facilitate the appeals process should a taxpayer raise an appeal to the independent Tax Appeals Commission. Furthermore, it also confirmed that there would be no action by Revenue in the interim period to seek to collect the tax liability in the assessment raised by it while appeal processes were under way. It is incumbent on the House to allow these legal due processes to take place in accordance with the law.
That was the written answer to Deputy Griffin's question. Down somewhere, buried in that bundle, there are individual answers to the other questions, but since we took them together, it is difficult to search them out now. From memory, the Minister for Finance has no function in the matter. It is a function of Revenue to assess people for taxes and to collect those taxes. There is no political crossover.
As to retrospection, self-employed people pay tax on the basis of self-assessment. If that self-assessment does not reveal the full level of income as Revenue perceives it, Revenue goes back. There is no retrospection. This is not a charge imposed by Revenue in the first instance, rather, it is self-assessment. The Deputies know the circumstances in this case. Shares were allowed at a discount in proportion to the amount of milk being supplied by individual suppliers to Kerry Group. I believe that it was €1.25 per share for 1,000 gallons or litres of milk. Revenue, in its look-back, deemed that to be another way of farmers being compensated for their supply of milk in addition to the price that they got for the litres. I am only telling the Deputies what is Revenue's position. I know that the Deputies have a different view.
Consequently, Revenue has decided that there may be an income tax liability in respect of the fact that the shares were given at a discounted rate. There may also be a capital gains tax liability. There is a grey market in these shares and it is not difficult to establish what is their value on the market. Capital gains tax applies to the gain between the acquisition price of an asset and its selling price. However, it is difficult to say when individual cases are examined whether people will have an additional liability or a rebate. I will cite an example.
Additional information not given on the floor of the House
Question No. 36 would appear to suggest that Revenue should, or indeed could, analyse a transaction and select a tax treatment based on the maximum potential yield for the Exchequer. This is most certainly not the case as the Oireachtas sets out in legislation the relevant tax treatment that should be applicable to various sources of income or gains.
The Revenue Commissioners are a statutorily independent body charged with collecting the taxes lawfully owing to the Exchequer, and they do so in accordance with the legislation enacted by these Houses of the Oireachtas. The Revenue Commissioners interpret the underpinning legislation and are charged with application of that law equally to ensure fair treatment of all taxpayers.
I again reiterate that I have been advised by Revenue that there has been no change in policy in relation to this matter and the position being adopted by Revenue is in accordance with long-established taxation principles that consideration received that is directly related to produce sold, whether in the form of cash or shares, is subject to taxation as income.
As there has been no change in policy by the Revenue Commissioners, I do not see the benefit of providing a tax yield impact analysis as sought by the Deputy. Such calculations are normally completed where a change of policy is being brought forward by Government and the associated estimated cost or yield is calculated in order to inform the Oireachtas in respect of the impact on the Exchequer of such a policy change. Such costings help to inform the associated debates in these Houses. In this case, however, the position is that the Revenue Commissioners are interpreting and implementing tax law as it stands and there has been no departure from existing policy and interpretation.
Depending on the particular circumstances and incomes of each taxpayer involved, the setting out of this tax treatment by the Revenue Commissioners could result in additional taxes being due, or indeed in a reduced tax burden for some. Calculation of a tax yield impact analysis in such a scenario would be difficult and, as outlined previously, unwarranted given the position of the Revenue Commissioners that there has been no change in practice on their part in terms of the appropriate tax treatment of such income.
As Deputy Brassil will be aware, the taxation of business profits is governed by a self-assessment regime. The general principles of self-assessment include persons submitting their tax returns in time, making a self-assessment of their tax liabilities and paying those tax liabilities in time without intervention by, or request from, Revenue. As the Deputy will also be aware, the main oversights of the self-assessment tax regime include the range of legislative provisions and the various compliance interventions that Revenue have in place to ensure that persons have paid the correct tax due to the Exchequer and in time.
I am informed by Revenue that a main aspect of their compliance interventions is to ensure that self-assessment taxpayers have not underdeclared a source of income or omitted a source of income from their tax returns. The type of compliance intervention initiated by Revenue is guided by the nature of the risks identified. Each Revenue intervention is intended to be in the form that is most efficient in terms of time and resources and imposes the least cost on the taxpayer while addressing the perceived risk. Consequently, not all Revenue interventions take the form of a formal Revenue audit.
I am further informed by Revenue that, from time to time, certain matters come to its attention that indicate that a person, or a cohort of persons, may have incorrectly claimed an allowance, relief or credit or may have omitted to declare a source of income. In such cases, those persons may be asked to reconsider his or her tax positions for a relevant tax year or accounting period and to consider availing of the benefits of making qualifying disclosure to Revenue.
There are, of course, occasions where there may be differences of opinion as between a person and Revenue as to the amount of tax that person is liable to pay. Where such differences occur on receipt of an assessment from Revenue, the person can, within 30 days of receiving that assessment, lodge an appeal to the Tax Appeals Commission, which adjudicates on tax assessments. I might add that the Tax Appeals Commission is a statutory body that is independent of the Revenue Commissioners.
As to the Deputy's questions as regard the controls that my Department has in place as regards the collection and audit functions of Revenue, I am informed by my officials that no such controls are in place, nor would it be appropriate to have such controls due to the independence of Revenue in carrying out their functions.
Regarding Question No. 39, a taxpayer's average effective rate of income tax is the average rate of tax he or she pays on his or her income as a whole in any tax year. Due to the nature of the Irish tax system, incorporating tax credits and standard rate bands, this effective rate varies from person to person depending on income and personal circumstances. For example, low-income individuals can have a zero or very low effective tax rate where their income is largely sheltered from tax by personal tax credits, whereas individuals with higher incomes paying tax at the higher rate would have higher average effective rates of tax.
What may be of more relevance is the marginal rate of tax, which is the rate of tax paid on any additional income received by a taxpayer in a given tax year. Again, this would vary from person to person based on individual circumstances.
In the most recent analysis conducted by Revenue in respect of the farming sector, published in July 2016, there was no specific analysis of the average effective rate of tax. However, the analysis provided a breakdown of the average farming income by county. For the counties of Cork, Kerry and Limerick, the average farm income, being the net farming profit subject to income tax, was €32,398, €20,851 and €27,268, respectively. This report is available on Revenue's website, at the link set out in this response.
I have been informed by Revenue that the average value received by farmers in respect of patronage shares in the years 2011 to 2013 was between €3,510 and €4,860. Based on these figures and the average farm incomes listed above, it is possible that the marginal rate of tax on this additional income may be the standard rate of tax for many farmers. Farmers whose other income in the relevant year has already exceeded their standard rate bands would be liable to income tax at the higher rate of tax.
Deputy Ferris's question would appear to suggest that Revenue should conduct a tax yield analysis and use this to decide the tax treatment which should apply to a given transaction. As I already stated, this is neither possible nor, as I am sure the Deputies would agree, desirable. Revenue's role is to collect the taxes lawfully owing to the Exchequer, in accordance with the legislation enacted by these Houses. www.revenue.ie/en/about/publications/farming-profile-2016.pdf
The issue raised in Question No. 42 relates to Revenue's tax treatment of patronage shares issued by Kerry Co-op to certain of its members. Deputies will be aware that Revenue has committed to facilitate the appeals process should a taxpayer raise an appeal to the independent Tax Appeals Commission in relation to this issue.
Regarding share-based remuneration schemes, in general, employees are subject to income tax on share issues where the employer issues such shares and charges the employee less than the market value for them. Income tax is due on the difference in the relevant values and is generally collected via the PAYE system, while income tax due on share options must be returned within 30 days of the exercise of such options. In certain cases the relevant shares may be subject to a clog, restricting the employee from selling such shares for a set period of time. However, notwithstanding this restriction on sale, any income tax due is payable at the time of the share award.
A more favourable treatment may apply under certain Revenue approved share schemes, but such schemes are subject to a range of restrictions, and are used primarily by larger, quoted companies. Deputies will be aware that in budget 2017, I announced my intention to introduce a new, SME-focused share-based remuneration incentive in budget 2018. This is a complex undertaking, as a focused scheme of this nature will need to comply with state aid regulations and is likely to require EU approval. Therefore, in the years in which the patronage scheme was active, employees who received share based remuneration in an SME company would in most cases have been subject to income tax on any value received at the outset, regardless of when the shares were sold.
As such, there would not appear to be a policy rationale to legislate for different treatment specifically for patronage shares in those years. Furthermore, an amendment of the nature proposed by the Deputy would be retrospective, in that it would change the tax treatment of transactions occurring in the years 2011 to 2013. Retrospective changes undermine the certainty of the tax system for all taxpayers and can be subject to constitutional challenge in the courts, and as such I do not believe it would be appropriate in this instance.
Question No. 59 would appear to suggest that Revenue should, or indeed could, analyse a transaction and select a tax treatment based on the maximum potential yield for the Exchequer. This is most certainly not the case. It would also be unfair to taxpayers in the event that they ended up paying more to the Exchequer than actually required by the law.
The Revenue Commissioners, as I said already, are a statutorily independent body, charged with collecting the taxes lawfully owing to the Exchequer, and they do so in accordance with the legislation enacted by these Houses of the Oireachtas.
The deployment of Revenue resources is a matter entirely for Revenue. I again reiterate that I have been advised by Revenue that the position being adopted by Revenue is in accordance with long-established taxation principles that consideration received which is directly related to produce sold, whether in the form of cash or shares, is subject to taxation as income. In this case, the Revenue Commissioners are interpreting and implementing tax law as it stands and they have assured me that there has been no departure from existing policy and interpretation.
Where there are different views as to the correct tax treatment of any particular item or transaction an appeal may be made to the Tax Appeal Commission where the matter will be adjudicated on, in the first instance, by an Appeal Commissioner. Where the issue relates to a point of law the matter can be further appealed, by either party, to the superior courts.
Deputies will be aware that officials of the Revenue Commissioners appeared before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on 7 December last, and engaged fully with the questions of Members of both this House and the Seanad on this issue. I understand that, during that appearance, Revenue committed to facilitate the appeals process should a taxpayer raise an appeal to the independent Tax Appeals Commission. Furthermore, Revenue also confirmed that there would be no action by Revenue in the interim period to seek to collect the tax liability in the assessment raised by Revenue while appeal processes are under way. It is incumbent on this House to allow these legal due processes to take place in accordance with the law.
The issue raised in Question No. 74 relates to Revenue's treatment of patronage shares issued by Kerry Co-op to certain of its members. I am advised by Revenue that the position adopted is in accordance with long established taxation principles that, where consideration is received for produce sold, that consideration is subject to taxation as part of the individual's income.
Regarding share-based remuneration schemes, in general, employees are subject to income tax on share issues where the employer issues such shares and charges the employee less than the market value for them. Income tax is due on the difference in the relevant values and is generally collected via the PAYE system, while income tax due on share options must be returned within 30 days of the exercise of such options. In certain cases the relevant shares may be subject to a clog, restricting the employee from selling such shares for a set period of time. However, notwithstanding this restriction on sale, any income tax due is payable at the time of the share award.
A more favourable treatment may apply under certain Revenue approved share schemes, but such schemes are subject to a range of restrictions and are used primarily by larger, quoted companies. Deputies will be aware that, in budget 2017, I announced my intention to introduce a new, SME-focused share-based remuneration incentive in budget 2018. This is a complex undertaking, as a focused scheme of this nature will need to comply with state aid regulations and is likely to require EU approval.
Therefore, in the years in which the patronage scheme was active, employees who received share awards or the right to acquire shares at a discount in an SME company would in most cases have been subject to income tax on any value received. As such, there would not appear to be a policy rationale to legislate for different treatment specifically for patronage shares in those years. Furthermore, an amendment of the nature proposed by the Deputy would be retrospective, in that it would change the tax treatment of transactions occurring in the years 2011 to 2013. Retrospective changes undermine the certainty of the tax system for all taxpayers and can be subject to constitutional challenge in the courts, and I do not believe it would be appropriate in this instance.
I understand that Question No. 82 relates to the ongoing Revenue aspect queries relating to patronage shares issued by Kerry Co-op to some of its members. In this context I again note that the Revenue Commissioners are statutorily independent in the exercise of their functions relating to the tax affairs of any individual under tax and customs legislation. That independence has long been recognised and respected by this House as being critical to maintaining the integrity of the taxation system, and it forms a key pillar of Revenue's governance framework.
With regard to Deputy Danny Healy-Rae's question, I am advised by the Revenue Commissioners that there has been no change in policy in respect of this matter, and the position being adopted by Revenue is in accordance with long established taxation principles that, where consideration is received for services rendered or produce sold, that consideration is subject to taxation as part of the individual's income in the relevant tax year. Accordingly, in the view of Revenue, there is no element of retrospection or change in interpretation.
Where there are different views as to the correct tax treatment of any particular item or transaction an appeal may be made to the Tax Appeals Commission where the matter will be adjudicated on, in the first instance, by an Appeal Commissioner. Where the issue relates to a point of law the matter can be further appealed, by either party, to the superior courts.
Deputy Danny Healy-Rae will be aware that officials of the Revenue Commissioners appeared before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on 7 December last and engaged fully with the questions of Members of both this House and the Seanad on this issue. I understand that, during that appearance, Revenue committed to facilitate the appeals process should a taxpayer raise an appeal to the independent Tax Appeals Commission. Furthermore, Revenue also confirmed that there would be no action by Revenue in the interim period to seek to collect the tax liability in the assessment raised by Revenue while appeal processes are under way.
It is incumbent on this House to allow these legal due processes to take place in accordance with the law.
If they get a discounted rate of €1, the real value of it is €10 and they sell it at €15, then from a capital gains point of view they should, in theory, be paying tax on €14 but if they have already paid income tax on €9, one can see how the difficulty arises. There is a difficult piece of arithmetic. I think the best way to proceed is as the Revenue Commissioners suggested when they met the finance committee, namely, put a test case to the Appeal Commissioners and let the test case run. Revenue has committed that it will not move to collect tax from anybody until the test case is conducted and it will facilitate the Appeal Commissioners.
We must remember the Appeal Commissioners are independent. One cannot tell them how to proceed with the case. All we know is that Revenue will give them, neutrally, all the information they require to make a decision and then we will see where it lands after that. Otherwise, we are going around in a circle speculating. What I have in my brief is that if a test case is taken, it will be pursued until there is an adjudication, and in the meantime there will be no attempt to collect. The assessment so far is in respect of the shares offered in 2011 and there may be liabilities in 2012 and 2013 but Revenue is not moving into that space yet. I will take any supplementary questions that might arise.
I thank the Minister for agreeing to group the questions. I fully appreciate the separation that must exist between him as Minister for Finance and the Revenue. My concern is that the current tax law on the matter is having unintended consequences and the Minister or the Department must intervene. People have been audited and they have been told by Revenue that all matters are kosher but a few years' later they get a letter out of the blue from Revenue demanding in some cases five figure sums. That is devastating for many people and it is very unfair on the taxpayers concerned. Will the Minister review the legislation governing this entire area because there is a potential long-term loss to the State as a result of the current Revenue interpretation, but in the meantime there is significant loss to the individual farmers involved which is most regrettable and undesirable and is something that could be avoided?
I wish to concentrate on a couple of points raised by the Minister. He mentioned the test case and we are all in agreement on that as the way forward in the hope of finding a resolution. He also said there would be no demands until the test case is concluded. I was contacted by a shareholder yesterday. I put a question to Mr. Phelan from the Revenue Commissioners when he attended the finance committee on whether there would be any consequences such as the issuing of tax clearance certificates for previous years and we were assured there would not be. The individual who contacted me yesterday was due a VAT repayment of more than €2,000 but it was not paid. The only explanation he could find was that it was put against the money the Revenue Commissioners claim he owes on the preference share issue. That seems to go completely against what was outlined at the meeting, despite an assurance from Mr. Phelan that the issue would be dealt with separately.
Issues arose in the previous ten minutes about vulture funds not paying tax and treating people unfairly. We are talking in this case about compliant taxpayers, and we must defend them and treat them fairly. This is not right and we need to address the issue. I accept what the Minister for Finance said about the issue requiring to be addressed independently of him but we must also have some control.
There would be outrage if any other taxpayer was treated in the same way as the members of the farming community have been treated. They are tax compliant. They had professional accountants doing their books for them and they made their returns in a perfectly honest and open way but now Revenue is retrospectively going back and changing the rules. Revenue is doing the one thing we were always told in life that one cannot do, namely, moving the goalposts in the middle of the game. That is what has been done to those people. I believe it is wrong and that it should be proven to be wrong. If a person driving a bus or taxi or doing work in any walk of life made his or her returns and he or she was then told that Revenue was changing the rules, there would be outrage. We cannot treat farmers in that way. It is wrong and the Minister should intervene.
The Minister is undermining a precedent that has been set, namely, that in the past anybody who had patronage shares and decided to sell them paid capital gains tax at 33%. Now, notwithstanding the outcome of the test case, Revenue is assessing the shares as income. In addition, there is the possibility of double taxation regarding capital gains tax. The situation is a shambles. If the decision of the Appeal Commissioners is in favour of what Revenue is trying to do, the issue will end up going through the courts. I have sympathy for people who are tax compliant and believe themselves to be so, who have paid capital gains tax on the sale of some of their shares, yet the beneficiaries of such shares could face another penalty. It is a very bad signal to send out, particularly in light of what the farming community is trying to do and its contribution to the economy in general.
I wish to clarify one point for the Minister in terms of my understanding of the issue. Farmers were awarded the shares per thousand gallons of milk quota but it was not payment for the milk. The shares were awarded as part of a goodwill gesture. However, if a farmer falls out with the co-op, he or she will be made to take €1.25 per share and the shares will be taken from him or her. If the farmer had paid tax on the shares when he or she received them, will Revenue then give the farmer the tax that was taken off him or her previously when he or she first got the shares? I expect farmers would have an awful job trying to get it back.
If we have a role to play as elected representatives and the Minister has a role to play, then surely fair play must be meted out. If Revenue wins the test case we must ensure that the farmers or those who own the shares will not have to pay retrospectively because, in the words of the Revenue official, this was a new departure for it. We must introduce a law to ensure there will not be retrospective charges.
I thank all the Deputies for their contributions. I know there are points concerning this issue that are arguable and that is why I am following the Revenue advice and saying this should be appealed on a test case basis to see where the law lies. I know Members have very strongly held views and that is also the case for the constituents whom they represent. However, as I said to Deputy Griffin, the way Revenue operates and has always operated, is in accordance with a long-established taxation principle that where consideration is received for services rendered or produce sold, that consideration is subject to taxation as part of an individual's income.
In other words, regardless of whether one is paid in cash or in kind, one has a tax liability if one is paid in kind in lieu of cash. That is the principle and that has always been the case. If one is paid in kind instead of cash, one is liable for tax on the monetary value of whatever the payment in kind is. Revenue now deems that discounted shares were payment in kind for each 1,000 litres of milk. That is the case it is making. That should be tested, and it is well worth testing it, but Revenue is not changing the law or its practice. It is doing what it does with every taxpayer. It is applying the law.
Farmers got their accounts done by their professional advisers and sent in their tax returns in the normal way. There was no reference to shares being got at a discounted rate so their tax returns are accepted. It has come to the notice of Revenue that Kerry Co-op, in particular, had this discounted share system and in Revenue's opinion, a tax liability arises. A number of people have asked what the position is if they already paid tax. I think the Deputy asked about the incomes. I will send them out to him and he will get them in a written answer. On average, Cork farmers are slightly north of €30,000, Kerry farmers are slightly ahead of €20,000 and Limerick farmers are around €27,000 - somewhere in the high 20s. All those would be subject to the standard rate of tax, which is 20%. All of them would also be subject to PRSI payments and USC so their effective rate would be somewhere around 29% but where the capital gains tax is 33%. On that part of the gain which was contributed by the discount, some farmers subject to the standard of tax have actually paid too much tax if they sold the shares because they have paid a rate at 33% when the maximum they should have paid on income tax was 29%. Each individual taxpayer has to be assessed on this and it is complex but the best way to go is to take the test case and let it go after that. I have been involved with this since the start. It was brought to my attention by several Deputies. I got my officials to inquire into it and I am meeting the chairman of Revenue before the end of the month and will raise this issue again, even though it is not the primary purpose of the meeting.
In respect of suggestions that there is some kind of discrimination against farmers, there is no discrimination. This is the way tax law applies. I have been very sympathetic, as Deputies know, to the farmer taxation system and have introduced amendments to reform farm tax in a very fundamental way over the past four or five years. Someone can average income over five years, a change we introduced two years ago. This year, we introduced an extra year because this was a very poor year for farming with very little profit. There is now a sixth year which someone can use as an opt-out year on income averaging and only pay whatever tax liability there is for that individual year. If, by definition, there was hardly any income at all, one would not have a tax liability on it.
With the Leas-Cheann Comhairle's patience, I want to check my notes. In respect of the point made by Deputy Ferris, there is no taxation. I think I have dealt with that. Deputy Michael Healy-Rae spoke about the incomes of different farmers and a change of rules. Deputy Brassil spoke about an individual who had a VAT repayment held back which he thinks may be because he is not compliant on this. That should be raised directly with the Office of the Revenue Commissioners. If the Deputy sends me an e-mail about it, I will raise it with the Office of the Revenue Commissioners. The Deputy should give me the individual's name, address and tax number and it will be done confidentially. I can transfer it to Revenue and make sure the Deputy gets a written reply because I do not know what the circumstances are. That is the situation. My strong advice is to get the co-operative in co-operation with the individuals involved or somebody to take a test case to the Tax Appeals Commission and we will see where it lands after that.
Question No. 35 is in the name of Deputy Howlin who submitted a request to have his question taken by Deputy Burton.
Financial Services Sector
Brendan Howlin
Ceist:35. Deputy Brendan Howlin asked the Minister for Finance his Department's current role in engaging with the financial services industry here. [38620/16]
Today we heard the announcement by the British Prime Minister, Theresa May, that she is likely to pursue a hard Brexit option. The financial services industry has a series of structures with the Department and the Civil Service. I would like to know whether or not the Minister proposes to engage through those mechanisms with the likely number of financial services companies that may want to relocate in whole or in part from London to Dublin in the context of the UK making preparations to leave the EU. We could have a considerable gain from getting ready now to take advantage of this likely development and that we could generate jobs not only in the financial services sector in the Dublin region. As the Minister knows, those jobs are spread throughout the country and, for the most part, are very significant and well-paid jobs.
The Deputy is referring to the structures in place to engage with the financial services industry following the discontinuation of the IFSC Clearing House Group. The Minister of State, Deputy Eoghan Murphy, is responsible for leading implementation of the whole-of-Government international financial services, IFS, 2020 strategy via reformed consultative structures. The Minister of State is unavailable to answer this parliamentary question as he is currently in Asia promoting the Irish financial services sector. The new structures under IFS2020 were established to ensure greater co-ordination and transparency and replace the IFSC Clearing House Group. Implementation of the strategy and the associated annual action plan is driven by a public sector high level implementation committee, HLIC, membership of which comprises top level civil and public sector officials from key Departments, IDA Ireland and Enterprise Ireland. A senior representative from the Central Bank attends as an observer.
A private sector industry advisory committee, IAC, has also been established. The IAC is composed of representatives of leading and evolving indigenous Irish and international IFS companies from a broad range of financial services sectors with diverse experience and perspectives. There is a rotating secretariat, an external international member, and time-bound terms for IAC members. The public sector HLIC and the private sector IAC meet on a quarterly basis as the IFS2020 joint committee and the Minister of State as chair ensures that this committee is accountable for its progress and actions. Annual action plans and quarterly progress reports on the implementation of the strategy are considered by the joint committee and then submitted to Cabinet before publication on the Department of Finance website. The IFS2020 action plan for 2017 will be published shortly.
Have any changes been made or contemplated in the context of the Brexit proposals, particularly since we have had confirmed what many of us have known for a considerable period of time, namely, that the British Government is likely to opt for a hard Brexit? In the context of the City of London and the IFSC, we know that the fact that English is the local language in each location is an enormous attraction to people establishing companies and investments. With a review of the structures between the Department and the financial services industry, we could turn an element of what is likely to be a very difficult and uncertain situation for the Irish economy to our advantage by preparing to attract companies that want to locate to a location within the EU but which favour an English-speaking location. Ireland is extraordinarily well placed to provide that.
The financial services section of the Department is in the charge of the Minister of State, Deputy Eoghan Murphy. He is proceeding with the committees to which I referred to publish a new revised policy statement on financial services.
The response from my Department so far is that in amending section 110 to obviate the various issues raised by Deputies in respect of property transactions we ensured that the changes did not infringe on the financial services industry because making the financial services more attractive in Ireland was the reason section 110 was introduced in 2003.
The Central Bank has recruited a significant number of additional regulators because it has had in excess of 100 inquiries from the City of London from people who are anxious to find out what the regulatory regime would be here if they were to move activity. The Department of Finance have had many inquiries and I understand IDA Ireland have also had many inquiries.
Given that this is one of the potentially positive options arising from Brexit, I am surprised that the Department has not been somewhat more proactive. I do not know when this committee last met. The Brexit referendum took place well over six months ago. We need to move as quickly as possible to build on the opportunities that exist for Ireland. A significant number of people are already employed in financial services in Ireland and there is a significant opportunity to increase that number. While people obviously associate financial services particularly with the IFSC, a significant proportion of those jobs are located throughout the country. I am thinking of counties such as Kerry where land and IDA developments are available which could host such jobs and become very successful.
There is no lack of activity. The Taoiseach and I along with other Ministers, the Minister of State, Deputy Eoghan Murphy, and senior civil servants in various Departments have all been in the City of London in the past six months and are in direct contact with several companies that have expressed interest is setting up in Ireland - in Dublin and outside Dublin.
It is premature to make any legislative or tax changes because we do not know where the Brexit negotiations will land. However, I assure the Deputy that we intend to maintain the advantages we have.
Question No. 36 answered with Question No. 34.
Motor Insurance Regulation
Michael McGrath
Ceist:37. Deputy Michael McGrath asked the Minister for Finance his views on the fact that, almost three years on from the collapse of a company (details supplied), 1,666 claims are still not dealt with; the position regarding the implementation of the motor insurance compensation framework announced in July 2016; and if he will make a statement on the matter. [1726/17]
This is a long-running sore for many former Setanta policyholders. As the Minister knows the insurer collapsed in April 2014 and unfortunately almost 1,700 claimants remain hanging in limbo with their outstanding claims estimated to have an overall potential cost of about €95 million. This is a very serious issue in the lives of many people who have been largely forgotten about while the issue is playing itself out in the courts, currently before the Supreme Court. I ask the Minister for his views on how those with outstanding claims associated with the collapse of Setanta Insurance can be assisted.
Setanta was placed in liquidation by the Malta Financial Services Authority on 30 April 2014. This liquidation is being carried out under Maltese law. As of 31 December 2016, the number of open claims is 1,664. Progress in the liquidation has been delayed due to court proceedings in the case of Law Society of Ireland v. the MIBI. The current position is that we are awaiting the outcome of the MIBI appeal which was heard before the Supreme Court in October 2016.
A small number of additional claims are not affected by the court proceedings and are being processed by the Office of the Accountant of the Courts of Justice. The Insurance Compensation Fund has recently been able to make 65% payments totalling €608,085 on first-party claims made by Setanta policyholders for comprehensive insurance claims. These payments are possible as they are first-party claims which come within the ICF remit, rather than third-party claims delayed by the Supreme Court proceedings. The liquidator for Setanta has informed me that claims provision required stands at between €87.7 million and €95.2 million; Setanta policies were cancelled in May 2014. The two years allowable under the Statute of Limitations to lodge claims has expired so the claims figures will not increase further; the liquidator reports that it is proving difficult to settle claims in advance of the outcome of the MIBI appeal; and the liquidator continues to be of the view that he will not be in a position to meet more than 30% of claims.
With regard to the implementation of the motor insurance framework, work on the heads of a Bill is progressing with a view to bringing them to Government in the second quarter of this year. The key change to be proposed is that the level of cover from the ICF for third-party motor insurance claims will increase from 65% to 100%, in line with that currently provided by MIBI. The increased coverage will be funded, to the value of 35% of the third-party motor insurance claims, by a direct contribution to the ICF from the motor insurance industry. Discussions are ongoing with the industry about funding arrangements to meet this obligation.
There are many human stories behind the collapse of Setanta insurance, one of which was brought to my attention last week. A gentleman had an accident in 2012 when his vehicle was hit from behind by a driver who was insured by Setanta. Unfortunately for him, the claim was not concluded by the time the company collapsed in April 2014 and it remains not concluded. He says that he is thousands of euro out of pocket between medical expenses and loss of earnings. He is unable to work much of the time because of injury. His solicitor is getting nowhere with it and until the Supreme Court issues its decision in respect of the MIBI-ICF case, this issue and that of many other claimants will not be resolved.
The Minister announced the motor insurance compensation framework last July. It is hotly contested by the industry. If something like this happens again and an insurer that passports in its services under EU law collapses, we are still in limbo as to who is ultimately responsible, which is a real concern.
It is one of the down sides of the Single Market that a company regulated in Malta can sell insurance freely here and is subject to Maltese regulation. Changes are now being made. The underlying framework is now strengthened with the introduction of the Solvency II directive on 1 January 2016. The system is now much more risk-sensitive and demanding, with increased capital requirements which will be consistent across all member states.
The role of the supervisory authorities is significantly enhanced, including provision for more co-operation between member states. It should make a Setanta-type scenario less likely in the future, but it does not solve the problem of those affected. It is important that we get the ruling of the Supreme Court as early as possible. The hearing took place in October last.
I thank the Minister for his reply. It is a sorry saga from which I hope lessons are learnt - not just in Ireland but elsewhere in Europe. It shows that an EU-wide system of regulation is only as strong as its weakest link. The Central Bank needs to ensure that, when firms passport in their services into Ireland and are only regulated here for conduct of business purposes, this is made known to the consumer loud and clear because when people hear an advertisement that such a financial service is regulated here for conduct of business purposes, they assume it means it is fully regulated here in Ireland, but, of course, it does not.
It may be prudentially regulated in another European Union country and if that country's system of regulation is not up to standard, it can create a terrible mess in this country at huge cost to people who will be directly affected. The Central Bank of Ireland needs to ensure that the public are aware of the distinction between conduct of business purposes regulation and prudential regulation because in this case and in other cases where we have had difficulties, the insurer was not prudentially regulated in Ireland. People would not have known that.
The Deputy makes a very fair point. We have had bad experiences with insurance companies back as far as PMPA and more recently Quinn Insurance, Setanta and various other ones we could mention.
It is certainly a situation of caveat emptor when one is taking out insurance because the lowest premium does not always come from the best insurer.
The next group of questions is Nos. 40, 58, 67 and 317. Due to time constraints, I can only allow 30 seconds for the introduction of Question No. 40 and will allow Deputy Curran to pose one supplementary question.
Questions Nos. 38 and 39 answered with Question No. 34.
Motor Insurance
John Curran
Ceist:40. Deputy John Curran asked the Minister for Finance if the cost of insurance working group has completed its deliberations and consultations; if the working group developed an action plan; the details of the plan and its implementation; and if he will make a statement on the matter. [1604/17]
Martin Heydon
Ceist:58. Deputy Martin Heydon asked the Minister for Finance the next steps to tackle rising motor insurance costs following the recent publication of the report of the working group; and if he will make a statement on the matter. [1655/17]
Richard Boyd Barrett
Ceist:67. Deputy Richard Boyd Barrett asked the Minister for Finance the way in which the Government's new motor insurance policies will result in affordable premiums; and if he will make a statement on the matter. [1652/17]
Maureen O'Sullivan
Ceist:317. Deputy Maureen O'Sullivan asked the Minister for Finance the status of the report of the working group examining spiralling motor insurance costs; when he envisages the findings being acted upon in the interests of motorists who have seen huge hikes in premiums; and if he will make a statement on the matter. [1758/17]
The Minister is aware that the cost of motor insurance has increased significantly in recent years - by 11% in 2014, 13% in 2015 and approximately 28% for the 12 months to August 2016. The Government's response has been the publication of the working group's report with 31 recommendation and more than 70 actions. What are the key recommendations and how soon does the Minister anticipate that the recommendations, when implemented, will have an impact on motor insurance premiums?
I propose to take Questions Nos. 40, 58, 67 and 317 together. The working group on the cost of motor insurance, chaired by the Minister of State at the Department of Finance, Deputy Eoghan Murphy, completed its report in December 2016. The report, which was approved by the Government on 10 January 2017 and subsequently published, contains 33 recommendations and 71 actions. These are detailed in an action plan with agreed timelines for implementation covering six main themes, namely, protecting the consumer, improving data availability, improving the personal injuries claims environment, reducing the costs in the claims process, reducing insurance fraud and uninsured driving, and promoting road safety and reducing collisions.
The recommendations include actions to: address the lack of transparency in the claims environment through the establishment of a national claims information database which will be located in the Central Bank; provide enhanced guidance in how to determine compensation for personal injuries claims through the establishment of a personal injuries commission; address the increasing level of uninsured driving through the establishment of a fully functioning database which will allow gardaí to check insurance compliance through the use of technology such as Automatic Number Plate Recognition, ANPR; and address the issue of suspected fraud through the establishment of a database, funded by industry but held by an independent body, which will take into account data protection concerns. A number of the actions are already underway and I am confident that all of the report's 71 actions will be implemented by the end of 2018, with 45 due for completion this year.
While there is no silver bullet to reduce the cost of insurance, co-operation and commitment between all parties can deliver fairer premiums for consumers without unnecessary delay. This will lead to greater stability in the pricing of motor insurance and will help prevent the volatility that we have seen in the market in the past. It should also better facilitate potential new entrants to the market.
The working group will continue to meet in 2017 as the project enters its implementation phase.
I thank the Minister for his reply. I welcome the report which is very similar to the Fianna Fáil policy document that was published last summer and the report from the Finance Committee published in November. My concern is with the urgency of its implementation. I am not going to go through all of the actions contained in the report but will highlight one or two. The very first recommendation is that insurers should set out reasons for large increases in premiums to provide transparency to consumers. However, the action point associated with that recommendation, to develop legislation to underpin the protocol, is only going to happen in quarter four of 2017. It is that type of delay in the Government's response that concerns me. The implementation will not bring about a reduction in premiums quickly enough.
I would like to see four of five of the key actions being identified and fast tracked. Not all actions will have an equal impact in terms of reducing motor insurance premiums. The Minister mentioned, for example, the issue of uninsured drivers, which is one of the key issues likely to affect premiums to the greatest extent. If such issues could be fast tracked, that would be a welcome move. The report contains 33 recommendations and more than 70 actions but some of them will be delivered too slowly. If the Department picks the first half dozen that could have the greatest impact, we could do better in terms of reducing premiums.
The Minister of State, Deputy Eoghan Murphy, whose work generated the report, is very conscious of the need to press on now to the implementation phase and to prioritise the implementation actions. He is getting the co-operation of the industry, hopefully, to do this. He is also conscious of the fact that there is no silver bullet that will bring down premiums overnight but if a new base is established for motor insurance in this country, that should stabilise the situation. There should be gradual reductions and no sudden, dramatic increases like those we have seen in the last 18 months.
I will allow the Deputy to ask a further short supplementary question.
I do not disagree with what the Minister is saying but I am concerned that some of the particular actions referred to by the Minister this evening have delivery dates of the end of this year or 2018. As I said already, the Minister referred to uninsured drivers but the actions to deal with that are only going to be put in place at the end of 2017 or in 2018. Some of those actions should be fast tracked because they would have a significant impact on premiums.
I will bring the Deputy's views to the attention of the Minister of State, Deputy Eoghan Murphy.
Written Answers are published on the Oireachtas website.