I welcome the Minister and his officials to the committee where we will continue with the Committee Stage of the Finance (No. 2) Bill. I remind members to ensure their mobile phones are switched off. This is important because it causes serious problems for broadcasting, editorial and sound staff. Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him, her or it identifiable. Parliamentary privilege is considered to apply to the utterances of members participating online in a committee meeting when their participation is from within the parliamentary precincts. It is important to note that in order to participate in a division in committee, members must be physically present.
Finance (No. 2) Bill 2023: Committee Stage (Resumed)
Yesterday we finished on section 39, amendment No. 21, in the name of Deputies Ó Snodaigh and Ó Murchú. Amendment No. 22 in the name of Deputy Nash has been spoken on. Amendment No. 23 in the name of Deputies Boyd Barrett, Kenny and Smith moved and spoken on. The Minister had responded. I call Deputy Ó Snodaigh.
I apologise for not being able to be here yesterday when Deputy Pearse Doherty moved my amendment. It is an important amendment in terms of the film industry, in particular. The amendment proposes that those working in the industry get the same terms and conditions that other actors and those working in the film industry, in particular, get across the European Union. There should be no position whereby those who are working in this field have lesser terms and conditions, especially in an industry which is heavily subsidised by the State and public. We should not expect workers to be asked to waive their rights to future payments because the industry here thinks it can be more profitable by squeezing writers, actors and the like.
In this State, Irish workers are contracted through a company in the North and work side-by-side on a film set with workers who are contracted in this State. There are two different conditions attached to that employment. American companies which are filming here managed to get a waiver during the recent strike because they provided the proper terms and conditions that the acting unions in America were happy with. However, Irish actors are on less favourable terms and conditions than those set out in America as being the lowest possible standard expected for actors.
At the end of the day, nobody is looking for 100% of the profit to go to actors and those working in the film industry. It is an industry and there is profit to be made. The owners of film companies will make a profit, but it should not be on the back of Irish workers. Irish Equity has set out its case. Equity in Ireland has been backed by Equity abroad and Pact, as well as by American Equity. This is quite a simple ask. There is a lot more wrong with section 481 we can go into detail in a later stage, but in the application of the section we should start to give greater protection to the creatives, as they are called, in particular actors and others working in the film industry. They are being asked to do something which I would have regarded as being illegal, but I was told it was not, namely, to sign away their future ability to get payments for repeats and so on.
Some of this goes to the core of why there is an actors' strike in America. Given our history in terms of the arts, we should be in front of the curve rather than behind it on this. That is why I have proposed this amendment.
Thank you, Deputy Ó Snodaigh. I call Deputies Boyd Barrett and Ó Murchú in that order.
There are different aspects to these amendments but all of them revolve around the critical question of quality employment and training, whether it is for actors, writers, directors, performers or crew. I hope the Minister is hearing, because we certainly heard at the budget scrutiny committee where we examined this matter in detail, and it is a matter I have been raising at every Finance Bill for as long as I can remember, that whatever Screen Producers Ireland, SPI, may be telling the Minister and his Department, the actors, writers, performers, directors and crew are not happy. Whatever he is being told, he needs to realise that is not reflecting the view of the majority of people who work in the industry and make it happen. Yes, a relatively small group of producers are the major recipients of section 481 relief of approximately €100 million a year, which is a great deal of money.
If I look at the costing for the change in section 481, the Minister as saying this will be an extra €53 million. I stress that we all want to see a great deal more money being put into film production and the arts, but if we put that much money in, we have an obligation to ensure the conditions of section 481 are being met with regard to quality employment and training, not just because the Oireachtas has put this in the Finance Bill but because the Minister is required to do so under state aid rules from the European Union. There are very strict conditions around state aid for the audiovisual film industry and that is where the quality employment and training issue comes in around what is called the industry development test. There has to be an industry and it has to deliver quality employment and training, and the Minister has been told, as have previous Ministers and as has the Department, again and again by the majority of people who work in this industry that those tests are not being met.
I ask that the Minister might also consider it or think about it given something that has happened between this Finance Bill and the previous one, namely, the RTÉ scandal. There was a governance structure in RTÉ, which is also in the audiovisual industry, which we discovered was an absolute mess. To cut a long story short, that mess revolved around the fact that a very small number of people were getting massive salaries but a very significant number of people in the organisation were bogus self-employed, on much lesser terms and conditions, and so on and so forth. If there were problems in RTÉ, which we have now rectified, and while we all want to keep RTÉ going, we want public service broadcasting, and we recognised there was a serious problem in governance, I tell the Minister that the problems in the film industry are multiples of that because there is no governance. It is a self-regulated industry and I have to say that the responses of the Minister last night were very worrying in that regard.
This was because, first of all, there was the usual trope about this bit is not my Department, it is the Department of Enterprise, Trade and Employment, this bit is ours, and this bit is the Department of Finance, where the buck is passed from one silo to another. Nobody is really responsible but the figure is €100 million and rising. That is not good enough. If the Minister does not want another RTÉ blowing up in his face or does not want what is happening in the United States with the strike that has been going on for a year, I seriously suggest that he start listening, and I am appealing to him to do so and to do something about this. The fact is there is no governance or enforcement to ensure compliance with these conditions.
I will give an example of why I am particularly worried. Last night, as the Minister knows, Equity said it wants the Pact Equity Cinema Films Agreement because, without it, Irish actors, writers and performers are working on lesser conditions, often on the same productions here in Ireland with people who are on the Pact Equity Cinema Films Agreement. They are doing the same job but on lesser terms and conditions because they do not have the benefit of the agreement. The Minister said last night that some of the actors perhaps want that because they are not as profitable and would prefer not to have the PACT Equity. That is straight out of the SPI playbook. I suspect that came in a communication from SPI and is its narrative. I can tell the Minister from and on behalf of Equity, because I talked to the organisation again this morning and it was very alarmed by these comments, and in any event the Minister has probably received the emails himself, that the trade union said it had voted twice in 2021 and the actors said overwhelmingly that they wanted the Pact Equity Cinema Films Agreement. Letters have gone to all of the relevant Departments on this issue, and the union has asked that I ask the Minister to examine very closely what it has said in response to the narrative coming from Screen Producers Ireland. I appeal to the Minister to do that but, to cut a long story short, it is simply not true. The actors want the Pact Equity Cinema Films Agreement.
There is a low budget option in the Pact Equity Cinema Films Agreement but there is a lot of scope for that to be abused. I believe the Minister may have received this communication that in one recent co-production, an Irish producer informed Equity that they wanted to use the low budget option, and according to Equity, when it examined this and received word through its colleagues, there was no registration with PACT Equity of the low-budget production, which is very worrying. In other words that low-budget option was being exploited by the producers to give lesser terms and conditions again. There is a very clear and consistent drive by the producers to give lesser contracts and lesser pay and conditions, and so on and so forth.
Critically, on the issue of buyout contracts, where performers sign away the rights of their residuals, the EU directives are clear on this: these should be the exception and not the rule. In Ireland, they are the rule and not the exception. That is what is going on and actors, writers and performers are in a very vulnerable position because if you want to get on a film, you are told to sign this contract which has been drawn up by accountants to have a legal wording that gets around the directive in a way that is nominally compliant but, in reality, forces workers to sign up to contracts that are far less than what their counterparts in the UK or the US have. When I say that they are drawn up by accountants, I mean that they are actually drawn up by accountants. I will not name names but look at the personnel who are running Screen Producers Ireland. As Equity put it, the most creative thing in the Irish film industry is the accountancy, and even that is a worrying thing.
My second point is in respect of the crew. Again, to cut a long story short, the people who are getting the money are the film producers on the basis of providing quality employment and training, and they are going in every time a worker who works on a production takes a case to the Workplace Relations Commission, WRC. These are the self-same producers who put their hands out to the Minister and to the public for section 481 relief, for that money, saying again and again that they will provide quality employment and training. They then march into the WRC and state they do not have any employees. Will the Minister please explain that to me?
I know what the answer will be, that it is up to the Department of Enterprise, Trade and Employment. Can the three relevant Departments not get together and just find out the truth about this? They do not have to take my word for it but just find the truth out about it. Do what I did a couple of weeks ago because I have been receiving reports about this for the past few years. I decided to go to the WRC and look at it and see it for myself, and I saw it. IBEC marched in on behalf of one of the main film producers, in fact the biggest film producer in this country and the biggest recipient, because the film producer would not turn up.
According to the crew, how they got away with not turning up or why they did not turn up was because they said they were afraid they would have to perjure themselves if they gave evidence. What the case revolves around is who the employer is. The worker goes in and says he or she was employed by them. They do not turn up and they say they are not the respondent. The designated activity company, DAC, that no longer exists is the respondent, even though the producer set up the DAC, so they send in IBEC, which is very odd, to say that its member is not the respondent and, as a result, there is no case. That cannot continue.
We have to have a situation where the service of people who have worked ten, 15, 20, 25, 30 years is valued. I met one painter who had been in the industry for 40 years. He is just gone now, never to be employed again. He was a set-painter. I witnessed a scene in the audiovisual room with film producers present. When that worker asked why he was terminated from the industry, somebody who worked for one of the bodies that is linked to the producers said it was because he was a troublemaker. It was said in front of about 40 of us that he was a troublemaker. If a boss thinks somebody is a troublemaker, that might mean they are a union activist, for example, or that they assert their rights. However, even if someone is a troublemaker, there is supposed to be a thing called due process. As the departmental officials know well, there is a whispering-rumour-smear campaign going on against the whistleblowers who came in here, but they never had due process. They were blacklisted on the basis of whispers and hearsay. That is not right, but it can happen in the Irish film industry because there is no industry and there are no employers.
Do members know that there is very little film production happening in the country right now? Do they know why? It is because of the SAG-AFTRA strike. Does that not tell us something? Of course we want co-productions with the American film industry, but it is a bit telling, after who knows how many billions have gone in over the past 20 years, that when the US film industry shuts down, all of a sudden there is no Irish film industry. There are no employees. Nobody has a job, but we have put in billions. The Government wants to put in more, but we do not have an industry that is supposed to be developed, as a matter of law, on the basis of the EU directives on state aid and the legislation. It disappears overnight. All of a sudden, there is no film industry. That cannot continue. I ask the Minister to address that.
I have other Deputies to bring in. I thank Deputy Boyd Barrett for that contribution.
I apologise that I was not able to be here earlier when the committee was dealing with this matter. A considerable amount has been said, and it was said previously. We all want to see a thriving film industry. Obviously, the budgetary proposal was that the €70 million cap on the section 481 credit would move to €125 million. That is a greater amount of money that the State will put into the film industry. It is a means of ensuring that we build and sustain a film industry. The fact is that we are not meeting the necessary conditions for quality employment and training. At times, we may have questions about cultural conditionality in the context of certain matters, but nothing has been enforced in any way, shape, or form.
On the amendment I have tabled, a huge amount relates to Irish Equity and everybody's understanding that how actors made money, particularly when you are talking about Matt Damon, Ben Affleck or Leonardo DiCaprio, was on the basis of residuals. If they got a decent part, they would get residuals and get paid constantly during leaner times. The fact is that the power differential is huge, whether you are a writer, composer or crew member. That is the problem. On some level, and this is not overdramatising matters, it is almost like a scenario from 1923 in the sense that the producers draw down the money, and, as Deputy Boyd Barrett said, they are not the employers, and there will be a hood who will make a determination as to who will work in the place. If you fall into the scenario of being, for want of a better term, a troublemaker or a problem, it is pretty easy for someone not to phone you. Therein lies the weakness, and the fact that we do not have governance.
In fairness to the Joint Committee on Budgetary Oversight, a huge body of work was done and a massive number of recommendations. The number one recommendation is the need for a stakeholders forum. We need to get beyond the fact that the Department of Tourism, Culture, Arts, Gaeltacht, Sport and Media is talking to the Department of Finance and that we get to the point of having this stakeholders forum so that all these issues can be put on the table. These are instances where some of these workers are talking about being forced to sign away residuals and being left in worse conditions. There are crew members who say they have been blackballed. I accept that this is a particularly difficult time because a huge number of people are not being employed. We are constantly hearing of people, even when they receive employment offers, say that their conditions are way less attractive than those they would have enjoyed previously. That tells me there is absolutely no protection for those workers, composers or any of the other artists involved.
I am not going to rehash all the points that have been made. We get the idea that the producer draws down the money. The DAC is the employer. It then disappears, so there is no chasing anybody afterwards. If we are putting all this money into the industry, I like to think that our aim would be that we would have some sort of stake or whatever in an industry that was thriving and providing really good quality employment. This is what is also necessary for us to sustain the industry. What we also hear about at times in some of these film operations is that it has got for this is so that certain people can make more money. More apprentices are being employed now than people who worked in the industry previously. What that means is that they will obviously be under severe pressure. Everybody wants to work, but the quality might not be there at certain times.
We have heard about films that were shot in Ireland and then reshot in Britain and other countries. That would worry me. We need to consider these amendments because that is something we can do today. Beyond that, we have the recommendations. I am fairly sure the Minister is aware of the over and back regarding his Department and that of the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media, Deputy Catherine Martin. We really need to get that stakeholders' forum in place. We need to put this in train. As I said, we are all in agreement. We have seen the successes of the film industry. We need to make sure they are successes for everybody who works in the film industry and that it is sustainable in the long term.
I will speak to the overall concept of this and then make a number of comments. First, I welcome the changes the Minister is making in respect of the cap. That is a positive for the future of the sector. While everybody here might argue over different parts of it, we all agree with the concept of section 481 and increasing the cap, putting money into film production and trying to encourage more into it to make it more sustainable. We all want a greater win for Ireland out of that and for the permanent presence of the sector here to develop the talent and the skills. That is why I also welcome the Minister's other initiative. He mentioned that his officials will begin to work with the EU Commission on an incentive for the unscripted TV production sector, which, again, copper-fastens the opportunity to develop the skill and the talent in the whole creative sector and the creative productions industry sector. That is important, because what we are trying to find by means of these various opportunities and incentives is a way to guarantee more work for those involved in the sector, that is, more long-term and more guaranteed work, not just one production and then people might be out of work for a period and hope to be re-employed at some point.
If we can develop the overall sector - the film industry, television production, animation and all the other parts of that sector - there will be more work for everybody and more opportunities for Irish SMEs to develop their talents, grow and expand. That is to be welcomed.
It is absolutely essential that anybody employed in the sector is treated properly. We have a very proud tradition in Ireland that no matter what sector it is, we have very strong employment regulation and employment laws. Questions are being raised here. I listened to some of the debate here yesterday and today, and previously on the report as well. There are issues that need to be investigated, checked out and tightened up so that if there is any truth in any of the claims, it cannot happen again. We would all agree with that. I have sympathy for the comments the Minister made last night. This has to be solved across a number of Departments. Enforcement and monitoring are needed to make sure everything is right. There are many positive stories as well.
There is certainly merit in having the stakeholder forum because it straddles a number of Departments and agencies. There was talk last night about employment rights and conditions in this sector. The Minister referred to the collective bargaining arrangements that are there. As I mentioned to Deputy Nash, we should look at a joint labour committee for this sector to bring all the stakeholders together and work with the Labour Court on developing employment regulation orders, EROs, for the sector. There would then be equal treatment throughout the sector and there would be standard terms and conditions, regardless of what the company is or who the employer is. The Minister's Department will not be leading this. It will come through the Department of Enterprise, Trade and Employment. It has worked extremely well in many other sectors.
There is an opportunity here. If we are all committed to developing a sustainable creative sector with long-term jobs and opportunities, this is how we should bring all this together to guarantee the terms and conditions and to make sure everybody involved gets a fair share. There is an opportunity. Ireland has done well for a long number of years with investment in this area. There is an opportunity to grow talent, but there is much more opportunity to build on that by having high-quality jobs and by bringing home people who are working in the sector overseas to avail of the opportunities here. I recently met representatives of many new Irish companies who see the opportunities in the film sector but also in the television production and script sector. There are many opportunities. I looked at the numbers in one production recently. My understanding is that of the 250 Irish-based employees, less than 40 had come in from other countries to work on the production. That is really positive but we have to make sure they are on top-class terms and conditions. I believe in that case they were. We need to make sure of that in any situation. That is the balance we want. There are many people living and working in Ireland in this sector. We need to develop their talents. That is what the aim should be for all of us. That opportunity is there. I welcome the changes the Minister is making to the capping, and also the announcement on the unscripted sector. The overall area can benefit. There is no doubt that all of us want top-class quality terms and conditions here.
On the copyright directive, there is room for more scrutiny. I was involved in the past. There is an issue around the control. Everybody involved has to have a fair share. From an Irish point of view, there is more work to be done to make sure the directive is used properly for everyone's benefit. It was a European directive. In my view, not many people here got involved in the consultation when it was coming through and being recognised in Irish law. There is an opportunity, not necessarily in this Bill, to look at that again to make sure it is being maximised for everyone's benefit and is being used correctly so that people are not being asked to sign away their rights too easily. I understand there is a balance to be reached between those who put the money up for a production and the share for employees, but it has to be balanced right. Let us get that right. We could look at that again. It is too big a discussion for this Bill but it is certainly something we could look at again. There is still an opportunity in an Irish context to look at the directive again and work through it.
I wish to speak to this amendment, so I ask Deputy Durkan to take the Chair momentarily.
I welcome section 39 and the amendment being proposed by the Minister. It is a positive move. The Irish film production industry is recognised globally. We have large multinational corporation-backed productions, but we also have a lot of indigenous industries and locally grown talent. It all benefits from a well-functioning industry in which everybody's interests are taken care of equitably. I know many people who work across the spectrum of the film industry, including painters, as referenced earlier, electricians, carpenters, riggers and people in creative, in production, in transport and in accountancy. The back office part of these productions is extremely important as well. I would not criticise accountants because they have an important role in this work. Many of those people live in my constituency and in Deputy Boyd Barrett's constituency. It is unfair to characterise an entire industry based on information that may be submitted by individuals because it is not what I hear from the many people I know who work in the industry.
I do not doubt that there is no perfect job, no perfect industry, and no job sector or situation where disputes do not arise. Working conditions can be difficult. The nature of film production is not like working in a shop or factory. When productions arrive in, it is mobile and it can involve long hours, weekend work, night work or working out in the cold. Anybody who works in the industry recognises that. A lot of investment goes into this industry. One of the most positive things any investor can have is a cohesive working situation where everybody is being looked after. A crew all working and pulling together produces a good product at the end. Everybody recognises that across the board. I did some investigation on section 481. If you sign up to it and are successful, you need to comply with the terms of the employment Acts. You need to comply with the Safety, Health and Welfare at Work Act. You need to comply with the full range of employment protections we have in this country. There are mechanisms and methods on every work site and in every situation to bring a grievance and to raise something with management. There is a mechanism in place for doing that. It is unfair to characterise the entire industry as has been done here today. That is unfair to many people working in the industry and across the board in the creative area. We have a product that goes out around the globe. The quality of work produced in the Irish film and production industry is recognised internationally. We constantly compare with the UK and other places but we are in global competition with the UK, the US, Asia and Europe. We need to be careful. There seems to be always a rush to talk down Irish successes and to criticise everything about them. We need to be careful about that. This industry is successful and - let us not forget - it is mobile as well. If some of those involved in it pick up on the attitude that is being displayed by parliamentarians here, they might question that. With this amendment, we are backing the film industry and we have been doing so for quite some time on production.
I recently visited another sector of film production - the unscripted sector, on which Ireland is leading and will lead in a European and global setting. I welcome the Minister's comments in his speech on budget day that we are going to work out a support mechanism for the unscripted sector as well. I will explain what that brings to the unscripted sector. I spoke about the film production being quite mobile, being on set and moving around a lot. The unscripted sector - I could mention BiggerStage in Ashford, County Wicklow - involves on-site work. We need to send out a signal that we should invest in this industry so that anybody - carpenters, or those involved in lighting or power - can say that Ireland is back in this industry. We should invest in it. If we see a strong trajectory, there is a strong signal to invest in it and thereby create employment opportunities, including opportunities that are permanently on set, not mobile or moving around the place.
I appreciate what the Minister has done. I look forward to further work to support the unscripted sector. It is unfair to characterise the whole industry in the manner that has been done here today.
There is a degree of value in what Deputy English said. That may be something we could explore at some point in the future when the Minister with responsibility for the sector could look critically at the idea of introducing sectoral bargaining arrangements on a more formal basis. I am open to persuasion on whether a joint labour committee is the right approach. Deputy English is familiar with the sectoral employment order system, which might be more appropriate for a sector like that.
To comment a little on Deputy Matthews’s remarks, I do not think anybody here is trying to undermine the sector at all. I spoke at length on this last night, as did Deputy Boyd Barrett. We all value the sector. I think to a member we support the Minister’s move to increase the cap because of the value of the sector and the potential for the sector to develop beyond where it is.
Regarding Deputy Matthews’s remarks, he made the point about how agile and flexible people need to be in the sector. We know the insecurities that are there due to the nature of the sector. He is actually making the case, in many ways, for a sectoral bargaining system and for a form of collective bargaining in the industry. The industry says it is there and it takes some form, but there are enforcement issues. It was correctly pointed out that we have a suite of employment protection legislation and safety legislation in this country that is applicable to every employment. Every employer is required to comply with it. The reality is in certain sectors, enforcement is patchy. I will put that diplomatically.
I say this as somebody who, before I was a Deputy, was on the board of companies whose business was film production. I was involved with film production of relatively small budget but high-profile and successful Irish productions in the 2000s. I have seen the spectrum of the industry. I know the majority of people want what is best for the industry, and what is best for the industry means what is best for those who work in it. The best way of addressing these issues is for the principle to be conceded by the Minister that there should be no cash without conditions. That is the principle. That does not apply just to section 481 film relief. It applies to a whole raft of other tax expenditures we are good at providing in this country, and for good reason - to benefit certain industries where there is a public policy initiative or public policy requirement to do so. However, we are not very good at using public policy to drive better outcomes for society more generally. When I say society more generally, in this regard I mean working people and the people on whom the industry depends for its success.
Like other speakers, I have spoken on this before as well. I strongly support the concept of a strong film industry in this country. It is important for a whole lot of reasons that have already been set out: promoting the country, promoting the film industry in this country and promoting this country as a film location, which in turn has many benefits that roll off from it. It is hugely important to see your country, city, town or whatever the case may be on film in a major production for worldwide distribution. It is hugely important we promote and encourage that.
The problem seems to be that a number of Departments have responsibility in this particular area. It may be difficult to control a situation like that. It is extremely difficult to ensure best practice applies from everybody’s point of view – the nation, the industry and the individuals working in the industry. They all have an interest and a reason to make a positive contribution. They will do so and are anxious to do so. We have all met people involved in the film industry who have privately indicated to us what they want to do, all of which is positive.
We should try to avoid a situation whereby we have two levels, one which is the internationally accepted one and the other, which is in relation to how the situation operates and the rules and regulations that prevail on the home front. Some means or structure needs to be set up to bring that part of the industry under a single Department. It would make it much more acceptable from the point of view of those who have grievances and make it easier to control where control is necessary. That, in turn, would have a knock-on beneficial effect to the industry and to the country economically.
We have all seen films from all over the world depicting the country or nation, whatever that may be, always in the best possible light. To compete in that situation, we need everyone on board – the employers, employees and everybody associated with the industry. The international competition, as Deputy Matthews mentioned, is serious as well. People from outside this jurisdiction are very ready to lure people out of the situation here and encourage them to go abroad.
I refer to when the credits roll in a film. There used to be a time when the number of recognisable Irish names was very small and usually in the minor roles. That has changed considerably and thankfully to our advantage. Now in the major production roles we see a great number of readily recognisable Irish names. That is hugely beneficial.
It is a growing industry and it can grow more. It will grow much better and more effectively from everyone’s point of view if it is done on the basis that this is a good industry to work in and work on. It is a good industry to depict the Irish image at home and abroad. It is something we can and should be proud of.
Going back to the beginning and the studios in Wicklow years ago, it was very new and some of us are nearly old enough now to remember when it started, but not just. It was a fledgling industry that grew from very little. It set itself up in worldwide competition. It did a tremendous and great job. It also ensured there were younger people who wanted to get involved in that industry - younger people will always want to do so. They wanted to get involved, they had a degree of training and they had a degree of access to the front line, as it were, to be able to make a positive impact on the industry to which they were espoused. That needs to continue and grow. We need to try to ensure fair play and due process is seen to be operating throughout the industry here and that nobody becomes a victim of what should be a great industry.
I thank the Deputies for contributing. At the outset, I acknowledge the work of the Committee on Budgetary Oversight. It was a substantive piece of work that my Department has closely observed and the officials are fully aware of the recommendations set out within that report.
We need to bring it back to first principles. In this section, we are setting out a massive opportunity for the creative industry in Ireland. To go from a cap of €70 million to €125 million is a very big step. It is a major commitment by Government and taxpayers to the industry. I, like members, want to see an industry that is growing, thriving, has more opportunity for people who are involved in the sector, has more employment and, of course, good terms and conditions for all of those involved in the sector. It is important to put that on the record first and foremost because that is what this section does and this is what the industry broadly has been seeking.
The Minister, Deputy Martin, made a very strong case, which I supported. I am enabling the industry to grow into the future. Yes, there are ongoing issues we will need to deal with as part of that. In respect of those issues, my key point is that the way to progress them is through engagement. For example, recommendation No. 14 in the report of the Committee of Budgetary Oversight relates to the Department of Tourism, Culture, Arts, Gaeltacht, Sport and Media convening a stakeholder forum.
Those plans are being put in place. The Department of Finance will be involved in that. The Department of Enterprise, Trade and Employment also needs to be involved in that. This is about focusing on the broader issues, the future of the industry, how we maximise the potential that we are now opening up in terms of section 481, and what the structure of the industry is into the future. Of course, that stakeholder forum will be working to agreed terms of reference which I am sure the members will be given an opportunity to input into. I want to reaffirm that there is a very close working relationship between the Department of Finance and the Department with responsibility for tourism in relation to all of these issues, and there will continue to be into the future.
The substantive issues that have been raised primarily relate to terms and conditions. As I said, I absolutely want to see the best possible terms and conditions available for all of those who are working in this sector into the future. Comment has been made about the strike in the US and the impact of that. I think what that shows is the power of the union movement and the power of the unions. The way forward here is through engagement. It is my understanding that both Irish Equity and Screen Producers Ireland, SPI, have indicated that they are willing to begin discussions with a view to reaching a new collective agreement for actors and performers. I look forward to progress being achieved by the relevant parties. That is the way of addressing the issues in relation to terms and conditions into the future. I think we can point to success that there has been in that regard in the last number of years. We should acknowledge that a huge amount of work has been done and a lot of progress has been made. A modernised film crew agreement was introduced in January 2021 for shooting crews. In July of last year, SPI and the ICTU Film Construction Group of Unions secured a construction crew agreement, making provision, for example, for the construction workers' pension scheme and a whole range of other issues provided for in that agreement about hourly pay rates, overtime rates, allowances, the guaranteed working week, disputes procedures, etc. If that can be done for one part of the industry through discussion, engagement and collaboration, then it can be done for all other parts of the industry as well.
When was that? Could the Minister repeat that?
In July of 2022, SCI and the ICTU Film Construction Group of Unions secured a construction agreement. This agreement encompasses up to 300 workers in the independent film and television construction sector. Among those included in the agreement are carpenters, plasterers, painters, riggers and stage hands. The agreement provides for increased hourly pay rates, overtime rates, allowances, a guaranteed working week, disputes procedures and various other industrial relations and employment provisions. Other important measures covered in the agreement include the extension of cover for pension, sick leave and other benefits to industry construction workers under the construction workers' pension scheme. In the addition, the agreement saw the establishment of a new joint monitoring structure that will help ensure the agreement is appropriately implemented.
That is an example within the industry of what can be achieved by agreement and through collaboration. If it is the case, as I understand it is, that both Irish Equity and SPI have indicated a willingness to begin discussions with a view to reaching a new collective agreement, then that is what should be done. What I can indicate from my perspective and that of my Department is that we will be as supportive as we possibly can be. I recognise what my role is, but I also recognise what my role is not. My role is not in relation to employment law, the copyright directive and the enforcement of terms and conditions. I do not have a direct role in that. This is a finance Bill. It provides for taxation provisions. It is an enabling piece of infrastructure for the industry. I am prepared to make that step because I think it is the right decision to make. We will provide whatever support we can. We will be directly involved as a Department in the stakeholder forum because I agree that there is a need for co-ordination. All of the relevant Government Departments need to work together to iron out these issues. When it comes to terms and conditions, the best way forward here is through direct engagement by the relevant parties. It is not seeking to in some way transpose a UK agreement into Irish law. I am not even sure how we would anchor that in Irish law. In any event, the Deputy will accept that it is the case that there are different views on that. We should not seek to impose that into an Irish context where I do not believe it is necessarily appropriate in all circumstances. As the Deputy is aware, we have transposed the new directive. Separate from that, we have the Copyright and Related Rights Act 2000 and a number of statutory instruments, most recently the European Union (Copyright and Related Rights in the Digital Single Market) Regulations 2021, which transpose the EU directive on copyright in the digital single market. We have that in place in Ireland.
I want to add a point on the unscripted sector. I welcome the comments by the Acting Chair and Deputy English. I reaffirm that I have requested my officials to commence discussions with the European Commission with a view to introducing a tax credit for the sector in line with state aid rules with a view to its introduction in 2025. There will be considerable design work involved. It has to be done in a manner consistent with state aid rules. We will now embark on that work in the right spirit with a view to achieving a successful outcome. To bring it back to the fundamental point, what we need here on terms and conditions is engagement between the relevant parties. My colleague, the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media, is setting up the stakeholder forum that my Department will be directly involved in. What we are doing here in the Finance (No. 2) Bill is increasing the cap to €125 million. We are presenting the sector with an enormous opportunity, which I believe it should be seizing. I will be as supportive as I possibly can to achieve progress on the valid issues that have been raised by a range of Deputies this morning and, indeed, last night.
We will get to Deputy Boyd Barrett's amendment. Is Deputy Ó Murchú pressing amendment No. 21?
We are pressing it. What we are talking about is trying to introduce some element of equality and workers' rights across the board for those people who work in the industry. I welcome what the Minister said in the sense of supporting the stakeholders forum. We have to deal with issues that we have all talked about that have been raised by many people around blacklisting and other such things which should not be happening. Question marks have been raised in relation to crew sectoral agreements with SPI at this point in time.
I welcome what the Minister said, and the changes that are being brought about. I am here long enough to remember the 2004 campaign to save section 481. I was one of those on the Opposition benches who supported it at the time. Even way back then, there were questions as to whether we can could carte blanche tax relief and basically forgo tax in such a way without any conditionality. What the amendment proposes is the introduction of a conditionality on a major investment by the State in an industry to try to ensure the terms and conditions of the workers in that industry are not less than the conditions 90 miles up the road. That is it in a nutshell. I do not think anybody here is having a go at the industry in terms of its product, which is second to none. We understand the State has invested in and promoted the film industry since it took over Ardmore Studios in the 1970s and it has been up and down since. We have a product with which we can celebrate Ireland throughout the world, through film and the audiovisual sector, but we need to do so in a way that enables us to celebrate Irish workers, protect them and make sure their contribution to the audiovisual world is protected in the same way we protect other workers under the finance Acts. It is part of the Minister's job, in the changes that he brings about in spending and taxing workers or industry, to ensure it reflects the best possible cases.
It is not one or the other in my view. We should pass this amendment, but we should also proceed with the other recommendations of the Committee on Budgetary Oversight. If you go back to the arts committee in the previous Dáil, you will see that all of these questions were asked in advance of the changes that gave rise to the cap being increased to €70 million. Nothing has happened, and that is the problem for those working in the industry. They see movement away from them, or at least that they are being ignored. The opportunity is now. That is why I am pressing the amendment.
I thank Deputy Ó Snodaigh. The question is, "That amendment No. 21-----
Sorry, can I-----
I am going to go through the amendments in order. The Deputy can speak to his amendment when we get to it.
I just want to say that I welcome the Minister's response to all the points that have been raised. Co-ordination across the Department is key. Apart from the amendments, there has been a good discussion here, with some good outcomes from it to back up the changes contained in the Bill.
Can we not discuss them as a group? I thought we would discuss them-----
We have discussed each of the amendments. I am now asking each of the proposers if they wish to press their amendments. I am going to put the question in respect of Deputy Ó Snodaigh's amendment. When I get to Deputy Boyd Barrett's amendment, he will have the opportunity to speak to it. Is that okay?
Will the Minister have a chance to respond, finally?
Yes, of course. If there is a question. Is the amendment agreed?
Vótáil.
It is slightly odd that we have done it this way. We are going to go back in after a vote and continue debating the same grouping.
We have to deal with the amendments one at a time. Anyway, the Deputy can call a vote each time if he wishes.
Yes, okay. You are the Chair.
I thank Deputy Boyd Barrett. With regard to amendment No. 21 in the names of Deputies Ó Snodaigh and Ó Murchú, a division has been challenged. As all members are not present, we will proceed to ring the bells. After eight minutes, or when all members are in attendance, the clerk to the committee will take a roll call.
Tá
- Boyd Barrett, Richard.
- Conway-Walsh, Rose.
- Doherty, Pearse.
Níl
- Durkan, Bernard J.
- English, Damien.
- Matthews, Steven.
- McGrath, Michael.
- O'Callaghan, Jim.
I move amendment No. 22:
In page 71, between lines 23 and 24, to insert the following:
“(3) The Film Regulations 2019 (S.I. No. 119 of 2019) made by the Revenue Commissioners under section 481 of the Principal Act are amended by the insertion after Regulation 3(4) of the following:
“(5) In this Regulation quality employment means employment—
(a) provided under agreements and in accordance with procedures that both facilitate compliance with and comply with—
(i) all relevant employment law requirements, and
(ii) the Copyright and Related Rights Acts 2000 to 2019 and the European Union (Copyright and Related Rights in the Digital
Single Market) Regulations 2021 (S.I. No. 567 of 2021), including in particular the provisions of those enactments that
relate to the entitlement of an author or performer to receive appropriate and proportionate remuneration for the licensing or
transfer of exclusive rights for the exploitation of works or other subject matter, and
(b) that, having regard to international comparisons, particularly with Great Britain and Northern Ireland, is reasonably well remunerated and provides reasonable employment security.”.”.
Tá
- Boyd Barrett, Richard.
- Conway-Walsh, Rose.
- Doherty, Pearse.
Níl
- Durkan, Bernard J.
- English, Damien.
- Matthews, Steven.
- McGrath, Michael.
- O'Callaghan, Jim.
I move amendment No. 23:
In page 71, between lines 25 and 26, to insert the following:
“(4) Within 3 months of the passing of this Act, the Minister will produce a report on how he or she intends to implement the other recommendations in the budgetary oversight committee report in section 481, particularly those regarding ensuring quality employment and training, so as to ensure—
(a) an end to the use of buy-out and other inferior contracts for actors, writers, directors and performers;
(b) compliance with the EU copyright directives and legislation;
(c) the excessive use of fixed-term contracts and the lack of recognition of service for film crew;
(d) the need for film producer companies to take direct responsibility for their employees; and
(e) the urgent convening of an all-inclusive stakeholder forum to address these and other outstanding issues in the film industry.”.
I have a couple of comments to make and questions to ask that I would like the Minister to answer. It is up to him obviously but I would appreciate it. In response to the Chair's contribution, I would like to say that there is no question, from any of those who are putting forward these amendments, of anybody trying to talk down the Irish film industry. Rather, what we want to see is a thriving film industry with more investment and more output, and which also does right by the incredible pool of talent we have. I really want to underline that point. We have an incredible pool of talent in terms of actors, writers, directors, performers, stage crew and many others.
The idea that the status quo is what the majority of them want is just not tenable. I met recently with representatives of Equity, and the writers and directors. None of them are not happy with the status quo. That is a pretty big group of people, and pretty critical to the development of the industry.
On the crew, there was a reference to an agreement with 300 workers. The first thing the Minister needs to understand about those workers, regardless of what he may have said, is that structurally speaking they are completely vulnerable. Forget about who said what when, or who did what where. Structurally speaking, they do not have any protection against their employment being simply terminated.
For the Minister's information, I asked Screen Producers Ireland, on behalf of film crew, how many film crews in the film industry have ever got a contract of indefinite duration. The answer was "none". That is a pretty startling fact when one thinks of the Protection of Employees (Fixed-Term Work) Act 2003, which is in the declaration that the film producers who receive the section 481 have to sign. They have to indicate that they are willing to comply with all relevant employment legislation, and that includes the Protection of Employees (Fixed-Term Work) Act. What they told the Committee on Budgetary Oversight is that it is not possible to give contracts of indefinite duration because of the nature of the industry. However, they signed a thing saying they are.
The whole point about the fixed-term workers directive and the fixed-term workers legislation is to prevent the abuse of successive use of fixed-term contracts. That is the whole point of the legislation. If somebody is telling us it cannot apply in the Irish film industry, that is a pretty serious matter. It is an unacceptable issue that we are being told by the people who receive the relief that it is not possible for people to receive contracts of indefinite duration. I remind the Minister that this is an issue we have seen emerge in RTÉ. We have seen in front of our eyes the whole question of people who have been working again and again taking cases, bogus self-employment and so on. There is an echo of that in the film industry. People were working for RTÉ for years but were deemed not to be employees, even though they obviously were employees.
It is slightly more complicated than the film industry but the basic point applies. Let us say that one works on a well-known television series that one can see on Netflix. Without identifying it too closely, it has had six different series, was filmed here, and is about an earlier point in European history. Let us put it that way. It is a fairly popular series. One may have worked on three, four or five of those series, and then all of a sudden, one is not re-employed for the sixth. One is not told why but one just does not get re-employed. They have been filmed over ten years, or whatever. One takes a case and says, "I have been unfairly dismissed here. I should have been returned for series six. I worked on the five series beforehand". There was no disciplinary procedure or warnings, or the normal processes one would get if one was being dismissed. One is just not being re-employed. When one takes a case about that, the employer who receives section 481 does not come in to the Workplace Relations Commission, WRC, because they claim they are not the respondent. They claim that person is not their employee, even though that company set up the designated activity companies, DACs, that made all of those series.
Is that not a problem? To me, that is a systemic and structural problem that is not about whether there is an agreement or not between construction crew and Screen Producers Ireland, SPI. It is a problem in and of itself regarding the failure to vindicate rights that those employees clearly have. I believe the Minister has the power to impose conditions on section 481 that would prevent that abuse from happening. It is a case of Russian dolls. It is obvious that the producer who received the money, which is the same company that sought the relief for those six films but has six different DACs, even though it is the same series, is hiding behind the DAC. It is in order to evade their responsibility to that employee, to deprive them of due process, putting them in a position to terminate that employee's employment without any due process whatsoever.
Regarding the body representing that particular employee, along with about 40 or 50 others who are in the same position, it is worth saying that what happened between the last series he was employed on and the one where his employment was terminated was that his representatives came into an Oireachtas committee and complained about the treatment of workers in the industry.
All the people represented by that group have not worked in the industry again or were forced to abandon membership of that particular group.
I ask the Minister to respond directly to the questions. Then the amendment has to be dealt with.
Okay, but I want to finish first.
I want to move it along.
Do not worry. The rest of the Bill will move along. This is the last chance I will get to say what I want to say.
It is systematic and it needs to be addressed. When we are making reference to SPI-ICTU construction agreements we need to recognise that SPI is not registered. This also relates to what is a reasonable suggestion, certainly one that bears consideration, namely, a sectorial employment agreement. SPI could not do that because it is not a registered trade union of employers. It is a charity which in itself is a very odd thing because charities are precluded from representing in employment industrial relations issues. Therefore, it cannot actually sign an agreement because it is not the employer. Every time somebody takes a case against SPI its members say they are not an employer. It cannot have it both ways, so that needs to be addressed. That is on the construction crew side of it.
On the residuals and the buy-out contracts, again something can be done about that, collectively, because they are being forced to sign buy-out contracts. SPI has advised that some actors or performers prefer those in certain cases. We have correspondence to this effect. The representatives of the actors and performers have stated categorically and voted on it twice that they want Pact Equity. That is what they want. Whatever the Minister is being told it is simply not the case that there is any ambiguity about that. They have democratically discussed the issue, they voted twice and that is what they want. The Minister should not listen to anybody else. By the way, they are quite concerned about so-called negotiations because their view is the producers are determined to resist changing the status quo where they are forced to sign these buy-out and inferior contracts.
Lastly, I refer to the wider industry. We discussed this with the research and development credit. In many other areas we give money to the private sector, to small producers, big producers and to companies in the private sector but we also have our own State sector, namely, the universities. We discussed that the other day. It is an open question as to whether the best way to stimulate the industry and support the creative pool of talent we have is for all of it to be outsourced in this way and dependent on private companies seeking a relief. I am not saying we should not have the relief, but it might be an idea to seriously consider or at least experiment with other ways of developing the film industry. Looking at the output of the Irish film industry, first of all-----
I have to ask the Deputy-----
I will be finished in a minute.
This is not in the Deputy's amendment at all. It is not relevant and he is repeating himself. It has to be new information. I want to let the Minister respond and move along. Please wrap up.
I will finish in a minute. I have completely lost my train of thought, thanks to that intervention.
I am sorry to have done that. Can we ask the Minister to respond?
No, I would like to finish the point.
I am not against the cap being raised. However, the people who are going to benefit from the raising of this cap are the bigger companies coming in. Very few film productions have even got up to the €70 million. I am not against it but I am pointing out it is not necessarily going to stimulate the Irish film industry, although it may bring work in from the bigger producers. That is fine, but we also need to think about how to stimulate the Irish film industry so that it is not solely dependent on whether or not the big international foreign producers come in. There is a problem there. An example I mentioned in previous debates was "Black '47", which was a film about the Irish Famine, one of the most important historical events in the history of this country. That film had to use computer generated imagery, CGI, for the landscape sections in County Mayo because the company did not actually have the money to shoot in the west of Ireland. There is a big difference between the big foreign productions with their financiers that can avail of this and actually stimulating a domestic Irish film industry that will be self-standing and that would survive if we did not have all these foreign producers and that would therefore also focus on Irish culture. The culture test is the other dimension of the film credit. There is a serious question-----
I really have to ask Deputy Boyd Barrett to wind it up because I have given him more time than anybody else. He has covered his amendment adequately and comprehensively. I must ask the Minister to respond and then-----
I am finished. By the way, there is no reason to interrupt me because we are allowed to have the time.
I appreciate that but I have a responsibility to move the debate along-----
I do not appreciate the Acting Chair interrupting me repeatedly. I do not appreciate it. I am finished now.
I thank the Deputy for his contribution and call the Minister to respond.
I thank Deputy Boyd Barrett. I agree with him wholeheartedly about the talent that is in Ireland. We want to unleash that talent and that is why we are making this change in the Finance (No. 2) Bill which has been long called for. The benefits of this will be felt far and wide not just by the big producers who come in here to make movies or a drama series. It will percolate down through the system providing valuable work for people throughout the industry. As we have seen in so many other industries where we have international investment, it helps to create an ecosystem where the domestic sector can grow and thrive as well.
Many specific issues were raised that I do not believe are directly relevant to the Finance (No. 2) Bill, such as contracts of indefinite duration and the role of the WRC, and I am not sure if it has concluded on the specific case referred to, the DAC, but it has powers to make a decision in respect of where the substantive employment relationship lies. The Deputy spoke about contract of employment versus for employment. I acknowledge that for many in the industry the nature of the work is irregular and can be precarious. We are trying to create an environment where there is a more regular, steady stream of work, through investment internationally into the sector.
However, to come back to the key points I made earlier on, I believe the future lies in the stakeholder forum that the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media, Deputy Catherine Martin, is establishing and in which we will play a direct role. We are fully prepared to engage in respect of these issues to see what further progress can be made.
On the terms and conditions, history tells us that in this sector and others, when people sit around the table and agree on what is the appropriate framework and what the terms and conditions should be, whether it be in the form of a sectorial agreement or in any other form, a collective agreement for actors and performers, that is the way to make progress. I do not want to meddle with the Finance (No. 2) Bill in a way that would undermine the central purpose of what we are trying to do. We are increasing the cap which will create more activity and opportunity. There are issues on which we need to continue to work but the Finance (No. 2) Bill is not the appropriate vehicle for doing so. I am not in the position to accept the Deputy's amendment.
As all members are not present, we will wait eight minutes or until all members are present, then we will proceed with a roll call.
Tá
- Boyd Barrett, Richard.
- Conway-Walsh, Rose.
- Doherty, Pearse.
Níl
- Durkan, Bernard J.
- English, Damien.
- Matthews, Steven.
- McGrath, Michael.
- O'Callaghan, Jim.
On section 42, I intend to bring in a Report Stage amendment to take account of the update to the list that was agreed at the Economic and Financial Affairs Council, ECOFIN, in October. It was not possible to make this change before Report Stage due to the timing of ECOFIN and the subsequent publication of the list in the Official Journal of the EU, and a related technical drafting matter. I am just flagging a Report Stage amendment to section 42.
I move amendment No. 24:
24. In page 75, between lines 25 and 26, to insert the following:
“Relief for investment in innovative enterprises
44. (1) The Principal Act is amended—
(a) in Part 19, by the insertion of the following Chapter after section 600A:
“CHAPTER 6A
Relief for investment in innovative enterprises
Interpretation
600B. In this Chapter—
‘accounting period’ shall be determined in accordance with section 27;
‘arrangement’ includes any agreement, understanding, scheme, transaction or series of transactions (whether enforceable or not);
‘associate’ has the same meaning in relation to a person as it has by virtue of subsection (3) of section 433 in relation to a participator;
‘authorised officer’ means an officer of the Revenue Commissioners authorised under section 600P(1);
‘business plan’ has the same meaning as in section 493;
‘certificate of going concern’ has the meaning given to it by section 600F(3);
‘certificate of commercial innovation’ has the meaning given to it by section 600F(4);
‘certificates of qualification’ means—
(a) a certificate of going concern, and
(b) a certificate of commercial innovation;
‘control’ shall be construed in accordance with subsections (2) to (6) of section 432;
‘date of investment’ means the date of the issue of the eligible shares;
‘director’ shall be construed in accordance with section 433(4);
‘EEA State’ has the same meaning as in section 489;
‘employee’ has the same meaning as in section 983;
‘eligible shares’ shall be construed in accordance with section 494;
‘expansion risk finance investment’ has the same meaning as in section 493;
‘follow-on risk finance investment’ has the same meaning as in section 493;
‘General Block Exemption Regulation’ has the same meaning as in Part 16;
‘innovative enterprise’ has the meaning given to it by Article 2(80) of the General Block Exemption Regulation;
‘linked businesses’ has the same meaning as in Part 16;
‘partner businesses’ has the same meaning as in Part 16;
‘qualifying company’ shall be construed in accordance with section 600C;
‘qualifying investment’ shall be construed in accordance with section 600J;
‘qualifying partnership’ shall be construed in accordance with section 600N;
‘qualifying subsidiary’ shall be construed in accordance with section 600D;
‘relevant trading activities’ has the same meaning as in Part 16;
‘relief group’ means a company, its partner businesses and linked businesses, taken together, and includes any relief group of which a company is a member and any company that was, at any time, a member of a relief group with a qualifying company or its qualifying subsidiaries;
‘SME’ has the same meaning as in Part 16;
‘undertaking in difficulty’ has the same meaning as in the General Block Exemption Regulation;
‘unlisted’ has the same meaning as in Part 16.
Qualifying company
600C. For the purposes of this Chapter, a company shall be a qualifying company if it holds certificates of qualification.
Qualifying subsidiary
600D. For the purposes of this Chapter, a subsidiary shall be a qualifying subsidiary where it is a company to which section 600F(2)(a)(ii) applies and satisfies the following conditions:
(a) the subsidiary is a 51 per cent subsidiary of the qualifying company;
(b) no other person has control of the subsidiary;
(c) no arrangements are in existence by virtue of which the conditions specified in paragraphs (a) and (b) could cease to be satisfied.
Qualifying investment (company perspective)
600E. (1) An investment shall not be a qualifying investment unless it is based on a business plan.
(2) An investment shall not be a qualifying investment if it is an expansion risk finance investment or a follow-on risk finance investment.
Certificates of qualification
600F. (1)(a) Subject to subsection (2), a company (in this section referred to as the ‘applicant company’) that is seeking to raise investments from qualifying investors or qualifying partnerships may apply to the Revenue Commissioners for the purpose of obtaining—
(i) a certificate of going concern, and
(ii) a certificate of commercial innovation.
(b) An application under paragraph (a) shall include—
(i) a business plan in respect of which the company is seeking investment,
(ii) details of each of the shareholders of the company including each shareholder’s name and address and shareholdings or ownership interests, as the case may be, in linked businesses or partner businesses, and
(iii) such other information and explanations as may be requested by the Revenue Commissioners for the purposes of making a determination as to whether the company complies with the conditions specified in subsection (2).
(2) A company shall not make an application under subsection (1) unless the following conditions are satisfied:
(a) the applicant company—
(i) is incorporated in the State, another EEA State or the United Kingdom,
(ii) is tax resident in the State, another EEA State or the United Kingdom and carries on, or intends to carry on, relevant trading activities from a fixed place of business in the State,
(iii) holds a tax clearance certificate within the meaning of section 1095,
(iv) is a company which—
(I) does not control (or together with any person connected with the company does not control) another company other than a qualifying subsidiary, and
(II) is not under the control of another company (or of another company and any person connected with that other company), unless such control is exercised by the National Asset Management Agency, or by a company referred to in section 616(1)(g),
and no arrangements are in existence by virtue of which the applicant company would fall within clause (I) or (II) in the period of 3 years following the issue of a certificate of commercial innovation,
(v) is a company—
(I) which exists wholly for the purpose of carrying on relevant trading activities, or
(II) whose business consists, or will consist, wholly of—
(A) the holding of shares or securities of, or the making of loans to, one or more qualifying subsidiaries of the company, or
(B) both the holding of such shares or securities or the making of such loans and the carrying on of relevant trading activities where relevant trading activities are carried on from a fixed place of business in the State,
and where a company raises any amount through the issue of eligible shares for the purposes of raising money for relevant trading activities which are being carried on by a qualifying subsidiary or which such a qualifying subsidiary intends to carry on, the amount so raised shall be used for the purpose of acquiring eligible shares in the qualifying subsidiary and for no other purpose,
(vi) is an innovative enterprise, and
(vii) is a company that it is reasonable to consider intends to, and has sufficient expertise and experience to, implement the business plan;
(b) each company that is a member of the relief group of which the applicant company is a member—
(i) is unlisted, and no arrangements are in existence in relation to the company becoming a listed company,
(ii) is not subject to an outstanding recovery order following a previous decision of the European Commission that declared an aid illegal and incompatible with the internal market, and
(iii) has all of its issued shares fully paid up;
(c) no company that is a member of the relief group of which the applicant company is a member has been registered, or where any company that is a member of the relief group was formed by way of merger no company that was party to the merger has been registered, more than 5 years prior to the date of the certificate of innovation issued under this section;
(d) the relief group of which the applicant company is a member—
(i) is an SME, and
(ii) is not an undertaking in difficulty.
(3) (a) Subject to paragraphs (b) and (c), the Revenue Commissioners shall issue—
(i) a certificate (in this Chapter referred to as a ‘certificate of going concern’) to a company where the company demonstrates to the satisfaction of the Revenue Commissioners that the relief group of which the applicant company is a member satisfies the conditions specified in subsection (2)(d), or
(ii) a determination that the applicant company has not demonstrated to the satisfaction of the Revenue Commissioners that the relief group of which the applicant company is a member satisfies the condition specified in paragraph (i) or (ii), as the case may be, of subsection (2)(d) and the reasons for the determination.
(b) The Revenue Commissioners may issue to the applicant company a certificate, or renewal of a certificate, of going concern, as the case may be, having taken account of any recommendations or report which Enterprise Ireland may make to the Revenue Commissioners following such consultation by them with Enterprise Ireland as they consider appropriate for those purposes (including by the provision to Enterprise Ireland of such information in relation to the application as is necessary for the purposes of such consultation).
(c) The Revenue Commissioners shall not issue a certificate, or a renewal of a certificate, of going concern, as the case may be, if they have reason to believe that any condition specified in subparagraphs (i) to (v) of paragraph (a), or paragraphs (b) and (c) of subsection (2) is not, or, in the case of the renewal of a certificate, is no longer, satisfied by the relief group or any company that is a member of the relief group, as the case may be.
(d) A person aggrieved by a determination issued under paragraph (a)(ii) may appeal the determination to the Appeal Commissioners, in accordance with section 949I, within the period of 30 days after the date of the notice of that determination.
(e) Where a company holds a valid certificate of commercial innovation but the certificate of going concern has expired or is about to expire, the company may apply to the Revenue Commissioners for a renewal of its certificate of going concern and the provisions of this section shall, with any necessary modifications, apply to an application for a renewal of a certificate of going concern as those provisions apply to an application for a certificate of going concern.
(f) A certificate of going concern shall be valid until the later of—
(i) the day which is 3 years from the date of registration of the first so registered company that is a member of the relief group, or, if earlier, where any company that is a member of the relief group was formed by way of merger, the day which is 3 years from the date of registration of any company that was party to the merger,
or
(ii) the earlier of—
(I) the last day of the accounting period, of the company to which the certificate was issued, in which that certificate was issued, or
(II) where the certificate was renewed in accordance with paragraph (e), the day on which the certificate of commercial innovation referred to in that paragraph ceases to be valid.
(4) (a) Subject to paragraphs (b) and (c), the Revenue Commissioners shall issue—
(i) a certificate (in this Chapter referred to as a ‘certificate of commercial innovation’) to a qualifying company where the company demonstrates to the satisfaction of the Revenue Commissioners that it satisfies the conditions specified in subparagraphs (vi) and (vii) of subsection (2)(a), or
(ii) a determination that the applicant company has not demonstrated to the satisfaction of the Revenue Commissioners that it satisfies the conditions specified in subparagraphs (vi) and (vii) of subsection (2)(a) and the reasons for the determination.
(b) The Revenue Commissioners may issue to the applicant company a certificate of commercial innovation having taken account of any recommendations or report which Enterprise Ireland may make to the Revenue Commissioners following such consultation by them with Enterprise Ireland as they consider appropriate for those purposes (including by the provision to Enterprise Ireland of such information in relation to the application as is necessary for the purposes of such consultation).
(c)(i) The Revenue Commissioners shall not issue a certificate of commercial innovation if they have reason to believe that any condition specified in paragraphs (a) to (d) of subsection (2) is not satisfied by the relief group of which the applicant company is a member, or any company that is a member of that relief group, as the case may be.
(ii) Where a certificate of commercial innovation is not issued because a condition specified in subparagraph (i) or (ii), as the case may be, of subsection (2)(d), is not satisfied, then the Revenue Commissioners shall issue a determination that the applicant company has not demonstrated to the satisfaction of the Revenue Commissioners that the relief group of which the applicant company is a member satisfies the condition concerned and the reasons for the determination.
(d) A person aggrieved by a determination issued under paragraph (a)(ii) or (c)(ii), as the case may be, may appeal the determination to the Appeal Commissioners, in accordance with section 949I, within the period of 30 days after the date of the notice of that determination.
(e) A certificate of commercial innovation shall be valid until the first date that is the fifth anniversary of the registration of any company that is a member of the relief group of which the applicant company is a member, or, if earlier, where any company that is a member of that relief group was formed by way of merger, the date that is the first date that is the fifth anniversary of the registration of any company that was party to the merger.
(5) Certificates of qualification shall include the following information:
(a) the type of certificate;
(b) the name, address and company registration number, or equivalent in the case of a company incorporated outside of the State, of the qualifying company to which the certificate was issued;
(c) the date of issue of the certificate;
(d) the period of validity of the certificate;
(e) a unique, sequential certificate identification number assigned to the certificate by the Revenue Commissioners.
(6) (a) The Revenue Commissioners shall establish and maintain a register of companies to which certificates of qualification have been issued (in this subsection referred to as the ‘register’).
(b) The Revenue Commissioners shall publish the register on a website maintained by them or on their behalf.
(c) The register shall contain only the following information specified in subsection (5) in respect of each certificate of qualification.
Subscription for shares
600G. (1) For the purposes of this Chapter, an individual subscribes for a share in a company if the individual subscribes for and is issued the share by the company—
(a) for consideration consisting wholly of cash,
(b) for bona fide commercial reasons and not as part of an arrangement that it is reasonable to consider the main purpose, or one of the main purposes, of such arrangement is to secure a tax advantage to any person, and
(c) by way of a bargain at arm’s length,
and references in this Chapter to ‘subscribes for’ shall be construed accordingly.
(2) In this Chapter, a share subscribed for, issued to, held by, or disposed of for, an individual by a nominee shall be treated for the purposes of this Chapter as subscribed for, issued to, held by, or disposed of by, the individual where the nominee has complied with the requirements of sections 892 and 894 in respect of the share.
(3) In this Chapter, references to an individual having subscribed for a share include the individual having subscribed for the share jointly with any other individual (and references to an individual holding a share or to a share being issued to an individual shall be construed accordingly).
This introduces a new section 44. Section 44 introduces Chapter 6A into the Taxes Consolidation Act 1997 to legislate for a new targeted capital gains tax, CGT, relief for investment in innovative start-up SMEs. The relief aims to assist SMEs in attracting investment and making Ireland a more attractive location for angel investors. The relief is to encourage investors to acquire significant minority shareholdings in early-stage innovative companies that are less than five years old. It allows these investors to avail of a reduced rate of CGT on a sale to a third party. The investment made must be for a minimum amount of €20,000, or €10,000 where at least a 5% shareholding is acquired, and the shares acquired must be held for a minimum of three years. The reduced CGT rate of 16% is available on a gain of value equivalent to twice the value of the investor’s initial investment. An effective reduced rate of 18% applies to individuals who make the investment via a qualifying partnership. There is a lifetime limit of €3 million on gains that may avail of the reduced rate of CGT.
The relief is a form of permissible state aid and is drafted in accordance with Articles 21 and 21a of the general block exemption regulation, GBER. To ensure the relief complies with GBER and that the companies are innovative, the relief will be subject to a certification process. The companies must apply for the necessary certificates of qualification, which will issue from Revenue following consultation with Enterprise Ireland. A register of companies that have been issued with certificates of qualification will be published by Revenue on its website.
The new provision is subject to a commencement order to allow the systems necessary for the certification process to be established. I wish to signal that I will be bringing an amendment to this section on Report Stage to introduce additional provisions to facilitate the operation of the certification system.
I have two questions. Two rates apply for partnerships and individuals. How did the Minister arrive at the rate of 16%? Did he just decide to reduce it by 50%? Is that the metric that was used or is there something else that satisfied him as regards the 16% rate?
Regarding the commencement order, will the Minister indicate when he expects the procedures to be in place? Will it be the first quarter of next year or the middle of next year? Will the Minister give us a sense of when it will happen? Any investment prior to the commencement order will not fall under this provision. How might that impact during the period in question? Is there a danger of a lag in qualifying investments if the order is not proceeded with quickly?
I welcome this initiative. It is something that has been called for for a number of years. We can build on it, but it is certainly a great start. We must remind ourselves that we are constantly competing for investment. We have many start-ups and innovative companies with good ideas and projects, and it is not always easy to get the money they need to invest. This initiative will help in that regard, but this is an ongoing matter that we will have to keep working on in the years ahead. I thank the Minister for this initiative.
I thank the Deputies for their comments. Regarding Deputy Doherty’s questions, the 16% rate is to ensure it is GBER compliant. As to the timeline, I want to commence this as quickly as possible, and certainly no later than quarter 1 of next year, in part due to the risk Deputy Doherty rightly highlighted. It is only new investments following the commencement of this provision that will benefit. We want to minimise the period from now to the commencement of this new provision, which is why we will be working with Revenue and Enterprise Ireland to ensure the mechanics are nailed down as quickly as possible. It will be quarter 1 at the latest.
This change relates to the definition of a holding company for the revised entrepreneur relief. It will now be the case that the holding company must be a parent company with at least 51% in their subsidiaries and its business must consist wholly or mainly of the holding of shares in those subsidiaries. I would like to hear the view of the Minister and his Department about a concern that has been raised about how this change could create challenges for founders seeking to dispose of their shares in tiered group structures within which there are minority stakes. Is this a concern the Minister has about this section? Will he speak to the rationale for introducing it?
I will first read out a short note and then directly answer the question. This section amends section 597AA of the Taxes Consolidation Act 1997, which provides for revised entrepreneur relief. On the satisfaction of various conditions, the relief serves to reduce the rate of capital gains tax to 10% on gains arising from a disposal of qualifying business assets. Those assets include shares in a qualifying company or shares in a holding company of a qualifying group.
The amendment introduces a new definition of "holding company" for the purposes of the relief. The new definition provides that a holding company is one that holds shares in other companies, all of which are its 51% subsidiaries. The definition also requires that the holding company’s business must consist wholly or mainly of the holding of shares in those subsidiaries. The amendment essentially clarifies that all subsidiaries of a holding company must be owned more than 50% by that company in order for any gain arising on the sale of shares in the holding company to qualify for the relief, in line with the policy intention when the relief was originally introduced. All other conditions for revised entrepreneur relief remain unchanged.
The proposed amendment is in line with the original policy intention and the consistently adopted interpretation of the relief to date. The policy intention was that the relief would only be available in group circumstances where all the subsidiaries were 51% subsidiaries and each such subsidiary had to be carrying on a qualifying business. Legal advice received by Revenue in the course of a recent appeal indicated that the section as currently drafted did not adequately stipulate that each subsidiary must be a 51% subsidiary. The amendment to the definition of a holding company clarifies that all subsidiaries of a holding company must be 51% subsidiaries. As such, the proposed section originates in legal advice that Revenue received following a recent appeal, which identified a need to tighten up the section’s drafting.
I wish to signal that I will table an amendment to this section on Report Stage to ensure that the interaction of the existing €3 million limit and the new €10 million limit will work as intended.
This proposal is one that the Commission on Taxation and Welfare recommended as regards limits on tax reliefs. The commission argued that it had to be set at a high level so that we would not have family farm break-ups and so on. Have any data been collected on how many farms could be impacted by this limit? Obviously, a farm with a value of more than €10 million is a large holding, so I am not opposed to that, but are there data on how many farm transfers in years gone by would have been captured by this limit? Prior to now, there was no upper threshold; it was unlimited.
My understanding is that on confidentiality grounds, the Revenue Commissioners cannot disclose the number. I think this tells us that it is very low.
That is fine.
Section 48 relates to CGT relief on properties. Yesterday, we spoke about landlords leaving the market and the CSO suggesting there has been an increase in tenancies. As policy makers, we face a challenge in figuring out the accurate data. I know another committee is looking at this and the CSO is trying to do a matching purpose with the RTB. That will be helpful for all of us because we need to set policy on the basis of accurate facts. We know there is probably an under-registration with the RTB and probably an overestimation on the part of the CSO. The truth will lie somewhere in the middle.
I also mentioned that there is a tax incentive for landlords to exit the market and this is it. Under a measure introduced by the Fine Gael Government at the time, properties acquired between 7 December 2011 and 2014 would be exempt from CGT if buyers held onto the properties for between four and seven years. This means that if a buyer holds the property for more than seven years, the outer limit of which would be 2021, the CGT they would pay on the disposal of the property increases every single year. This is a real incentive to sell. It is absolutely crazy that nobody is talking about it. Let me correct myself - loads of people are talking about it. The industry is talking about it. All tax advisers are telling landlords that now is the time to sell up because of the CGT exemption. I have a list of them taken from the Internet. A "Capital Gains Tax Relief Update" from OFX says:
... with the present increase in property prices it may be no harm to check if the Capital Gains Tax relief may be available to you now to avoid any unnecessary tax.
Hughes Tax and Advisory has a headline: "Capital gains tax: The perfect time to sell property?". According to Mullins and Treacy solicitors from December 2021:
We acted for a lot of investors who brought property under the scheme. If this is you, you need to sell by the end of this year. Otherwise you will face capital gains tax liability. This could impact your bottom line, diminishing your returns. At Mullins and Treacy LLP Solicitors we can help you dispose of your property by the required deadline.
CooneyCarey Chartered Accountants has the following:
A reminder of the seven year capital gains tax exemption. Did you purchase a property at any time between 7 December 2011 and 2014? If so, now may be a tax efficient time to consider selling.
According to McMahon & Co., "Capital gains tax relief introduced post 2008 downfall could benefit property owners". It goes on and on. All of these advisers are telling landlords who bought property within that window that now is the time to sell up because of this relief. I know that there are changes to this relief and I will deal with those in a moment. It is a serious problem that an incentive for landlords to sell up is hardwired into our tax code. It does not make any sense. For those landlords who bought during that period, when property prices were actually low, the gains that would apply are quite significant.
To give an example, if somebody bought a property in 2014 and sold it in 2021, with a gain of €200,000, they would have paid no CGT at all. If they held it until last year and sold it, their gain would have increased by about €6,000, on average, so the gain was now €206,000, they would have a chargeable gain of €25,750 and would pay CGT of €8,498. If they did not sell last year and instead decided to sell this year, their CGT would have gone from €8,500 up to €15,500. It goes on and on. Every single year that these landlords hold properties purchased between 2011 and 2014 means they will pay more CGT. That is an increase in tax for them of €7,000 from selling last year to this year. It will go up again next year because of the formula being used. Given that €600 means nothing to them in comparison to this, it is a tax incentive for landlords to sell. It is a serious problem because we know there are hundreds of landlords selling because of this. In 2021 for domestic residential premises, there were 568 sales that availed of this tax exemption.
The amendment the Minister is proposing is retrospective taxation. It changes the definition of "acquiring" to "purchasing". I will talk about this in a moment. The amendment is going back in time, which is something unique that does not happen. It is almost frowned upon in tax law to go back to legislation and change the definition. There is an argument that people have an expectation that they acquired a property and would be able to avail of the CGT. If we are doing that in relation to acquiring and purchasing, which is really only targeted at people who bought properties under market value or bought from parents, etc., at a very reduced cost - this is a small element in relation to the overall issue - is there not an argument that we need to deal with this tax exemption in the middle of a housing crisis? Everybody will talk about why landlords are leaving, but nobody will talk about the incentive in our tax code for them to sell up if they bought during that period. That has to be acknowledged. Collectively, we need to figure out how we can take away the incentive at this point in time. As I said, the incentive increases every single year. The CGT will increase every single year because of the formula being used. It is a major issue. It was a ridiculous idea that was brought in at the time. I know the motivation was to reach a floor in property prices and get people to buy property, but it was always going to trigger a reaction when the seven-year period ran out, given that it provided for a tax penalty if the person who bought the property held onto it beyond the seven-year period. This period ended in 2021 for some of the properties and for others it ended in 2018. If we look at the RTB data, we can see that a lot of the sales are happening during those periods. This is in our tax code now and is causing a problem. I do not want to score political points in this regard, but there is the issue of the incentive for people to sell. All the tax advisers are telling their landlords that if they are in this boat, now is the time to sell. The longer people hold onto these properties, the more tax they will end up paying. It is not a matter of a couple of hundred euros, but of thousands more.
I will speak briefly on the section itself and then I will address the issue the Deputy has raised. This section of the Bill amends section 604A of the Taxes Consolidation Act 1997, which provides relief from CGT on the disposal of land and buildings purchased in the period from 7 December 2011 to 31 December 2014 and held for at least four years.
The amendment clarifies that only property which was purchased for full market value, or for 75% of market value when purchased from a relative, may benefit from the relief on disposal. This amendment clarifies rather than alters the qualifying conditions for the relief. The relief was introduced to stimulate active investment in the property market. This amendment serves to reflect the consistently maintained policy position that the relief is only available in relation to properties that were purchased in the relevant period and does not extend to properties that were otherwise acquired in that period, such as properties acquired by way of gift or inheritance. The amendment shall be deemed to have effect on disposals made on or after 1 January 2018, which is the earliest date on which the relief could have applied.
The relief was time limited to properties purchased in the period from 7 December 2011 to 31 December 2014 so no purchase of properties after that time period can benefit from relief. The value of the relief tapers off as it is only available on the portion of the gain that represents the same portion of the gain as seven years bears to the entire period of ownership of such land or buildings. Individuals who purchase property where the purchase met the criteria of the relief at the time of purchase would have a legitimate expectation of availing of the relief at the time of disposal and it would not be appropriate to withdraw the relief at this time. It is a long-established principle that where we make commitments in our taxation code, we honour them. What we are doing in this section is clarifying the interpretation of the legislation in manner we believe is consistent with the original policy intent of it.
I hear what the Minister is saying in terms of clarification. I will come back to the substance of the clarification that is in the legislation. The Minister said the relief is tapering off, which means that by 2021, the tax liability increases for landlords who do not dispose of their property. Every year they hold the property, the more capital gains tax they pay. This is a serious issue because these properties were bought at a point where the market was at its lowest. The market is now at its highest so the gains are quite substantial. If I bought a property in 2001, I will have made a gain, which is a normal thing to do, and my gain could be €200,000 at this stage. I am looking at the figures and saying "okay I didn't sell last year and I would have had to pay tax of €7,000; if I sell this year, my tax is €15,500; and if I sell next year, it's going to go up by another €8,000 so it will be €23,000". There is an incentive for me notwithstanding the fact that as the Minister's advisers have spoken about in terms of landlords cashing out at the peak of the market, there is a tax incentive for them to do that as well and the tax incentive is significant. I know what the Minister said and I agree with his point that where there is an expectation in tax law, that expectation has to be filled otherwise nobody could trust what politicians would do in the future. That is a principle that in the main, has been kept to. It was not kept to with regard to pandemic payments where people lost their jobs and required pandemic payments and the law stated that it would not be taxed. The Government went and retrospectively taxed those payments even though the expectation from a legal point of view was that they would not be taxed.
We have a housing crisis and we have a tax code that we know incentivises landlords to leave the system. The situation in which we find ourselves is perverse. Regardless of political opinions, we want landlords to stay. I know the charges the Minister made against me yesterday. We want a functioning rental market. We recognise that. We want security for tenants and an appropriately regulated rental market but when you have an incentive like that, people will not ignore it. There is a question as to how we deal with this very serious issue. Does the Minister have the numbers of residential properties that availed of this tax relief over the past four years? Does he have more recent data because the data we have show there were over 568 residential sales involving this in 2021? Does the Minister have any data for 2022 involving the relief? The Exchequer cost for those residential premises was €31 million so those 568 premises between them would have had to pay an extra €30 million if this relief was not tapering off. This will increase every year to the point where because of the formula that is used, and to the point that it is seven minus one, the chargeable gain will be quite significant the longer you hold the property for.
This is a particularly sensitive area. I accept what the Minister has to say, which involves having made a commitment in good faith at the time. Due to circumstances outside anybody's control, however, as opportunities arise, people will obviously take advantage of the market as it emerges at any given time and try to offload. It is unfortunate that the effect of this clause and its determination coincide with a very serious problem in the housing market. Given that we want to retain as many people as possible offering accommodation for rent to needy renters, it is a bit unfortunate that this relief is causing problems and it will cause problems. Is it possible by another route to introduce an ameliorating measure that could be used, without interfering with the rights contained and the conditions laid down in the provision originally, to encourage people to continue? In other words, one measure would be balanced against the other. I do not know the extent to which this is possible, or if it is possible, but if it is possible, now would be the time to invoke it because we all see an increasing number of people in our constituencies coming to us after being informed that the house in which they live, which they might have lived in for 20 years, is for sale. It causes a series of problems. For example, after a struggle, the local authority in Kildare can come up with a one-, two- or three-bedroom unit. After that, if you have a family of four children and two adults, it is very difficult to come across accommodation that meets your requirements. Some of these people are homeless at the moment. They are in temporary accommodation. It is causing a problem for local authorities because the temporary accommodation has to be paid for as well because these people are homeless. The Minister set out the reasons for this issue being a particular difficulty at this stage. If it is possible, could an ameliorating measure be introduced now or on Report Stage? It would be hugely beneficial to people, particularly those who have been renting a property for a number of years.
I thank Deputies Doherty and Durkan for their comments and questions. It is important to point out the broader application of this measure. Deputy Doherty will be aware of this. He has the most up-to-date number in terms of the number of claimants in respect of residential property for 2021, which is 568; the amount of gain relieved, which was €93.4 million; and the Exchequer cost of that, which is €30.8 million. However, commercial premises, development land, some agricultural land and buildings and other assets are also involved so it covers a range of different sectors, which are set out the table in the same documentation - commercial real estate; forestry; public administration; financial insurance; professional, scientific and technical; construction; wholesale and retail trade; and so on.
It is important to put on the record that this relates to corporates as well as individuals. It is fair to focus in on one aspect of this relief. In effect, it means that after the seven-year period, if the property continues to be held, then the person or corporate returns to the normal CGT system. Therefore, in effect, the relief is capped. They do not have to sell the property. They can continue to hold it but they do so in an environment where they are in the normal CGT system for the remainder of the period of ownership as opposed to that seven-year period when the relief applies.
I want to take issue with the last point. After the seven years they are not into the normal CGT situation, as I understand. There is a formula relating to the gains that have accrued. Say they are €200,000. It is minus those gains divided by seven eighths. Therefore seven eighths would apply if it was 2022, which is one year after the seven years. It will be seven ninths for 2023, seven tenths for 2024 and so on. That is the part of the formula which creates the incentive for them to sell. If it were a case where, after seven years, all CGT just applied, then there would be no further incentive for them to sell but there is an incentive for them to sell. On the example where someone has made a gain of €200,000 by the year 2021, if they sold, their CGT would be €8,500. If they hold to this year and sell, they will have to pay CGT of €15,500. If they sell next year, it will be €21,500, and if they sell the year after, it will be €26,800. Every single year it goes up and this is a serious problem. I agree there is a broader scope of assets, but of the 847 sales in 2021, 568 were residential premises.
We have a problem with a piece of legislation. I agree with Deputy Durkan. It was brought in for a reason - I do not want to go back to that, I am just dealing with what is in now - but there was always going to be a problem after the seven years. We are in a situation where we have high property values, there is a housing crisis and homelessness, there are issues of landlords leaving the market, and we now have a provision in our tax code that captures hundreds if not thousands of properties and that provides an incentive to sell.
It is a serious problem that every single tax adviser is advising their clients that now is the time to sell. OFX said "with the present increase in property prices it may be no harm to check if this Capital Gains Tax relief may be available to you now to avoid any unnecessary tax". Hughes Tax & Advisory says it is the perfect time to sell your property. Mullins & Treacy:
This could impact your bottom line ... We acted for a lot of investors who bought property under this scheme. If this is you, then you need to sell by the end of this year.
Cooney Carey:
Did you purchase a property anytime between 7 December 2011 and 31 December 2014? If so, now may be a tax efficient time to consider selling.
It goes on and on. They are all advising these individuals to sell. Someone might be thinking they will not hold on to a property that was an investment. They see the level of property prices now and that interest rates should dampen the property market, which is not happening here but it should have an effect that is happening across Europe. They are looking at peak prices and thinking that if they hold for another year, they will have to pay an additional €6,000 or €7,000 tax and they will have to pay that every year beyond that too, so they might think that now is the time to get out. That is what all the advisers are telling them. We have to do something about this given the scale of the crisis we are in. Do have a solution at this stage? No, but there is a tax incentive for people who bought thousands of properties during those years to sell and that incentive is significant and only increases every year.
We are all in the eye of the storm at this time. All our constituents are affected. There was very good reason for the introduction of the measures in the first place, namely, to deal with the emerging market or lack thereof as the case may have been. The lack of stability was a huge issue at the time. It gave stability and it did a good job. It served the public and the financial system well and helped with stability. It did all that.
It happens that it is converging on a situation that is already bad and the degree to which the housing market has reached a certain level where it is lucrative to offload or sell on. That is totally understandable. Had the measure not been there in the first place, there would not be a problem now but the measure is there. It had to be introduced at the time to stabilise that market and ensure some degree of expectation, continuity and so on. I understand the reasons given by the Minister and the reason for the measure in the first place, but I would ask that he look at it prior to Report Stage with a view to examining the various impacts and thinking forward into next year in view of the likelihood of property prices going down or up in the meantime. He might consider how that might affect the situation in relation to people who might want to sell at the top of the market. The tax advisers are telling their clients, correctly, that they can save them money. Unfortunately, saving the money is an incentive to sell off at a time when many people are affected by that selling off, in particular those in residential rental properties.
The Deputies have identified an issue where some people are considering whether to retain or sell a property, whether it is a home or another asset. While that is the case, it is important we respect the fundamental principles of our taxation system that where commitments are given by the Oireachtas and are legislated for, they would be honoured over the period. To not do so would bring a significant legal risk on the Exchequer which is not a risk I would be prepared to take. Deputy Doherty is right on the calculation methodology of tapering. You do hold on to whatever proportion of your overall ownership the seven years relates to at 0%. Then the balance of the gain is worked out proportionately using the methodology in the normal CGT system and taxed in that way. I do not see a way of addressing that issue which respects the fundamental principle of consistency, honouring commitments that have been given legally and not exposing the State to a significant level of risk.
I hear what the Minister is saying but I am thinking of when the scheme came in. We are in a different place and I will not get into looking back. I did not like it in the first place but there was a rationale around trying to get activity into the property market and the whole idea was that people held for four to seven years. As time went on, the worst time to dispose of it was at that seven years. That is the problem in which we find ourselves now. We need to look at options to see how we deal with this incentive. I would like to know how many properties were bought during those windows that could still avail of the CGT exemption. I presume some of those data are not available because until you make the claim you will not know.
We do know, and I have looked at data on the number of acquisitions that happened during that period. They were quite significant. I do not have the figures to hand but I looked at them about a year ago. There are a large group of properties that fall within this scope. I am concerned that as time goes on, people may see the benefit they have of the full CGT exemption being reduced and therefore their tax liability increasing. Given it is coalescing with high asset prices and a potential reduction in property prices if we have a continuation of high interest rates, this is just an absolute disaster if it is an incentive for people to sell. I urge the Minister to look at options and publish some type of paper. That is something I may bring forward on Report Stage. The Department should look at options in respect of this, not necessarily to say we need to go ahead with the options but it should be teased out and considered given the significance it has for public policy in the State.
If it is okay, I want to return to the actual amendment itself. It deals with retrospection. I am not opposed to this but I want to make the legal point that we are changing the law retrospectively, whether we like it or not. We have decided this change applies to a period five years ago. It is a retrospective change. The law refers to acquisitions and we are changing that to purchases, which means people who did not purchase but acquired have a different expectation. If they sat down with their tax adviser and looked at the legislation, they would understand they were in scope here and would benefit from the CGT exemption. We are going back in time and saying "No". We are telling them that although they benefit from the exemption, that is why we are now changing the law to change it to purchasing. We are doing that because it is what we always intended but intentions are not what set the law. They are not what is decided in our courts. It is what we pass as legislators and what is signed into law by the President. I say that in the context of the wider debate we have just had.
There is a point in this section where we are going back in time and changing the law, not for any great purpose bar the fact that people might have got a house from their parents or something like that, possibly having paid a small amount of money on it, and are able to get the CGT exemption, which is massive. That was not the intention. It was about encouraging people to buy property at a time when there was very little activity. I understand that. However, from a legal point of view we are going back in time. On individuals who have sold their property since 2008 and who acquired that property, what happens to them? The property has been sold. They have availed of the full CGT exemption but now, as a result of this change in the law, in cases where they did not purchase the property but it was gifted to them and so on, what happens in terms of clawback?
I thank the Deputy. It is important to put the following on the record. The amendments proposed to section 604A of the Taxes Consolidation Act 1997 do not represent a change to the qualifying conditions for the relief. They instead affirm the policy intent underpinning the relief, which has been clear since the then Minister for Finance announced the relief. The policy intent at the time of the announcement was that this relief was to apply to property purchased in the relevant period and held for the requisite holding period. This policy intent has been consistently reflected in Revenue guidance issued in respect of the relief, and on the occasions where clarity has been sought in respect of the qualifying conditions for the relief, the requirement that the property be purchased for actual consideration has been consistently confirmed by Revenue. As such, the amendment confirms the basis on which the relief has consistently been administered and so the application of the amendment to all disposals in respect of which relief under section 604A is available is appropriate. In effect, what we are saying is that Revenue has applied in practice what we are confirming now in legislation. The amendment will not result in any clawbacks for individuals who have already claimed the relief. This relief has been consistently administered by Revenue in line with the policy intention that applied to purchasers. It is not proposed or considered necessary to undertake a retrospective compliance exercise with the amended relief.
Coming back to the earlier substantive point the Deputy made on the exit effect and the advice some advisers are giving now to property owners, any exit effect would have manifested since 2018. We are a number of years into this process at this point. On the question of revisiting or making changes retrospectively to a substantive provision in law, which is very different from what we are doing here, namely, clarifying the existing practice, making a substantive change to a taxation provision that goes back that number of years raises significant equity issues. Some people have already availed of the relief in full and have exited and sold the property. Not to continue with the provision for those who purchased a property on the same terms in good faith based on the law of the time passed by the Oireachtas would raise very significant questions about the administration of our tax system and in my view would certainly be open to a legal challenge.
I accept that Revenue has been applying the provisions the Minister has outlined in respect of how this is operating. I do make the point that we are changing the law. Intent is one thing and that is fine. The law does not say "purchased". There would be a risk here if this were legally challenged because we do not have the word "purchased" in it. I understand that is why the Minister is bringing that clarity and limiting the risk. It is something I support and I do not have an issue in that regard. However, I am very mindful of the idea of looking at retrospective legislation. It is not something we should be doing. I am not suggesting we should do that. What I am saying is we need to look at the options.
Maybe we cannot do anything on this but I think the Department needs to be tasked with examining this measure, considering how it is interacting with property sales at this time, particularly in terms of landlords and looking at all the options. That should be published so that we would have a clear view. It might be the case we would say it is a policy designed at a time when we were in a different environment that is now having bad consequences but there is little we can do about it. That might be the outcome. We need to look at this. We need to be looking at all of the levers in respect of housing, and having an incentive of this size to sell a property is really significant. The numbers are what they are. In excess of 560 properties were sold in 2011. They could be properties bought in the first year of the scheme or in the last year of the scheme. We do not know. The CGT increased every year a person held on. People may have been gambling that property prices were going up by €20,000 a year while their CGT would only go up by about €7,000 and deciding to take that gamble. That is fine, it is what people do and what tax advisers advise them. The advice now is different. It is that we might be at peak market. The interest rate environment may have an effect on property prices. We have not seen it yet in Ireland but it has happened across Europe. Capital gains tax is only going to increase. We need to look at it. That is all I am saying. I will leave it at that.
I thank the Deputy for the spirit in which he has raised the issue. I will ask my officials to have a look at this in the context of the tax strategy group, but I do not want to give any impression we are looking at removing a relief retrospectively that has been enshrined in law for more than a decade.
I acknowledge that the Deputy has not called for that, but I do not want to create any uncertainty in this respect. We must stand behind legislation and tax policy that have existed for more than a decade and, not least in the interests of tax equity, honour commitments that were given. That is important. I will ask my officials to examine the issue the Deputy has raised in the context of the work of the TSG. He might put down an amendment. We may well revisit the matter on Report Stage in any case.
I move amendment No. 25:
In page 80, between lines 4 and 5, to insert the following:
"Report on the application of stamp duty on the buy-back of shares
49. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the application of stamp duty on all purchases by companies of their own shares, and requiring companies to provide data pertaining to all purchases of their own shares to Revenue.".
This amendment calls for a report on the application of stamp duty on purchases by companies of their own shares and requires them to provide data to Revenue pertaining to all such purchases. As the Minister knows, a stamp duty charge of 1% normally applies to the purchase of shares. However, under certain circumstances, when a company buys its own shares, that charge does not apply. In fact, it only applies where the share buy-back takes places by means of a stock transfer. In the two other scenarios in which share buy-backs happen, where they are purchased through a direct contract or through a security settlement system, no stamp duty charge applies.
In documents I obtained by means of a recent freedom of information request, Department of Finance officials stated: "As there is a transfer of the beneficial ownership of the shares from one person to another in exchange for valuable consideration, there is clearly a conveyance or transfer on sale of the shares and therefore a charge of stamp duty at 1%." However, that does not apply in most cases. There are three ways in which share buy-backs can happen. For one of the ways, a 1% charge applies. For the other two ways, even though there is a change in beneficial ownership, there is a valuable consideration and conveyance has happened, no stamp duty applies.
Share buy-backs have become a popular way for companies to drive up their share price. They help to enrich corporate executives and shareholders. As we see reported in the media, Irish publicly listed companies, including retail banks and large developers, are on course to spend €1.9 billion buying back their own shares this year. Share buy-backs can come at the expense of the wider economy and the greater good. Money spent on share buy-backs that benefit corporate executives and shareholders is money not being spent on investment in the company in the first instance, on reducing prices for consumers, on increasing employee wages or on a number of other measures that could have a benefit to the wider economy and society. If we look across the water, this is the very reason the Biden Administration is introducing legislation to apply an excise tax on share buy-backs.
In practice, very few businesses, and only small, private companies, use the method of stock transfer to perform share buy-backs, which is the method for which the 1% stamp duty charge applies. This amendment calls for that gap to be closed. In a reply to a recent parliamentary question, the Minister told me that Revenue estimates, based on prior-year transactions, that the amount of revenue forgone on share buy-backs is between €5 million and €20 million in a calendar year. However, we know Revenue is unable to gather comprehensive data on share buy-backs that are not subject to stamp duty because companies have no obligation to report that information. For two of the three ways in which share buy-backs are taking place, which are the methods used by the larger companies, there is no stamp duty payable and, therefore, no obligation to report this information to Revenue. There is a wide variation in the estimated annual yield forgone because share buy-back programmes are implemented on an irregular basis by a limited number of companies.
Moving forward, it is clear that share buy-backs require greater regulation and consideration. At present, there is no requirement for companies to report information on these purchases. There should be such a requirement to allow for greater analysis. The amendment calls for that and also seeks to deal with the gap whereby stamp duty applies to only one of the ways in which companies buy back their own shares. There is also a massive gap in the data, with some reputable commentators in the media suggesting that the value of share buy-backs in the Irish economy is in the billions. I am not criticising Revenue for not having those data. One cannot have the data if one is not given the data because there is no requirement to provide them. There is a serious issue here. I raised it last year and the year before. From recollection, although I could be wrong, the then Minister for Finance agreed to look into the matter. I am interested to hear the Minister's views on it.
A sale of shares is normally chargeable to stamp duty at a rate of 1% of the consideration and is payable by the purchaser. I am advised by Revenue that where a company purchases its own shares, the stamp duty treatment depends on the form in which the shares are held and the method by which the purchases are effected. For shares held in certificated, or paper, form, they may be bought back in two ways. The first is by means of a standard stock transfer form. The second is where the shareholder and the company enter into a contract or share purchase agreement for the sale of the shares, following which the shareholder hands over the share certificates to the company.
Where a company purchases its own shares by means of a stock transfer form, a stamp duty charge arises. Where a company enters into a contract or share purchase agreement, Revenue accepts there is no stamp duty chargeable on the transaction by virtue of section 31 of the Stamp Duties Consolidation Act 1999. That section provides for stamp duty to be charged in respect of any contract or agreement for the sale of any estate or interest in any property as if it were an actual conveyance on sale of the estate, interest or property. However, it specifically excludes from its scope the sale of certain property, including shares. Accordingly, where a company purchases its own shares by means of a contract or agreement, no charge to stamp duty arises. For shares held in uncertificated, or dematerialised, form, the shares may be bought back via a securities settlement system. Euroclear Bank operates the securities settlement system for trading in Irish shares. Where a company purchases its own shares via a securities settlement system, it has been a long-standing Revenue practice to confirm that stamp duty is not chargeable.
In advance of budget 2023, officials in my Department carried out a preliminary examination of issues relating to the stamp duty treatment of share buy-backs, as was flagged in the tax strategy group papers. On the conclusion of that preliminary examination, Department officials recommended that no changes should be introduced in the Finance Bill 2022 and that the Department should carry out a more in-depth analysis of this issue in the year ahead. Owing to resource limitations and other exigencies that demanded the priority application of those limited resources, it did not prove possible for this work to be carried out in 2023. However, I expect that, if possible, the matter of the stamp duty treatment of share buy-backs will be considered in greater detail in advance of the next budget. Therefore, I do not propose to accept the amendment.
The Minister's response is disappointing. Apart from the bit at the end, most of what he said is almost word for word what he or his predecessor have told me on previous occasions through parliamentary questions and other means. We understood the tax strategy group was looking at the issue in a preliminary way, with the Department looking at it in more depth. I accept there is an issue in terms of resource allocations and that priorities must be set, but we are another year on and there is a massive number of share buy-backs taking place within companies.
There is an anomaly here and, in fairness to the Minister and his predecessor, they recognised it is something that must at the very least be looked at. Putting it off for another year is really regrettable. This is not a small issue and it should get the attention of the Department. It has the potential to bring significant revenue to the State and it has the potential to close down an inequality in how companies buy back shares and how one method is treated as a chargeable event and the other two methods are not.
That being said, we are now on the Finance Bill and the work has not been done so we have to move on from here. The one thing I ask the Minister to do, if his Department is now to carry out before the Finance Bill of next year that work we had expected it to do this year, is to have that work published at the very least as part of the tax strategy group papers so we are not waiting until in advance of the Finance Bill - sometimes the reports are published on the day - in order that we can have consideration of this here in the run-up to next year's budget, if that were possible. I do not know if the Minister is planning consultation or anything in that regard or if this is just an in-house exercise, but I ask the Minister in relation to that commitment that it be at least part of the tax strategy group's work. I know it did not go into it in any depth this year because there was a separate piece of work with the Department, and that is fine. Now that we have missed that timeframe, there is plenty of time, at least the summer, to have a comprehensive piece of work published as part of those papers. Will the Minister talk to me about the methodology? Will it be just in-house or will there be a wider input from stakeholders on this?
I am happy to commit that we will provide for this in the tax strategy group papers next year and that will allow adequate time for consideration of the policy issues in the lead-up to the budget. It is important that, at a time when there is significant policy change in European capital markets as we seek to support our own domestic capital markets, we take account of any unintended consequences. That can be considered as part of a fuller examination of this issue, and we will publish that as part of the tax strategy group papers for 2024.
I withdraw my amendment.
Amendment No. 26 has been ruled out of order.
Amendments Nos. 27 to 29, inclusive, are related and may be discussed together.
I move amendment No. 27:
In page 80, to delete lines 31 to 38, and substitute the following:“
|
11 October 2023 |
€606.39 |
€606.39 |
€526.83 |
€526.83 |
€526.83 |
€60.00 |
€164.23 |
€149.09 |
€142.76 |
€79.17 |
€9.36 |
|
1 April 2024 |
€638.91 |
€638.91 |
€551.22 |
€551.22 |
€551.22 |
€60.00 |
€164.23 |
€163.96 |
€142.76 |
€79.17 |
€9.36 |
|
1 May 2024 |
€638.91 |
€638.91 |
€551.22 |
€551.22 |
€551.22 |
€122.83 |
€164.23 |
€178.83 |
€142.76 |
€79.17 |
€9.36 |
|
1 August 2024 |
€654.07 |
€671.43 |
€555.53 |
€575.61 |
€575.61 |
€122.83 |
€164.23 |
€178.83 |
€142.76 |
€79.17 |
€9.36 |
|
9 October 2024 |
€654.07 |
€688.78 |
€555.53 |
€595.68 |
€595.68 |
€122.83 |
€164.23 |
€178.83 |
€142.76 |
€79.17 |
€9.36 |
This amendment seeks to pause an increase in the excise or carbon tax on consumer fuels such as petrol and diesel for the duration of 2024. It also has the effect of reducing the level of excise applied to home heating oil by more than 50% until 1 May 2024, saving households approximately €64 per tank fill. The policy objective of the carbon tax, which was announced many years ago now, was to establish a price floor on carbon-based fuels, and it is acknowledged that the carbon tax is regressive, with the cost disproportionately borne by low-income, rural and single parent households. With regard to the stated policy objective of increased carbon taxes to set a price floor on carbon-based fuels, it is now widely accepted that, as stated by the EU High Representative for foreign affairs and security policy, energy transition will be accompanied by a rise in the price of fossil fuels.
At present, Ireland has the seventh highest carbon tax in Europe and among the highest energy prices in Europe. We also know, because some people will say that without carbon taxes we will not achieve our climate change objectives, that the problem is that the debate is actually a lot deeper than that. We need to look at where we are at. Under the stewardship of Fianna Fáil, Fine Gael and the Green Party, we have already exhausted almost 50% of the carbon budget that was set from 2021 to 2025. In the first two years almost 50% has been exhausted, so we are on track to exhaust 123% of the allocated carbon budget by 2030. By refusing to depart from the business as usual approach, the Government will almost certainly max out the 2025 carbon budget before it leaves office.
It is clear to me we cannot reduce any climate action to one single policy, with supply-side investment yielding crucial results in the transition to a low-carbon economy. We showed in our alternative budget, which may be deviating from this section, how additional investment could have been made beyond what the Government is making in areas such as deep retrofits, transition to different types of energy, afforestation and rewetting. All of that was shown in our alternative budget without the requirement to increase carbon taxes further. I am really concerned that we are missing our carbon budgets, that the Government is missing the carbon budgets it set, and that by the time it leaves office it will have exhausted the carbon budget, and yet the only thing that seems to be on target from the Government is to increase carbon taxes over and over. I would love if the Minister would release the data that underpinned the decision by Government at the time that the policy objective was to set a floor in terms of carbon pricing and where the expectation was that these products would be at the time. I expect they are way above what the policy objective was here, which was to increase prices to try to convince people to move from one type of commodity to another. This is a strong objective and one I support, but without the investment, without the carrot, and without the investment in the alternatives that are affordable and readily available, it does not work and makes families poorer. That is what this amendment is about: pausing the increases in carbon taxes.
The other part of what we propose is a significantly increasing both the revenue and capital allocations required to support households, families and workers to make the transition required to deal with climate change and biodiversity issues. I know the Government is very much wedded to this proposal but we had the experiment. Petrol prices went up to €2.20 and it did not stop people from driving. People still needed to get to hospital appointments, to travel from Gweedore to Letterkenny to work, to drop their kids to school, and to do all the a's and b's and all the necessities. What we need, and I think we all agree on this, is additional investment in rural transport, bus corridors, rail, cycle pathways and all those types of investments that are required, which the Minister will argue can only be done through carbon tax but we actually showed in our alternative budget that we would make more investment in all of these areas without carbon tax increases.
We are about to break at 1 p.m. if the Minister wishes to respond.
I have quite a few points to make so I will hold off, if that is okay. On section 35 that applies new measures to outgoing payments of interest, royalties and distributions aimed at the prevention of double non-taxation, I will bring forward a Report Stage amendment to make a minor change to the definition of "relevant payment" to ensure the legislation operates as intended. I will also introduce an amendment to section 42 to provide for the latest update to the EU list.
I thank the Minister. We will suspend from 1 p.m. and will reconvene until 2 p.m. Is that agreed? Agreed.
We are resuming in public session. Deputy Pearse Doherty was in possession in respect of amendment No. 27. The Minister is invited to respond.
I understand that the other amendments in this group are not being moved. Is that correct? It is just amendment No. 27 in the name of Deputy Pearse Doherty. While I acknowledge that carbon tax has an impact on the price of certain products, it is important to point to hypothecation. On budget day, the Department of Public Expenditure, National Development Plan Delivery and Reform set out a comprehensive paper highlighting, for example, how €788 million is allocated for climate action measures in the budget. This is revenue we need for agri-environmental measures, retrofitting and in terms of fuel poverty. I am not in a position to accept the amendment.
Is the amendment being pressed?
If the committee might bear with me for a moment, I thought the Minister would speak for more than a minute.
I essentially outlined that a budget day paper published by the Department of Public Expenditure, National Development Plan Delivery and Reform outlines the hypothecation of carbon tax receipts. That was a commitment we made, as the Deputy knows, when the tax was introduced. Some €788 million is being allocated as part of budget 2024 for climate action measures. We have a detailed paper. In table 2, a breakdown is provided of all the different elements of how the funding is being provided, including for: the green climate fund; just transition; residential and community energy efficiency; targeted social protection interventions to support families to deal with the cost of rising energy prices; incentivising green and sustainable farming; green agricultural pilots; in the Department of Transport, investing in greenways, urban cycling, and improving the electric vehicle charging infrastructure; and, in the Department of Housing, Local Government and Heritage, measures in respect of peatlands rehabilitation. We have set out in a very transparent way how all of the proceeds are going to be used in that €788 million of hypothecation for 2024 and that is an increase of €165 million over the previous year.
The commitment we have given from the very beginning is that the proceeds from the carbon tax would be reallocated for environmental measures and to support people who are having to deal with rising energy prices. We believe it is the right policy to try to change behaviour over time. Of course, it is complemented by grants and financial supports in respect of home energy such as the Sustainable Energy Authority of Ireland, SEAI, grants. All households will benefit from the electricity credits as well. There is consistency in the policy. We believe it is important that we have a consistent trajectory of carbon pricing over the coming years. It is having an impact in terms of changing behaviour. We acknowledge that for some, the challenge is greater than it is for others.
Deputy Doherty has raised the particular issue of home heating oil. That is why the Government has fully funded the SEAI programme for next year. Ultimately, we believe that is the most sustainable way for families to reduce their energy costs in the long term, making homes warmer and more comfortable through investment in retrofitting. We are providing a substantial amount of funding in the budget to provide for that.
I hear what the Minister is saying. We have heard it before. We are in the middle of a cost-of-living crisis. Prices will continue to go up. I am sure the Minister is aware that the Government in Germany, a coalition which involves the Greens, paused its carbon tax increase last year in the context of the cost-of-living crisis. Their carbon tax is set at €30 per tonne while our is at €48 to €50. Canada has done a carve-out for home heating oil because of the impact it has on low-income households. The American administration does not have a carbon tax but is looking at supply side investments. For all of those reasons, I am pressing the amendment.
I am not opposed to this section. It involves a significant increase, and a bigger one than we have seen in recent years. I am just conscious of something I see in the community all the time. I do not know what a packet of cigarettes costs now - about €17, I think, with this increase. We are talking about €170 for a carton of ten packets. The number of people who are coming home from holidays with cartons that cost €40 is a major issue. We are part of the European Union, and people are allowed to do that. I am raising this issue in the context of public health, which is the motivation behind this tax increase. I am wondering if we have any data on this matter. People are coming back from their holidays with a carton or maybe two cartons of cigarettes in their duty free bags carrying a carton of cigarettes. The cartons might not be for them but for their next-door neighbour. This is common practice. It is extremely common to ask someone to bring back cigarettes. We hear about it happening all the time. Black market activity is another issue; I am talking about the legal part of it. There is a tipping point in this and Revenue always warned us about a tipping point. There is a point where the increase in the charge will actually be counterproductive in the context of public health. I do not know what that point is.
Has the Department carried out any research in conjunction with the Department of Health on what is happening in the market? Are there surveys of people who have purchased cigarettes? It is nearly counterproductive because, for a smoker, ten cartons of cigarettes will last a long time. I would just query what is happening. There is significant black market activity as well. I will leave it at that.
I thank Deputy Doherty for that contribution. Of course pricing has an impact on consumption and on where people source product and I understand the point the Deputy is making. One purpose of increasing the excise is motivated by public health and the need to continue to drive down smoking levels in our society. That is, first and foremost, the objective. There are, of course, other ways in which people can get cigarettes, some by illicit means. Some cigarettes are illegally purchased and then we have duty-free, which the Deputy has correctly identified.
To answer the Deputy's question about research, the Ipsos MRBI Healthy Ireland Survey 2022 conducted on behalf of the Revenue Commissioners and the National Tobacco Control Office of the HSE found that an estimated 17% of cigarette packs consumed in the State were illicit. This equates to approximately 31.7 million packs based on a pack size of 20 cigarettes. A further 13% of packs consumed were non-Irish duty-paid. The level of illicit rules of origin, RoO, rose to 17% in 2022 from 13% in 2021. In effect, approximately 30% now are either illicit or are brought in through duty-free, which is approximately three out of ten packs at this point. That needs to be a consideration in the decisions we make around excise as it means that 70% are still bought here in the legitimate trade. We just have to marry the consideration of that with our obligation with regard to public health. Certainly for this budget, I believe what we are proposing is appropriate.
I just want to make one final point. I thank the Minister for the data. It would not be nice to see the trend with regard to where that is moving and how it is correlating, if it is at all, with price in the Irish retail market. However, at the end of the day, I know most people are still buying these products from behind the counter in Irish shops and if one, in particular, is trying to prevent people from taking up the habit in the first place, I would say that the point of entry for them is from behind the counter.
I recognise this but I would like to see us doing a little bit more work on this before we go into next year. This is the trend here and Sinn Féin has argued in our alternative budget to put more excise on cigarettes but we probably need a little bit of research. There could be a tipping point here where it is counterproductive. Obviously, if the illicit market is growing, the big problem is that if there is a normalisation, which there is in many communities and households, that 17% of people who are smoking are buying cigarettes from the black market, which is illegal activity, it becomes an issue. I will leave it at that.
I want to comment on the same topic with regard to the illicit trade of cigarettes. We were talking about all of the taxes earlier on with regard to the supply of coal. There is an enforcement issue here when we have public policy for the benefit of the health of individuals and families, but also when it comes to climate matters and the aims we have there. As a Government we must look at enforcement around the illicit trade of tobacco and the importation of coal because I can see that is quite common now. In many cases, we try to ban the smoky coal, but in addition to that, we have to impose carbon taxes and so on. It is very clear from talking to suppliers and retailers of coal that jobs are being affected with coal and cigarettes coming in from outside of the State.
This is a two-pronged issue. It will affect businesses and jobs but it will also affect the health of our nation. I do not believe there is enough of a campaign around that to get the message across that, in effect, it is illicit trade. Those involved in it do not realise they are doing this. Some are doing this because of an affordability issue. Others are doing it for other reasons but it is affecting residents here and our health. It is also affecting small businesses and jobs and I believe we have a piece of work to do here. It involves Revenue and other agencies in pulling a plan together. Local authorities are involved but nobody really seems to own the campaign to stop it. We need to do more in the messaging around that, together with enforcement, to be fair to all involved. These comments are not just for today's discussion but I wanted to make the point when we were discussing this issue.
I thank both Deputies. I assure Deputy English that Revenue remains focused on enforcement activity. It has approximately 2,000 professionals working on enforcement all of the time.
On Deputy Doherty's question, it has to be acknowledged that the higher the price goes in the legitimate market, there is the potential that we will see an increasing proportion of overall purchasing coming from the illegal market or cigarettes will be brought in with no Irish duty paid following travel from abroad and so on. To give the Deputy some context, we have seen an increase in the percentage of the overall number of cigarettes which are illegal. In 2018, it was 13% and in 2022, it increased to 17%. We have seen an increase and we need to be conscious of the impact of future excise decisions. I will delve more deeply into that question, certainly in advance of the next budget and before considering any further changes.
Can I have some clarification as to how this will apply to cider and perry with a high percentage, or a percentage above 8.5%? What does this do to the typical product on the shelf? It obviously increases the excise but what does this do to the price of a litre of cider?
It is very low. The estimated yield from this measure is €4,500, so it is very low indeed.
All right.
This refers to the deposit return scheme and the VAT applicable to this and how VAT would be applied to the operator with respect to the non-refunded deposits or return deposits. Can the Minister talk us through it, or does he have the information with regard to the implementation of this scheme as to how it will operate in practice for retailers? Is that something the Minister has? I am conscious that he may be just dealing with the taxation element of this but if he could just speak to this aspect of it, I would appreciate that.
I thank the Deputy. This section introduces a new section 92A to the VAT Consolidation Act 2010 which provides for the principles to govern the application of VAT in respect of the deposit return scheme, DRS. That scheme is being introduced by the Department of the Environment, Climate and Communications and is due to go live in February 2024.
The scheme requires that a refundable deposit is placed on single-use drinks containers – plastic bottles and aluminium drinks cans – and the deposit is refunded when the empty containers are returned for recycling or reuse. Under the environment legislation, the deposit is charged at each stage of the supply chain. It is added to the price of the goods by the person who first places the drink on the Irish market and on any subsequent sales. Once the drink has been consumed, if the container is returned, the deposit will be refunded.
Under existing VAT rules, VAT would apply to the deposit at each stage in the supply chain. However, this amendment introduces a new section 92A into VAT law so that VAT need only be accounted for on the deposits relating to unreturned containers. This tax treatment is possible on an exceptional basis in line with Article 92 of the VAT directive. Under the amendment, VAT will only apply to a deposit if the container is unreturned under the scheme, and it is the operator of the scheme who will be required to account for VAT on those deposits. This means that businesses in the supply chain, such as producers, wholesalers and retailers, will not charge VAT on the deposits and they will not have to account for VAT on deposits.
A consequential amendment is made to section 120 of the principal Act to allow Revenue to make regulations in relation to the details of the rules for accounting for the VAT, which will be done by the operator.
I thank the Minister for that. Going through the practicalities of this, an operator is established, and an operator is different from a retailer who will operate the scheme. An operator will provide services at different retail outlets, I assume. Correct me if I have misunderstood this. Let us say €5 million in deposits was paid for aluminium cans or plastic drink containers and €4 million of that was returned, so the operator has €1 million. Therefore, VAT would apply to the €1 million. That is fine. I understand that part of it. When do we determine that the €1 million is the amount that will not be returned? At any point in time, can you not rock up with your six cans of Harp or Tennent’s, put them back into the retail outlet and get the money back? When does that chargeable event happen?
On the fees the operator would pay to the retailer, I presume VAT would apply to all of them. I understand the operator would pay the retailer a fee for facilitating this.
The operator would pay a refund to the retailer.
The retailer also benefits from a fee, do they not? No.
I will answer the Deputy’s first question. He gave an example of there being €1 million worth of product that has been returned and the VAT treatment of that. His question was about whether those products could be returned when clearing out the garage a year later or whatever. There are operational issues there. The Revenue will be developing regulations. We expect those to be completed by the end of year but they certainly will have to be finalised before the scheme comes into operation. That will deal with the specific operational issues around accounting for unreturned product that could come back over a period of time.
I am not totally familiar with this scheme, so apologies if I am not familiar with the existing legislation. I do not have the detail to hand. My understanding is a retail outlet will agree to operate this scheme.
If we buy an aluminium can with the return logo on it, we are subject to the deposit, which may be 20 cent or whatever it is. It is immaterial to this issue. However, the retailer is not the operator.
The operator is the person above that, is it not?
Yes. There will be an operator.
The retailer gets a fee from the operator for operating this service. Is that not the case? I think it was 8% or something.
When a customer returns the can to a retailer, they will get the refund of the deposit from the retailer and the retailer is then reimbursed from the operator. Is there a fee? We understand that in the scheme being developed by the Department of the Environment, Climate and Communications, there will be a fee to the retailer.
That is from the operator.
They obviously have to get something out of it. The profit of the operator is the number of cans that are not returned, I presume?
That is where the profit originates. There will be a certain amount that will go into recycle bins or whatever. Let us use the €1 million we talked about earlier. It is subject to VAT. The €4 million that is returned in terms of the deposit is not subject to VAT. Out of the €1 million that the operator retains, a portion of that is given to the retailer for a fee to operate the scheme. How does VAT apply to that?
My understanding is there will be a standard VAT rate applied to the fee. It is a separate issue to the treatment of the VAT on the unreturned product.
Does this envisage that there is only one operator or multiple operators?
I understand it is one operator.
The legislation only provides for one operator.
Obviously, it could not work with multiple. It would be, for example, Repak or whatever.
Section 59 has no amendments. We will have just a short intrusion.
This deals with the flat rate for farmers. As the Minister knows, the farming sector is quite upset about the flat-rate compensation or addition for non-VAT registered is being changed from the current 5% to 4.8%. They make a number of points about the impact this will have on farmers, particularly given that costs have increased on farms. I note the Minister said this is required under the EU VAT directive. Can he make it clear to the committee whether there is no option whatsoever under the EU VAT directive to compensate farmers for the impact of this section? Are our hands completely tied on this matter?
Is that short enough?
Perfect. If we get a short answer, we are in business.
I will do my best. This section amends section 86 of the Value-Added Tax Consolidation Act 2010, which deals with special provisions for tax invoiced by flat-rate farmers. It confirms the reduction in the farmers’ flat-rate addition from 5% to 4.8% with effect from 1 January 2024. The new 4.8% rate will continue to achieve full compensation for farmers under the flat-rate scheme.
The farmer’s flat rate scheme is reviewed each year in the run-up to the budget in accordance with criteria set down in the EU VAT directive. The rate must be based on macroeconomic data relating to agricultural inputs and production and the prevailing VAT rate structures averaged over the preceding three years. Revenue’s calculations based on data from 2021 to 2023 indicate that full compensation can be achieved by decreasing the rate to 4.8%. Overcompensation is not permitted under EU law.
The change must be introduced in line with the relevant macroeconomic data. This calculation is done by the Revenue Commissioners using CSO data and it is also subject to audit by the European Union.
Is this kept under review for each year? Is that what applies in relation to calculating the appropriate rate depending on the input costs?
Yes, it is done annually.
Is the Minister certain that, if we were to leave it at 5%, we would be infringing on the VAT directive?
I am advised by the Revenue Commissioners that is not allowed, and that this calculation must be done. We have to revise the calculation in line with the data. It is subject to audit. There is no discretion.
Amendment No. 29 was already discussed.
On section 60, in relation to what is really a technical amendment, I want to get the Minister's or the Department's views in regard to some of the concerns that have been raised by tax professionals that there could be a negative impact on the ability to apply VAT exemption to professional support services provided in respect of the issues that are being clarified that are in fact outside of the scope of VAT.
This section of the Bill amendments paragraph (6)(1)(a) of Schedule 1 of the VAT Consolidation Act. That paragraph provides for the VAT exemption on transferring or otherwise dealing in stocks, shares, debentures and other securities and other documents establishing title to goods. The amendment is a technical correction to delete the word "issuing" from paragraph (6)(1)(a) of Schedule 1 of the VAT Consolidation Act. The issuing of shares is already outside the scope of VAT so having it referred to in the exemption is incorrect and of no benefit or meaning. Subsequent dealings in shares by way of buying, selling, transferring, etc., is within the scope of VAT, but under paragraph (6)(1)(a) it is regarded as transferring or dealing in shares and thus is covered by the exemption. This amendment will ensure our VAT legislation correctly reflects the directive and EU case law. This is regarded by Revenue as a tidying-up because the reference to the exemption is incorrect and has no benefit or meaning.
I understand that it is tidying up a technicality, but concerns were raised that doing this will possibly have a negative impact on the ability to apply a VAT exemption on the professional support services element which I understand was heretofore exempt.
We are aware of that concern. The answer is it should not be a concern. The issue of shares was never an exempted activity. It was always outside the scope of VAT, so the provision under paragraph (7)(1) for an exemption for agency services relating to the exempt financial services under paragraph (6)(1) did not apply to agency services for the issue of shares. However paragraph (6)(1)(b) of Schedule 1 provides VAT exemption for the activity of "arranging for or underwriting an issue of stock, shares, debentures and other securities, other than documents establishing title to goods" and this remains the case. We believe those concerns are groundless.
I thank the Minister for clarifying that.
Did we deal with amendment No. 29?
We did. It was all agreed. We are now on section 65.
Will the Minister speak to this section? This is for many people probably an unknown in terms of short-term residential leases and the impact of stamp duty in terms of the rental sector. Will the Minister speak to the section and then we will have a discussion on it, if that is okay?
Schedule 1 to the Stamp Duties Consolidation Act 1999 provides for a charge to stamp duty on leases. The rate of stamp duty payable depends on the period of the lease. A term not exceeding 35 years or of indefinite duration is charged at 1% of the average annual rent; a term exceeding 35 years but not exceeding 100 years is charged at 2% of the average annual rent; and the term exceeding 100 years is charged at 12% of the average annual rent. Schedule 1 provides for an exemption from this charge for leases of houses and apartments for any term not exceeding 35 years or for any indefinite term where the annual rent is less than €40,000. In the absence of this provision such leases would be charged with the stamp duty at the rate of 1% on the average annual rent. The current €40,000 limit was put in place by Finance Act 2017 having previously been €30,000. In 2017 a figure of €40,000 may have resulted in only a small number of residential leases being subject to stamp duty. However, the increase in rents over the intervening period means that an increasing number of such leases could now potentially exceed the cap. To take account of this, the amendment will increase the limit to €50,000. The amendment will ensure that only high-value leases in respect of houses and apartments are liable to stamp duty.
That means that, at the minute, if a person is renting a house and paying €3,300 per month, he or she is not subject to this stamp duty, and the Minister believes that level is too low. I know rents are out of control but this again is following the serious policy we have in terms of runaway rents and all the rest. However, these are rents that at present are at €3,300 and there is no stamp duty, and now we are increasing it to €50,000. What is that a month? It is about €4,000 a month in rent. The Minister said that only high-value houses would be subject to the stamp duty. Are there many properties out there that are not high value that have rent of €3,500? The average rent in Dublin is about €2,300. It is an example of how bad things have become in a very short period of time.
I thank the Deputy. The public policy position here is that we believe the stamp duty should not apply to the overwhelming majority of residential leases and that the stamp duty would be charged for other purposes. It is a recognition that since the limit was changed back in 2017 there would be more impacted properties. That is a reality given market conditions and how that has changed over the past six years or so.
We do not believe it is appropriate that more of those properties that have gone over that threshold would now come into the net and, therefore, are making the change as proposed in the Bill.
Can the Minister give the committee the details of how many properties have rents in excess of €3,333 per month, which means that they are the ones that were liable for this stamp duty?
I am informed that we do not have data on the numbers but we will double-check that. I understand that it is presenting as an issue in the case of some residential leases being entered into in the Dublin region. I will endeavour to obtain the exact number of cases as I do not have it to hand.
I would appreciate that because I would be interested to learn how many properties that are not high-end properties are now charging over €3,300 per month. If the Minister could get those data, it would be helpful. There is obviously a reason this is being done. There is a €10,000 increase and as the Minister said, this follows on from an increase a number of years ago. It went from €30,000 to €50,000 in six years, which, again, is a symptom of the runaway rents that occurred under the Government and the previous one. Now this is allowing for rents per month of over €4,100 to exempt from stamp duty.
There is another provision regarding leases. There are two parts to this. There is the overall threshold but is it correct that if you are leasing over 35 years regardless of the rent, stamp duty applies or does the threshold kick in?
In the case of terms exceeding 35 years but not exceeding 100 years, it is charged at 2% of the average annual rent in that scenario.
How is that being implemented? Is it like a scenario where it is not a lease agreement as such but somebody has a continuous lease over many years? We rented our house for decades. That was just the way it was. In rural communities, there will be people who rent their house from the same person and spend their lives there so is it the case that if they continue to stay in that house for 35 years, they have to pay 2% on their annual rent to Revenue every year once 35 years are reached?
I will check that point. I would expect that it would need to be explicit in the agreement that the duration is of that period as a minimum rather than something that just organically develops over a period of time. I will ask Revenue to check that point.
Amendment No. 32 in the name of Deputy Doherty has been ruled out of order.
The Department has run a public consultation on the future of the bank levy that took place earlier this year so we are expecting further changes in the coming year, including possibly the number of entities that would come under its scope. I invite the Minister to say a few words on that or set out his current thinking regarding how the bank levy will apply beyond 2024. Will it only apply to the number of entities currently within its scope or does the Minister intend to extend it to other entities that hold deposits? It was supposed to expire in 2023. It has had a number of extensions and I believe it is right to continue to extend it.
The Minister has increased the bank levy and changed the way it operates away from the deposit interest retention tax to deposits. The revenue target is now €200 million, which would be an increase on the original target, which was €150 million. I made the point that it was wrong to reduce the bank levy in previous finance Bills, which reduced the income from this to €87 million. It made no sense whatsoever and the fact that the Minister is increasing it to €200 million justifies that point. What was the rationale behind the revenue target of €200 million? When you look at the profitability of the banks when we had a banking levy of €150 million and if you want a pro rata increase along the lines of the profitability of the banks to this point in time, the banking levy should not be €200 million, it should be €400 million. We know that the profitability of the banks has increased dramatically. Even in 2022, it was €2.5 billion while this year, it is forecast to be double that at €5.1 billion, which is a 97% increase in terms of operating profits.
Given the scale of the growth both in terms of the net interest margin and operating profits, why does the Minister believe the banking levy as drafted in this legislation is adequate in terms of its reach and the revenue target and does not widen the scope of the levy beyond Bank of Ireland, AIB, Permanent TSB and EBS? Is this something the Minister is considering in the future? When will we have a definitive view from the Department regarding the future of the banking levy, its scope, its target revenue and its duration?
I will address a number of points raised by the Deputy. As I announced in my budget speech, a revised bank levy is being introduced for 2024 that will be payable by banks that received State assistance during the global financial crisis. The banks concerned are AIB, Bank of Ireland, EBS and Permanent TSB. It will replace the current bank levy, which is based on a percentage of the deposit interest retention tax paid by the banks in a specified year and is due to expire on 31 December 2023.
The revised levy will be provided for by a new section 126AB of the Stamp Duties Consolidation Act 1999. It will be applied in the form of a stamp duty at a rate of 0.112% of the total amount of deposits held by the banks on 31 December 2022 to the extent that those deposits are "eligible deposits" within the meaning of the European Union (Deposit Guarantee Schemes) Regulations 2015. The target yield for the levy for 2024 is €200 million.
The original policy intent of the bank levy was to ensure that banks that received State funding in support following the financial crisis made a contribution to the economic recovery of the country. In line with this policy, the revised form of the bank levy is proposed to again be placed specifically on those institutions that received State support and are still providing retail banking services in the State.
I considered the possibility of extending the bank levy to other regulated entities, including the non-bank sector, but it did not prove possible to determine an appropriate legislatively robust way to distinguish between the various forms of such entities. I intend to give this matter further consideration across 2024.
On the amount of the levy that we intend to collect, for 2022 and 2023 the bank levy was targeted to raise €87 million per annum from 2022 to 2023. The revised target yield of €200 million per annum represents considerably more than twice what was raised in each of the previous two years, and one third more than the €150 million which was the revenue target each year between 2014 and 2021. As such, I do not consider €200 million to be an insufficient target yield for 2024.
I have an amendment later but I will not speak to it because it is broadly in line with what we are discussing here. My amendment looks for a report and I am conscious that work is being done in the Department. The report has not been published yet. The Minister has said that he will possibly consider the scope of it over 2024 or 2023. When will the report be published?
One of the things I have sought is a report on the banking levy, particularly the effective rate of the levy relative to the net interest income in operating profits of in-scope credit institutions in each of the years since its introduction, and the effective rate of equivalent levies in EU member states relative to the same basis. I ask for that because the report calls for information that has not been provided in the public consultation document with respect to the effective rates of the levy relative to appropriate bases such as net interest income and operating profits compared with equivalent EU jurisdictions. I think that is a gap in terms of the information that should be there around the banking levy. I invite the Minister to comment on this matter. He has said that €200 million is not an insignificant number and I agree with him. I contend that €150 million was not either but that amount was being applied to the banks when their profitability was less than half of what it is today. The banks are making over €5 billion of profit and, therefore, a proportional increase would be more in the line of €400 million.
I have asked a couple of questions on the gap of information that we have in terms of the effective rate of the levy relative to net interest rates and operating profits in each of the years, and relative to equivalent levies in different EU member states but relative to the same bases. The Department has completed its consultation. Will the findings be published at some stage or did I miss it?
The Minister has said that he will consider the scope of this and whether other institutions should come in within the scope of the levy. Can he indicate his intentions as to the duration of this levy? Does he believe this is a short-term levy or a more permanent levy regarding the financial institutions?
We intend to publish the various submissions that we received in the course of our work. I appreciate that this is, in effect, the discussion on the Deputy's amendment so I will address some of the points he has made.
The Deputy is seeking a report on the rate of the levy relative to the net interest income and operating profit for all in-scope institutions since it was introduced. It is important to point out that it would not be possible to produce a report, as requested, for that timeline. Credit institutions licensed by the Central Bank do not necessarily have to publish net interest income on a subconsolidated basis. Prior to the amendments I have proposed in the Bill, the levy had a wider application and some in-scope banks only reported net interest income on a consolidated basis with individual figures not available for their Irish subsidiaries. Therefore, any such historical analysis as suggested would be incomplete. I can also inform the Deputy that while the report he is proposing cannot be provided, I can provide the net interest income and operating profit of the credit institutions for 2022, which will be in scope of the levy in 2024. We have a table on that. I think the Deputy has public access to that information anyway.
What about the timeline?
Does the Deputy mean the number of years?
This is something we will keep under review every year. There will be further work across next year, as I alluded to earlier. It is something that I intend to keep under review.
I move amendment No. 33:
In page 90, between lines 1 and 2, to insert the following:
“Report on the Banking Levy
71. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the banking levy and, in particular, the effective rate of the levy relative to the net interest income and operating profits of in-scope credit institutions in each of the years since its introduction, and the effective rate of equivalent levies in EU Member States relative to the same base.”.
Section 71 provides for a stamp duty exemption on the transfer of Irish shares where they are dealt on a recognised stock exchange, particularly in the USA, Canada or elsewhere. I thought it would be appropriate when dealing with this section that I would invite the Minister to give his view and that of his Department on this measure, in the first instance, and the discrepancy between this measure and the fact that there is a 1% stamp duty liability on the Irish Stock Exchange to ensure it is listed there and on other markets. I ask the Minister to comment on issues that he may bring forward that would help to support and underpin Euronext Dublin in light in what we have seen in the last number of months, whereby a number of Irish companies have been delisted and are listing in the USA. Is the Minister concerned about these matters? It is important that our economy has a successful equities market and that we encourage indigenous growth and development. Is the Minister considering policy considerations that would help to assist that in the context of Irish shares that are listed on our own Stock Exchange?
I will speak to the section first.
When a sale of shares in an Irish company takes place anywhere in the world, a charge of stamp duty will arise at the rate of 1% of the consideration paid. However, section 90 of the Stamp Duties Consolidation Act 1999 provides for an exemption from stamp duty on the transfer of an American depository receipt, ADR. An ADR is an instrument issued by a North American bank or broker which represents one or more shares in a foreign company, such as an Irish company. ADRs can be listed on recognised stock exchanges in North America.
Those that are can be traded, settled and held as if they were regular shares.
The section 90 exemption for ADRs was introduced in 1992 with the aim of assisting Irish companies in raising capital in the US. With the advent of Irish companies moving their primary listings to North American stock exchanges, it is now often the company shares that are traded on North American stock exchanges rather than ADRs representing such shares. Revenue has in the past confirmed that the exemption applying to transfers of ADRs can be applied to trading in Irish shares listed on recognised North American stock exchanges, subject to certain conditions being met. This is in order to be consistent with the policy intention of ensuring access to US capital markets for Irish companies.
To provide certainty to Irish companies about the stamp duty treatment of these transactions, this amendment will put this long-standing practice on a statutory footing. The amendment will operate by excluding such transactions from the scope of chapter 2 of Part 6 of the legislation. These provisions currently provide for such transactions to be chargeable to stamp duty. For the exclusion to apply, the shares must be listed on a recognised stock exchange located in North America and the trade must be settled through a securities settlement system located in North America.
On the broader issue the Deputy has raised concerning Euronext Dublin, I have engaged with Euronext on those issues. It has brought forward a report that set out some options, as the Deputy will be aware. The report was prepared by Grant Thornton. Euronext would acknowledge that a number of those recommendations require further development. We are committed to working with it and other stakeholders to seek to improve access to capital markets and equities markets in Ireland. The Deputy will also be aware the capital markets union is a very active item on the agenda of the Eurogroup and ECOFIN and all member states are working towards implementing a capital markets union action plan at this time. There were some requests in the Grant Thornton report that could not have been achieved in the short term. I refer, for example, to the proposal to abolish the stamp duty on share transfers involved very considerable cost. It was not affordable to do that and much more though is required on the issues involved. We are committed to working with Euronext in the period ahead. We recognise it is a challenge.
On a broader level, we know the scale and depth of the capital markets in Europe generally does not compare well with the United States. That is a trend that is going to require a sustained, collective effort, not just by us but also by other EU member states. That will involve significant reforms as part of the capital markets union, but there are measures we can examine. I am committed to examining those measures in more detail. That will be done in the post-budget period across the first half of next year.
I have a brief question about this section, which I welcome. It deals with the issue of capital acquisitions tax, CAT, for foster children and the fact it will apply in the same way as it would apply to a child from a parent and from a sibling - from the foster brother or sister to the foster child. There obviously must be criteria involved in this. The only question I have is on situations where a child is in the care of the same foster parent for at least five years prior to turning 18. We could all talk about what the appropriate number is, so I have no issue with the five years as such, but is there a rationale for the criterion relating to someone turning 18? I am conscious some foster children will remain with the family into college life and all the rest. A child could arrive at the age of 16 and still be there five, six or seven years later. What is the rationale behind that criterion?
I think the issue there is it is not a recognised relationship beyond the age of 18. This is anchored in the fostering relationship that is there under the age of 18. It involves a child; a minor. Beyond the age of 18, it is not a formal relationship in the same way as with any adult child living in a home. That is my understanding.
I can understand that. The legislation must obviously capture the part where the child is a child as opposed to an adult and where that relationship is formal and all the rest, but the tax point of view is where we can intervene. If that relationship is there for five years, some of it may be as a child where there is a fostering relationship and then if it continues. I am aware it is only being introduced and all the rest, but I wanted to raise the point that there will be 16-year-olds or 15-year-olds fostered by parents who may go off to college, continue in that household, continue to be supported and will not be able to get the CAT exemption. I welcome this provision. It is really good, so I do not want to rain on it. However, there are cases of the sort I describe. What this section is trying to do is where there is a genuine relationship between the foster parent and the foster child that CAT should apply in this regard.
I have an additional note I will put on record. It is worth teasing this out because it is an important issue.
Relief for formal fostering arrangements applies in the case of inheritances only where, prior to the date of inheritance, the foster child had been placed in the foster care of the person providing the inheritance under the Child Care (Placement of Children in Foster Care) Regulations 1995 or the Child Care (Placement of Children with Relatives) Regulations 1995. These formal and informal fostering arrangements will continue to provide the basis for the types of relationships that are within the scope of the provisions for foster children in CAT legislation. The new legislative provision will apply the group B threshold to gifts and inheritance received by a foster child from a specified relative of his or her foster parents and from another person who was fostered by the same foster parent. The term "specified relative" is defined, and I think the Deputy has those details. His question is about a situation where the child is fostered for less than five years before the age of 18 but then remains in that family environment long into adulthood.
Exactly. It is the reality. There will not be a CAT-chargeable event if somebody is not connected to the family any longer.
To clarify, my understanding is if there is a formal fostering arrangement in place under the appropriate regulations prior to the age of 18, then the minimum five-year period does not apply in that circumstance, namely, where it is a formal fostering arrangement under the regulations. That is the relevance of the regulations I referred to in my earlier contribution. The five years does not apply in that circumstance. It is a separate provision.
That is good to hear. I will take the officials’ word on that. The section reads: "for periods which together comprised at least 5 years falling within the period of 18 years immediately following the birth of the first-mentioned person". I took that to mean that it would have to be five years.
We are dealing with historical fostering arrangements that predate the regulations that have been referenced. This extends the existing provision to people in such arrangements.
Will the Minister clarify that point again? I am sorry, but I did not capture his comments fully.
This is not for anyone who falls under the new regulations. This is for those who are outside those, unless I picked the Minister up incorrectly.
Relief is already provided for any fostering arrangement under the regulations that I laid out, namely, the 1995 regulations. This additional measure relates to fostering arrangements that predated those regulations. I will double-check, though. It is important that we get it right.
Would providing a note be helpful?
I would be happy to get a note on this before Report Stage, if that is okay.
If the Minister provides a note, it might get us over this now.
We will provide a note. My understanding is that what I said was correct, but we will set it out comprehensively in the note.
I would appreciate that.
Will the Minister take me through the issue of interest-free loans in terms of capital acquisitions tax? Where an interest-free loan, or a combination of such loans, from a parent to a child exceeds the category A threshold of €335,000, it will now have to be reported. Is it that the portion above the threshold falls under capital acquisitions tax at that point? What calculations will apply? To date, it had to do with the interest forgone. Will the Minister talk me through this change?
Where a person receives an interest-free loan for less than full consideration, he or she is deemed to take a gift for capital acquisitions tax purposes. The gift is the interest-free element of the loan rather than the loan itself. This section of the Bill amends section 46 of the Capital Acquisitions Tax Consolidation Act 2003 to provide for the introduction of a mandatory reporting obligation in respect of such loans. Where the reporting obligation applies, the recipient of the loan will be required to provide details of it to Revenue in a capital acquisitions tax return. Currently, an obligation to file a capital acquisitions tax return arises where the total taxable value of all gifts and inheritances taken by a beneficiary on or after 5 December 1991 within the same group threshold exceeds 80% of the group threshold; the benefit comprises agricultural property and agricultural relief is being claimed; or the benefit comprises business property and business property relief is being claimed.
At the moment, most gifts arising in respect of interest-free loans are not reported to Revenue in a capital acquisitions tax return. This is because the recipient of the loan will often value the benefit at a very low interest rate and this, coupled with the application of the small gifts exemption and the capital acquisitions tax thresholds, means that no capital acquisitions tax return is filed. As a result, there is a risk that capital acquisitions tax is not being self-assessed correctly on such loans.
The introduction of this new reporting obligation is intended to address this issue. It will apply where the interest-free loan was received from a close relative, either directly or indirectly, and the amount outstanding on all such loans during the reporting period was at least €335,000. The information provided will assist Revenue in assessing whether the value of the interest-free element of such loans has been self-assessed correctly for capital acquisitions tax purposes.
The additional measure in the section is solely a reporting obligation. It does not change the liability issues that arise in respect of the administration of capital acquisitions tax.
The threshold for reporting a loan or combination of loans is €335,000. Is that from all sources of loans, for example, a parent? Is that how it will work?
Yes, from a relative.
The category A threshold is €335,000, but what about the calculation of capital acquisitions tax? If the concern is that it may be calculated inappropriately by the individuals themselves and they are putting it at a low interest rate, why is there a threshold of €335,000? If someone got a €200,000 loan from a parent and interest of 2% or the like was forgone-----
Let me go through how the tax benefit of an interest-free loan is calculated, what rate is applied and whether Revenue provides guidance for the types of real-life scenarios to which the Deputy is alluding. Section 40 of the Capital Acquisitions Tax Consolidation Act 2003 deems a person to take a gift in each year that he or she has the free use of property. The value of the gift is calculated by reference to the difference between any consideration paid by the beneficiary for the use of the property and the best price obtainable on the open market for the use of similar property for that year. Generally, the calculation of the best price obtainable on the open market for the use of the property is carried out by reference to the value of the gift received.
In the case of an interest-free loan, the person who receives the loan is deemed to take a gift for capital acquisitions tax purposes in each year he or she has the benefit of the loan. The gift is the interest-free element of the loan rather than the loan itself. The person will self-assess the value of this gift in determining whether any liability to capital acquisitions tax arises. I am advised by Revenue that it currently accepts that the value of the benefit for capital acquisitions tax purposes is the rate of return the loan amount would generate if it were held on deposit. This is confirmed in Revenue guidance. The legislation does not currently prescribe any benchmark rate to be applied by a taxpayer when determining the value of the benefit of an interest-free loan.
To be clear, I am not making changes to the current tax regime for interest-free loans. Rather, we are seeking to put in place a reporting obligation in respect of very substantial interest-free loans provided to family members.
The Minister might be able to clear up a mix-up. That would not be the case if the loans were from three lenders. The €335,000 threshold applies where the loans are from one family member. It does not apply where the loans are from two brothers and a sister, for example.
The value of the loans from close relatives is aggregated in terms of meeting the reporting obligation.
I am sorry. I had misunderstood.
Will the Minister outline the changes being made under this section as regards agricultural relief and the rationale for them?
This section will make various amendments to the agricultural relief and business relief provisions of the Capital Acquisitions Tax Consolidation Act 2003. Agricultural relief and business relief are available in respect of gifts and inheritances of agricultural property and relevant business property, subject to certain conditions being met. Where these reliefs apply, they operate by reducing the value of the agricultural property or relevant business property by 90%. Capital acquisitions tax is then payable on the reduced amount after allowing for any unused group threshold.
To ensure these reliefs are appropriately targeted at genuine cases of farm and business succession, the legislation includes provision for the relief granted to be clawed back where certain conditions are not met for a specific period of time after the relief has been given. Revenue recently undertook a review of these clawback provisions and some inconsistencies and anomalies in the legislation were identified during that review. These can be summarised as follows: the clawback period for both reliefs can sometimes commence before a person has actually obtained the benefit of the agricultural property or relevant business property concerned; the events that can trigger a clawback of agricultural relief are broader in scope than the events that can trigger a clawback of business relief; there is a formula for calculating agricultural relief and it is not currently clear how this applies when agricultural property is gifted; and, where relief is to be clawed back, it is not stated in the legislation exactly what the beneficiary is required to do when paying the outstanding tax to Revenue. The amendments proposed in this section are intended to address these issues, which are broadly technical in nature.
I will talk to the Minister about one part of the clawback provision. The leasing of the agricultural property to a farmer within six years of the gift of inheritance is not considered a disposal that would give rise to the clawback of the relief. The existing reliefs support the transfer of farmland to active farmers. What are the Minister's views on this provision, which, if I am correct, would allow somebody to get that 90% reduction, giving them an effective tax rate of 3.3%, given that this person could then immediately lease the farm to another active farmer while not having to pull on the wellies and go up the yard?
The clawback trigger event is being amended to clarify that all types of disposals, including part disposals, within the specified period, other than a lease to an active farmer, will trigger a clawback of the relief unless there are proceeds and those proceeds are invested in replacement agricultural property within one year. This is achieved by the substitution of “in whole or part, other than by way of a lease referred to in paragraph (iii) of the definition of ‘farmer’ in subsection (1)” for “or compulsorily acquired”. This amendment clarifies that all types of disposals within the specified period, other than leases to active farmers in those circumstances, will trigger clawback of the relief.
This section changes the requirement for individuals to file an annual tax return if they open a foreign bank account if they are not required to file a tax return for other matters. Will the Minister outline the Department's rationale for this amendment?
This section amends section 895 of the Taxes Consolidation Act 1997, which was introduced in 1992 to ensure all foreign accounts opened by Irish-resident individuals were reported to the Revenue Commissioners in the year in which the foreign account was opened. The purpose of the proposed amendment is to remove the reporting obligation for individuals who would otherwise not be required to file any tax return with Revenue in that year. Instead, reliance will be placed on the information Revenue already receives from financial institutions about such account openings under international reporting arrangements. Such arrangements are provided for under the OECD common reporting standard, CRS, the EU directive on administrative co-operation 2, DAC 2, and the US Financial Account Tax Compliance Act, FATCA. However, it should be noted that the reporting obligation will remain for any individual who is required to file a tax return in the year the foreign account is opened and any individual who opens a foreign account in a non-co-operative jurisdiction or in a non-DAC 2, CRS or FATCA jurisdiction. No change in reporting obligations is proposed in respect of foreign accounts opened by companies. This amendment will balance the collection of the necessary information with the limited risk associated with removing the administrative burden on certain taxpayers who do not have an obligation to file a return with Revenue in any given year.
I move amendment No. 34:
In page 103, between lines 22 and 23, to insert the following:
“Amendment of section 3 of Principal Act (Interpretation of Income Tax Acts)
81. Section 3 of the Principal Act is amended—
(a) in subsection (1), by the substitution of the following definition for the definition of “incapacitated person”:
“ ‘incapacitated person’ shall be construed in accordance with subsection (5);”,
and
(b) by the insertion of the following subsection after subsection (4):
“(5) References in the Income Tax Acts to an incapacitated person shall, except where the contrary intention appears, be construed as references to a person who is—
(a) a person who lacks capacity within the meaning of the Assisted Decision-Making (Capacity) Act 2015, or
(b) a minor.”.”.
This amendment provides for an update to the definition of “incapacitated person” in section 3 of the Taxes Consolidation Act 1997. This update is intended to bring the definition in line with advances in public policy brought about by the Assisted Decision-Making (Capacity) Act 2015 and the Assisted Decision-Making (Capacity) (Amendment) Act 2022. These Acts changed the law in respect of a person’s decision-making capacity from an all or nothing approach to a more flexible approach which allows for a person’s capacity to be assessed on an issue- and time-specific basis. The Acts further Ireland's compliance with the United Nations Convention on the Rights of People with Disabilities. To this end, it is appropriate to update this definition so as to align the Income Tax Act to the new decision support framework.
This is a small amendment. I have no issue with removing the reference to "the Minister for the Environment” and substituting “the Minister for Transport”. However, I will take this opportunity to speak about wider issues. This committee has dealt with the issue of the disabled drivers and disabled passengers scheme. We have heard from the Ombudsman. It is an absolute crying shame that, as the Ombudsman has said, people are being locked into their own homes because an appropriate scheme is not up and running. Back in October 2021, the board of appeals resigned en masse because the concerns it raised repeatedly with the Minister's predecessor, the Minister, Deputy Donohoe, had fallen on deaf ears. The entire board resigned, which was unheard of before, and outlined its reasons for doing so. It said it could not continue to operate a discriminatory scheme. There have been challenges in filling the vacancies on that board since. I understand the five members of the board of appeal have now been appointed but that there is a significant backlog of work.
The bigger issue is that the scheme is not fit for purpose. We are changing the person who needs to be consulted but that is not the issue. Whether it is the Minister for the Environment or the Minister for Transport, the scheme is not working for many people out there. Every party across the political divide has raised concerns as to how this scheme is not working for people who have significant disabilities and who are not able to access this scheme because of the rigid criteria in place. There are other very significant issues as regards equity in the scheme and the need to move away from it. I acknowledge the Government has stated publicly that a new scheme will be established and that it will be moving to a grant-based scheme as opposed to a tax-based scheme, which would be more equitable. The working group has also proposed and endorsed proposals for a modern fit-for-purpose scheme to replace the disabled drivers and disabled passengers scheme.
Where does this go now? This is still under the Minister's remit. There is a lot of we will do this and we will do that, and all the rest, but as the months go on, there are still people, who the Ombudsman talked about, who are locked into their homes. They cannot get out of their homes because they have no transport to take them up to the park, over to mass, or whatever it is. It is not fair. These people are expecting the State to support them. There are 1,079 appeals outstanding as of end of August. That is a terrible situation. I want the Minister to outline to the committee where this is going. The amendment may, in a way, be a necessary one but to tell the truth it is nearly an insult because nobody cares who is going to be consulted. People just want the scheme to work and want the scheme up and running. They want these appeals to be heard. It is not only about wanting the appeals to be heard. The people who are hearing the appeals say they are operating under such rigid criteria that when they hear the appeals, they have to refuse them even though they know the person needs the support. At this stage, thankfully everybody across the political divide has acknowledged that the scheme does not work and needs to be changed. Yet, we are into the end of 2023 and we are still in this situation.
It is generally agreed. We have dealt with this issue in the committee over the last couple years as well as in the Houses. We have dealt with it on behalf of constituents who have become increasingly frustrated at the lack of progress in the area even though it has been indicated that provision is being made and the issue would be addressed, maybe by different rules or whatever.
There are a number of things in relation to the disabled drivers and disabled passenger scheme, and especially the criteria that is applied in determining the extent of the disability and whether the disability qualifies for consideration. This issue has come back to us again and again, to such an extent that I remember on one occasion saying to a guy who was making an application, "Look you have no chance at all of getting through the system". Surprise, surprise, he came to me a couple weeks later and said, "Look at this, what you told me was wrong". In fact, I was basing it on all the cases that I had dealt with, and everybody else was doing the same thing, only to find that some medical supervisor had made a different decision. I do not want to blame the individuals concerned. It is about the criteria laid down for dealing with the extent to which people have disabilities - I mean a severe disability - that are life changing. It is distressing to meet with them and talk about the possibilities. We tell them we are going to try to help them out in some way, shape or form. We tell them it has been promised for a couple of years but we are not sure when it is going to happen. The degree to which the people who have disabilities are affected by the slow movement in this area is something we should take into account. We should make the decision sooner and set a specified timetable or a timeline for achieving that particular target. It is urgent because it affects people with disabilities.
We tend to think about the disabilities, injuries or whatever people have suffered as an issue one can deal with in a kind of abstract way. It is not abstract for the people who are directly affected by them. That is the problem. The severity increases as time goes on and the people affected feel further neglected as time goes on, be it with a disability, injury or disability arising from an accident or whatever the case may be. As they see, it nothing is happening. A special evaluation should be done on the issues involved with a view to bringing the matter to a head as quickly as possible.
First, I want to put on record my thanks to my officials and the National Rehabilitation Hospital, NRH, for the efforts to get the appeals board back up and running. That has been my priority for a while and we are making progress in that regard. My officials met with the new appeal board members and the NRH yesterday, 7 November, and a constructive meeting was held. On the basis of this meeting, it is hoped that the appeals board can recommence hearing appeals in the first half of December. That is welcome and I acknowledge all the work that has gone into making that progress.
As a practising politician, I have had quite an amount of experience of dealing with individual constituents who sought access to the scheme but who did not meet the criteria because the criteria are quite strict, rigid and pretty black and white around access to the primary medical certificate, which is the key gateway to accessing this tax relief. That is why the Government brought forward the report of the national disability inclusion strategy by the transport working group, which reviewed mobility and transport supports, including this particular scheme. That report has been published and my Department fed into the work of that review group extensively. It is fair to say that one of the key conclusions is that we need to replace the existing scheme with a needs-based scheme based on an appropriate level of grant support commensurate with need, with the level of disability, and with the costs involved in helping somebody to access transport.
Under the aegis of the Department of the Taoiseach, officials from the relevant Departments, including my own, and agencies are meeting to discuss the issues arising from the report and to map a way forward. I want this to happen as quickly as possible because I know how important and how urgent it is for those who are affected. My officials are proactively engaging with the senior officials group work as an important step in considering ways to replace the current tax-based scheme as one specific personal transport response and in the context of broader government consideration of holistic, multifaceted and integrated transport and mobility supports for those with a disability. The first meeting of that group was held in July and the second meeting took place earlier this month.
While acknowledging the limitations of the existing scheme, it is worth putting on record that a lot of people are in a position to access the scheme and in a position to benefit from it. When I look at the number of claims in the year to date and the value of the tax relief, it is quite significant. In the year to date for VAT and VRT, for those who have successfully accessed the existing scheme, the relief exceeds €61 million. In addition to that, there is the value of the fuel grant which is a further €9.4 million. Between those two reliefs on VAT and VRT on the one side and the fuel grant, in the year to date more than €70 million has been provided in support. There is also the motor tax relief. On a full-year basis, this typically costs around €10 million per annum.
While acknowledging the limitations of the existing scheme my priority has been to get the appeals board back up and running. There have been considerable difficulties in that regard. It has taken longer than I and my own team would have wished, but there has been a huge amount of work to get it back on track. I look forward to the recommencement of appeal hearings in the coming weeks. That does not fix the issue because the level of successful appeals is quite low given the nature of the eligibility criteria, which are so defined and so strict. In my view, and I believe this view is shared across government, we require a needs-based and grant-based scheme, on which the senior officials group has now met twice and is seeking to advance that particular scheme. I reaffirm my support and the support of my Department for that work. In the meantime, we will ensure the existing scheme continues.
I accept Deputy Doherty's point. The amendment provided for by way of section 81 is not fundamental.
It is not of direct relevance to people who are seeking to access the scheme. We are going to continue to keep this scheme operational until a replacement scheme, and a better one, is put in place.
Amendment No. 35 has been ruled out of order.
I ask the Minister to confirm to the committee that the reporting requirements under this section involve digital platform operators that facilitate the sale of goods or services but will not apply to those that list the sale of services but are not involved in the transactions themselves, such as the likes of Facebook and others.
Just to clarify, is the Deputy's query about the use of technology platforms?
Yes. I have a question on the digital platform operators and the reporting obligations on them. There are reporting obligations on them where they facilitate the sale of goods or services on the platform. Can the Minister clarify that this does not involve digital platform operators that are involved in the listing of goods or services for sale but do not actually participate in the sales themselves? I am thinking here of the likes of Facebook, for example.
This section amends Chapter 3A of Part 33 and Chapter 3 of Part 38 of the Taxes Consolidation Act 1997 Subsection (a) amends Chapter 3A of Part 33 which transposed Council Directive EU 2018/822, commonly known as DAC 6. This is the European directive on administrative co-operation that introduced a mandatory disclosure regime for certain cross-border transactions. The aim of DAC 6 is to assist Ireland and other member states in tackling potentially harmful tax avoidance involving cross-border arrangements. Section 817REA provides the Revenue Commissioners with powers of inquiry into compliance by intermediaries and taxpayers with regard to their obligations under DAC 6. The purpose of this amendment is to explicitly allow an authorised officer of Revenue to make inquiries into DAC 6 returns and ensure that such returns are made, where required in legislation.
Subsection (b) amends section 891I of Chapter 3 of Part 38. Section 891I was introduced in the Finance Act 2022 and partially transposed Council Directive 514 of 22 March of 2021, more commonly referred to as DAC 7. The main focus of DAC 7 is to tackle the under-reporting or non-reporting of income generated by digital platforms by introducing new reporting obligations for digital platform operators from 2023 onwards. DAC 7 also introduces new exchange of information rules for tax authorities.
Subsection (b) amends Section 891I, first, by outlining the information that must be supplied by a non-union platform operator when first registering with Revenue for the purposes of DAC 7; second, by clarifying the requirements that have to be met before a platform operator ID would be restored to a platform operator that has had its operator ID revoked previously in the State or in another member state; third by providing that a non-union platform operator does not have to provide information to Revenue regarding sellers in a member state if the information will also be exchanged by the non-union platform operator under an agreement between that member state and the country in which the non-union platform operator is resident; and, fourth, by amending the procedures to be followed by a reporting platform operator when a reportable seller has not provided it with the necessary information for reporting purposes. As a result of the previously outlined amendments, consequential changes are made to section 891(10) and 891(16).
The Deputy's question relates to DAC 7, the aim of which is to tackle the under-reporting or non-reporting of income generated by digital platforms by introducing new reporting obligations for digital platform operators from 2023 onwards.
Are those reporting obligations only for digital platform operators that are involved in the sale of services, as opposed to platforms that list services for sale?
Sellers are considered to be reportable sellers under DAC 7 if they use a platform to earn consideration with respect to the carrying out of any of the following: the rental of immovable property; the provision of a personal service; the sale of goods; or the rental of any mode of transport.
So the likes of Facebook would not come under that. Is that correct, given that it is others that are selling on that platform?
Yes, that is my understanding. The likes of Airbnb and others would be covered.
Airbnb would be covered but Facebook would not BE because it is not involved in the sale of goods and so on.
That is correct.
Amendments Nos. 36 and 37 are related and may be discussed together.
I move amendment No. 36:
In page 109, line 9, to delete “(1)”.
Section 84 of the Bill inserts a new section 891L into the Taxes Consolidation Act 1997 to transpose article 12a of the Directive on Administrative Cooperation, DAC, into Irish law. This provide a legal basis under which EU member states can request for their officials to conduct a joint audit of an Irish resident taxpayer, with our counterparts in the Revenue Commissioners. When it comes to the confidentiality of taxpayer information, Revenue officials are already bound by section 851A of the Taxes Consolidation Act. However, this amendment provides that foreign officials carrying out joint audits would be subject to similar rules and sanctions.
I move amendment No. 37:
In page 112, to delete lines 35 to 38 and substitute the following:
“(23) (a) Section 851A shall apply to a nominated officer, or a person who was formerly a nominated officer, as it applies to an authorised officer, subject to the modification that references to a ‘Revenue officer’ in—
(i) the definition, in subsection (1) of that section, of ‘taxpayer information’,
ii) subsections (2), (3) and (4) of that section,
(iii) subsection (8) of that section, insofar as it applies to paragraphs (b), (c), (d) and (i) of that subsection, and
(iv) subject to paragraph (b), subsection (9) of that section, shall be construed as including a reference to a nominated officer (within the meaning of this section) and a person who was formerly a nominated officer (within the said meaning).
(b) Paragraph (a)(iv) shall not operate to permit the due disclosure in the course of duties of taxpayer information (within the meaning of section 851A) by a service provider (within the said meaning) to a nominated officer or a person who was formerly a nominated officer.”.
I move amendment No. 39:
In page 114, between lines 29 and 30, to insert the following:
“(3) Section 653AN of the Principal Act is amended, in subsection (1), by the insertion of
the following definition:
“ ‘chartered engineer’ means a chartered engineer included on the register referred to in section 7 of The Institution of Civil Engineers of Ireland (Charter Amendment) Act 1969;”.
(4) Section 653BC of the Principal Act is amended, in paragraph (f)(i), by the insertion of “or chartered engineer” after “registered professional”.”.
This amendment relates to Part 22B of the Taxes Consolidation Act 1997, which was introduced in Finance Act last year to provide for the vacant homes tax. This is a self-assessed tax that applies to habitable residential properties which are already liable for Local Property Tax, LPT. A property may come into the scope of the vacant homes tax if it has been occupied for less than 30 days in a 12-month chargeable period. The first chargeable period for the vacant homes tax was from 1 November 2022 to 31 October 2023. Accordingly, the first self-assessed returns were due on 7 November this year and the tax will be payable on 1 January 2024.
This amendment amends sections 653AN and 653BC of the principal Act. Section 653AN is the interpretation section for the vacant homes tax.
The amendment inserts a new definition of "chartered engineer" into the section. Section 653BC(f)(i) provides for an exemption from the vacant homes tax where a relevant property undergoes structural works, substantial repairs or substantial refurbishment in the chargeable period. The amendment will allow a chartered engineer to make the required certification for the purposes of claiming the exemption.
The increase in the vacant homes tax from three to five times the rate is welcome. When debating last year's Finance Bill, we spelled out to the Minister's predecessor that the rate was too low. It so it is good that it is being increased. The second aspect is that it needs to be further increased if people still do not take action . The idea is to release properties into the market whether individuals let them out or if they make them available to would-be purchasers and do not hold onto them. That is the policy intention behind this. Even at five times the rate, which might be €500, they may continue to hold on. The policy intention of my amendment, which was ruled out of order, would bring in a formula that would allow the tax to be increased. There would be a multiple, so the factor would increase the tax by one every year. Instead of five years, it would be six. If an owner held onto the property and it was still vacant the following year, it would go up to seven and then eight. This would continue up to a point where it would become punitive to retain an empty property in the middle of a housing crisis. That policy intention should be there to encourage the movement of these properties.
The Government has belatedly accepted the point that this had been set at too low a rate. I strongly urge the Minister that the rate should be increased as time goes by in cases where properties remain vacant. Approximately 48,000 apartments were listed as vacant in the 2016 and 2022 censuses. That represents 2% of our housing stock. We are conscious that in other jurisdictions the rate is 1% of market value of property. For most people who own properties worth in the region of €250,000 to €350,000, this rate would be set at about 0.6% or 0.45%. It is five times the local property tax rate now, but it would send a clear message if it went up to six times the following year. If someone held on for another year, it would go up to seven. People need to get these properties back into the market. I live in rural Donegal. I never thought we would have the problems we have now. The committee will take a break in a minute. I have to make a call to someone who is being evicted and who has nowhere to go. There are no houses to rent in the area. That is not to say there are no vacant homes in communities. We just need to pull at all the strings.
I welcome the fact that the rate is increasing, but I encourage the Minister to look at this before Report Stage. If that is not possible, then it should be looked at in the context of the next Finance Bill - if there is one under this Government - in the interests of sending out a signal that says “Move now, folks, because this is going to get worse. This tax is going to increase". A unanimous signal should be sent out from the House that long-term-vacancy is not going to be tolerated in this State in the middle of a housing crisis.
I welcome this increase in the vacant homes tax. When we discussed this with the Minister’s predecessor, Deputy Donohoe, I made the point that the introduction of a vacant homes tax was very positive because it is the nudge that is needed sometimes. I understand it is not designed to be a revenue generator but to push people to do something with the home; either to sell it or refurbish it and rent it or whatever. I asked at the time that it be increased to six times rather than three. As I understand, last year it was to be three times the local property tax rate plus the local property tax itself, which would effectively be four times. I want to clarify that this is five times the tax rate plus the tax itself and, therefore, it is actually six times the rate.
That is positive. Last year, I was told it would be kept under review and they would see how it works out. The Minister is saying that we do not know what will come in from it until later this month and when the returns are made at the start of January, but we should keep it under review, see how it is working and increase it if necessary. Introducing a vacant homes tax, and essentially doubling it the next year, sends a clear signal. People can infer from this that the tax is only going in one direction and that if someone has a vacant home, for whatever reason, then it is time to look at measures which they can take to move it on, whether that is selling, renting or whatever.
Something always strikes me when we talk about dereliction and vacancy. We often mix up the terms, mixing up vacant homes with derelict buildings that may be residential or commercial. There is a lot of work to be done. We talked about the landlords figures yesterday. There is a lot more work to be done on assessing vacancy and dereliction. Something that leaves one open to vacant homes tax is if the property is uninhabitable. An uninhabitable house is no good to anybody. I realise that many of these are in areas that are probably not in areas where there is the biggest housing demand, and we need to be honest about that, so it is not just the simple figure in the census of 166,000 homes being vacant. That is just what is observed on census night.
The local property tax probably provides a better reflection, although it is a self-declared tax. What measures could we introduce that would capture the uninhabitable homes that are not being captured in the local property tax returns? I do not see anyone capturing that data at all. That is notwithstanding the fact that we have a vacant homes officer in every local authority. I know that work is going on in the context of a condition scoring and appraisal of all vacant properties in all local authorities. I raised the question last year of if it was undeclared because it was uninhabitable, could it automatically go on the derelict sites levy? The response is if it is undeclared because it is uninhabitable then Revenue, by the very nature of the system, does not know about the property. What can we do to capture those and then send that on to the local authorities that they might engage with the owners? That is the role of vacant officers. They are doing a really good job at local authority level both with Croí Cónaithe, first in identifying the buildings and advising and assisting the building owners of all the options that are available to them, and then also advising people who are availing of Croí Cónaithe to bring those buildings back into use. There is still a bit of work to be done but this is a positive move and the message is very clear to people that if they have a vacant home in a housing crisis, the Government will tax it, where those homes are liable, that the tax is likely to go up and will be kept under review.
I know the derelict sites levy is not a matter for Revenue because it is applied by local authorities. The dereliction levy accrues to a property. If one sells it on, then one must pay the levy but that does nothing for a derelict property that might sit there on a main street in a town or village for 20 years. The Derelict Sites Act is under review at the moment. I ask the Minister to consider how the derelict sites levy could be seen as being for Revenue so that local authorities would identify the derelict sites or buildings and vacant homes officers do the same and that information be passed to Revenue. An envelope bearing the harp and containing a letter signed by someone in Revenue dropping into the letter box would probably provide someone with a better impetus to act that, say, an envelope bearing the relevant local authority's crest.
I thank the Deputies for their contributions on this issue. Given the scale of the housing challenge we face at the moment, I felt it appropriate to send a signal in the budget and in this Bill that even though we are only now receiving the first set of returns, we will increase the tax. That is why I made the decision to go from three times to five times the LPT rate. It will be kept under review into the future. Last year, when the tax was being designed, the issue of increasing the rate for longer durations of vacancy was considered. I considered that issue in recent months and looked at different options in this regard. However, the case was made to me that it would involve considerable complexity from a systems and administration point of view and that it was not the appropriate time to do it. That said, Revenue is using the information it has collected and will collect over the period ahead to develop a vacancy register, which can form the basis of the data set we would need and can then use to make an informed policy choice around increasing the rate of tax in line with the duration of the vacancy. I will keep the issue under review and I look forward to seeing the data that are collected by Revenue.
On Deputy Matthews's points, I agree we have work to do on dereliction. It is not an area for which I have direct line responsibility. The Minister, Deputy O'Brien, and his officials are undertaking a review at this time of the derelict sites system that is in place. I stand ready to work with him and support him in this regard. I look forward to the conclusion of that work in the period ahead.
I am glad the Minister has considered an increase in the tax in accordance with the length of time the property is vacant. The fact the rate has increased before the returns were even due is an acknowledgement that last year's decision was a mistake. That is just the reality of it. It was not a case of let us see how this is working in operation because it is not in operation. Tuesday was the deadline for returns and the liability date is not until next year. A mistake was made last year. We now have a different Minister for Finance and I welcome that he has taken a different approach on this matter.
However, that is not the core issue. I do not accept that Revenue cannot deal with a simple increase in the charge from 5% to 6% to 7% for those on the second year of reporting vacancy. The non-principal private residence charge is a case in point. It was passed from local authorities to Revenue, with significant late payment fines. They went up in increments of thousands of euro. That was for late payment of the non-principal private residence charge. We have talked before about what Revenue did during the pandemic. It is an institution that is well regarded and feared because it is extremely capable in what it does. We saw how it was able to design new systems nearly overnight to support businesses and families during a time of immense crisis for people's pockets.
Will the Minister reconsider this matter? It is one thing sending out a signal. Some people will act. A charge of six times the local property tax, which is the effect of this provision, is significant for some people but not for others. For owners of vacant houses in my community, the value of the property probably will fall into the lowest bracket, which is €90 or €100 depending on the local authority decision. We are talking about €540. It is not significant for some people. There must be a clear signal, not this time next year but now. The law is the law and it provides for a charge of five times the local property tax. It should be made clear that the consequences are going to get worse. I do not want to hark back to the carbon tax but that provision was set out clearly in law. For right or wrong, and I do not want to reopen that debate, those who advocated for the charge took the position that it should be specified out to 2030 what the increases would look like. People were clearly told they would need to move from A to B. That is not being done with the local property tax or with vacancy. In some cases, vacant properties are not being used at all. There will be genuine cases involving holiday homes and so on that will be captured by this, which is a different matter. I really encourage the Minister to look again at the increase.
I will keep it under review. I acknowledge the work of my predecessor and the officials in developing the vacant homes tax. It was the right decision. In addition to the rate of the tax, the provisions were designed such that surcharges, interest and penalties would apply as well. Section 653BF of the principal Act provides for a surcharge to be imposed where a chargeable person fails to file a correct vacant homes tax return by 7 November 2023. A surcharge of 5% of the tax payable will be imposed where a late return is filed within two months of the filing deadline. The surcharge increases to 10% where the return is filed more than two months after the filing deadline. Section 653BG provides that Revenue may also apply a penalty where the chargeable person fails to file a correct return by the due date. Section 653BE provides for interest to be charged on late payment of the vacant homes tax at a rate of 0.0219% per day. It is important to give this context to show that compliance and enforcement are an important part of the work.
The Deputy makes some fair points and I certainly will consider them. I considered this issue closely in advance of the budget. It was not possible to introduce the reform we have discussed in budget 2024 or in the Finance Bill but it is an issue I will continue to examine.
There are cases, and I know favourable consideration is given by the local authorities, Revenue and so on, where a property may be derelict or semi-derelict and not fit for habitation at the present time, and the owner may have plans to develop it but may not have the resources to do so at the present time. That might be taken into consideration. For instance, the same person might be eligible for a local authority house even though he or she is not in a position to develop that particular house at this time. It may well come into play again at a later stage that the person can proceed. By losing their house at a particular stage, it can be disadvantageous to people in dealing with their own housing situation within a relatively short period. I ask that this be borne in mind in the course of any considerations.
I have been asked to allow a short break. Is five minutes sufficient?
Ten minutes would be better.
We will take ten minutes.
I move amendment No. 40:
In page 114, between lines 29 and 30, to insert the following:
“Report on the Vacant Homes Tax
87. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the vacant homes tax, including an assessment of options to include derelict properties within its scope, and to increase the amount of vacant homes tax to be charged in respect of a residential property in proportion to the length of time during which that property remains vacant.”.
This is the amendment we discussed earlier, so I will not make the point any further. We already had this discussion, which is about increasing the vacant homes tax. I will withdraw the amendment at this point, given that the Minister has said he will keep it under active consideration.
I am a bit concerned about this section. I support the scheme in terms of having heritage items being made available to our national libraries, museums and art galleries. However,, this would be a big advantage to what in many cases are high net wealth individuals if they were to provide a piece of art that is worth, for example, €8 million. Its market value may be worth €8 million, or that may be the case for a collection of art pieces, to one of our national galleries. If it is deemed to qualify, they can then reduce their income tax liability or their corporation tax liability by €6 million. The Minister is proposing to increase that to €8 million. That is a significant benefit. I may be a bit naive, but I would hope that a €6 million tax credit to make some of these pieces of heritage, art, etc., available to the public would be sufficient. I am interested in hearing why the Minister is increasing the value of the credit that can be claimed in any one year to €8 million.
In accordance with section 1003 of the Taxes Consolidation Act 1997, tax relief is available to certain taxpayers who donate heritage items to Irish national collections. The purpose of the scheme is to assist approved bodies to acquire important heritage items for their collections, items that might otherwise be exported from the State, constituting a diminution of Ireland's accumulated cultural heritage. The open market value of the item or the collection of items donated must be at least €150,000. The tax credit due to the donor is 80% of the market value of the donation and may be set against income tax, corporation tax, capital gains tax or gift and inheritance tax liabilities. The heritage item must be an outstanding example of the type of item involved, the suitability of which is determined by a committee of experts. Currently, the aggregate value of items donated under this scheme in any one year cannot exceed €6 million. The responsibility for ensuring compliance with this cap rests with the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media, Deputy Martin. This section increases the cap on the donation of heritage items scheme from €6 million to €8 million. Important donations have been made under this scheme which would not have otherwise been possible. The increased level of tax relief available will further contribute to strengthening our national collections. It is important to clarify that the increase in the figure of €6 million to €8 million relates to the aggregate value, or everything that is donated under the scheme. It is obviously not at an individual level. It is total.
Yes, but some items could result in quite a high credit if they were to be of significant value. What is driving this change? Are we in a position where we have maxed out and have hit the €6 million threshold, there have been offers of donations, those offers have been deemed to be of heritage value to the State, and they could not be followed up on because we have maxed out?
Yes, it was maxed out last year. This is an ask that has come to us through the cultural institutions and the line Department. The current ceiling has been eroded over time through inflation and it has become a constraint on the State receiving donations of many of these items.
Has there been any publication of the list of items that are donated where the tax credit has been availed of?
Yes, it is my understanding that the Revenue Commissioners publish the list of items each year.
Each year?
Very good.
Amendment No. 41 is out of order as a potential charge on the State.
On section 88, I have a concern about this because this measure has been looked for by my own party for many years. Indeed, others have called for a residential zoned land tax, RZLT. There has been delay after delay withy it and it was finally legislated for in last year's Finance Bill. There was a lead-in period that was significant, some would argue. However, there was a process that had to be gone through. Now, one year on, we have just delayed it all for another year. Considering we are in the middle of a housing crisis, that is not the appropriate or responsible thing for the Government to do. There are issues with the residential zoned land tax. I highlighted those issues on Committee Stage of the Finance Bill and in questions to the former Minister for Finance, Deputy Donohoe, in particular regarding actively farmed agricultural land. While I understand that is probably the key driver that is postponing the entire operation of the residential zoned land tax for another 12 months, this issue could have been dealt with. Indeed, there were comments from the Taoiseach who said the issue of agricultural land would be dealt with. We raised it on numerous occasions on the floor of the House asking for it to be dealt with, yet it has not been dealt with and it is not being dealt with in the context of this legislation either. It does not actually deal with the issue of farmland that is being actively farmed and that has been zoned for residential purposes.
I do not know what will change. The farmers have applied to the local authorities to have their land dezoned and the local authorities have said "No". They went to An Bord Pleanála, which has not worked, and therefore they are liable to the tax. Deferring it for another year for another mapping proposal will not deal with that. We also have a situation where land hoarding is taking place, but the whole thing will now be suspended, whereas active agricultural farmland could be exempted from this residential zoned land tax and the Government could look at it over the next year, if it needed to. However, such land could be exempted at this time which could allow for non-agricultural land that is serviced and is zoned to be subject to a tax if it is not being developed.
I cannot support delaying this for a year when there are solutions that should have been implemented before now, or indeed can be implemented between now and Report Stage, to deal with this.
I was happy to see the vacant homes tax introduced for the first time last year, although at too low a rate. I was very pleased to see it increase to where we thought it should be placed last year. I was also happy to see the zoned land tax introduced last year as a land activation measure. Its aim is to stimulate the use of that land, or to have it sold on to somebody who is going to use it, and not just leave it there zoned, serviced and not providing the purpose for which it was zoned by councillors in the area. I am disappointed to see it pushed out by a year. I would like to know the reasoning and rationale behind it being pushed out for a year.
I am aware of farmland that was zoned for residential use and which now falls under this zoned land tax, and of farmers who want to continue farming that land. They do not want to sell it off, develop it or put housing on it. They are actively farming it. I sense a reluctance, in many cases, to dezone it because zoning as residential provides great value on that land as well. I am conscious that we need to tease that out and see how it can be done.
With regard to what the land is being used for, we need to start looking at consolidating towns and making sure we do not have what we had in planning for years; namely, leapfrogging over land that was not being developed, and the sprawl, social and climate issues that arise from that. We certainly need to look at land, in a way. We cannot make more of it, and we cannot move it around. It is a different kind of good than many others.
I am also conscious that we are bringing in the Land Value Sharing and Urban Development Zones Bill 2022, which seeks to ensure a 30% return to the State when one changes from the current market use to the new use - residential, industrial and whatever it might be afterwards - and one gets that value uplift in it. I am conscious that we need to get this right. If it takes a year to get it right, and next year we are coming back with a revision in the finance Bill that will provide us with clarity in the case of actively farmed land when somebody wants to keep it farmed but not keep the value on it, I think I am fine with that.
Where the land is serviced, a question has arisen as to whether it is necessarily serviced to the capacity where it can serve what it has been zoned for. It may be serviced to the extent that there is mains water and power to it, and wastewater, but is it at the capacity to be able to deal with 300 to 500 houses going on it, or whatever it might be? I understand there probably needs to be a little bit of work around that.
I am interested to know what prompted the 12-month suspension of this, and the reasons and rationale behind that.
I thank the Deputies for their contributions. This section amends Part 22A of the Taxes Consolidation Act 1997. Part 22A was introduced in the Finance Act 2021 and provides for an annual residential zoned land tax, RZLT, calculated at 3% of the market value of land within its scope. Broadly, this is land that is zoned as being suitable for residential use, or for a mixture of residential and other uses, which is serviced and not affected in physical condition by matters which preclude the development of such land for residential purposes.
The tax was originally scheduled to become due and payable for the first time in 2024. The amendments in this Bill include a deferral of the first liability date such that the tax will now be first due and payable in 2025. In light of this deferral, and as announced on budget day, the Bill also includes an amendment to extend the opportunity, which was available to landowners in the course of the initial mapping process for the tax, to request a rezoning of land which falls within the scope of the tax. Such requests may be made by owners of land that appears on the draft revised final map for the year 2025, which will be published by local authorities on 1 February 2024.
In addition, it is proposed to amend the relevant criteria by reference to which local authorities prepare maps for the purpose of the tax. Such land, which is not immediately available for development, is zoned for development on a phased basis in accordance with the development plan or local area plan of the relevant local authority. It is proposed that such land, commonly known as strategic residential reserve or phase 2 lands, will fall outside the scope of the tax until such time as it is available for development.
The Bill also provides for a number of amendments to support the efficient administration of the tax. These include an amendment to clarify the matters which a local authority must take into account in preparing and publishing a revised final map for the purposes of the tax, as well as amendments to administrative provisions within Part 22A in light of the deferral of the first liability date for the tax until 2025.
The extension of the initial liability date of the RZLT by a year is an important step to ensure fairness and transparency in the process of implementing the tax. Ireland requires increased housing supply to meet its housing needs. The RZLT aims to incentivise landowners to activate existing zoned and serviced residential development land for housing on identified lands, leading to the building of more homes. The tax measure is a key pillar of the Government's response to address the urgent need to increase housing supply in suitable locations. However, affected landowners should have sufficient opportunity to engage with the mapping process, and it is important that a fair and transparent process is applied when local authorities consider what land should be placed on the RZLT maps. For these reasons, I have decided to defer the liability date to 1 February 2025, and critically, the deferral will provide a further opportunity to landowners, whose land will appear on a draft revised final map to be published on 1 February 2024, to request the rezoning of such land by the local authority in whose functional area the land is situated. The deferral will also allow further consideration of alignment of the roadmap actions and timeline in the national planning framework review, including publication of final documents in March 2024.
After quarter 1 of 2024, the national planning framework, NPF, will be incorporated into revised regional, spatial and economic strategies for the three regional authorities in the State, and into each development plan, utilising either provisions currently within the Planning and Development Act 2000, or the Planning and Development Bill 2023. The deferral of RZLT will allow development plans, which feed directly into RZLT-zoned land maps, to be considered in the broader planning context in order to more accurately determine locations of greatest housing need.
The Department of Housing, Local Government and Heritage has indicated to me that the Minister for Housing, Local Government and Heritage, Deputy Darragh O'Brien, intends to write to local authority chief executives requesting that local authorities give strong consideration to requests for rezoning - some of which relate to agricultural land - taking into account existing planning policy that seeks to focus the approach to zoning on the sequential development of settlements, and in particular, lands that are located closest to the centre of settlements, along with housing targets contained in their development plans.
I thank the Minister for the clarification. I have a couple more questions on it. Could the Minister give me the dates again? A final map will be produced in February 2024; is that correct?
A landowner will have until what date to contest that zoning?
By the end of May.
May 2024?
Where local authorities are asked to reconsider the zoning, for whatever reason the landowner may put forward, is that evaluation by the local authority an executive function, or is it the councillors that make the decision on it?
My understanding is that a change of zoning is a function of the members.
So it would have to be advertised as a variation to a development plan.
Okay. When a development plan is changed, it is generally accompanied by a chief executive's report and recommendation, and possibly, the Planning Regulator etc. Will there be criteria set out as to how to make a judgment on whether this land should be dezoned?
A local authority is obliged to have enough land zoned to meet the core strategy and the needs of the population. We have all been through local authorities and are aware of the challenge that presents. If somebody seeks to de-zone land for whatever reason, there is an obligation to zone other land to make up for that in order to meet the requirements of the core strategy. How do we end up getting the balance right between judging how to de-zone land and the obligation to rezone other land that is in the best interests of proper planning, climate, transport and growth of our towns?
There is not necessarily an obligation to zone other land.
Is there not?
There is not necessarily an obligation; it would depend on the area development plan. That will be guided by the national planning framework and the identification of what is the appropriate amount of land needed to meet population targets where we want population growth to take place over the years ahead.
A local authority is obliged to have enough land zoned to meet the requirements of its core strategy. If land is being de-zoned, how do we ensure that local authorities do not go below the threshold needed to meet the requirements of their core strategies?
That would be a matter for local authorities. They may decide, if they are approving a de-zoning, to accompany that with rezoning of other land. They will have to consider what their obligations are under their development plans and in line with the spatial strategy and the national planning framework. It will not necessarily be the case that in all instances where they accept a de-zoning application they will have to replace it with other land. However, that will be the case in some instances. That is done on a local-authority-by-local-authority basis. It is not to be dictated centrally.
I appreciate that this is complex. In order to get it right, the Minister has to take his time. There is no doubt about that. I would be concerned that we will end up with a request for de-zoning and that we zone other land. One in five or one in six land parcels that are zoned proceed to development within the lifespan of a development plan. There is no guarantee that land being zoned under one development plan will stay that way under the next. I am concerned that someone would seek to de-zone land even though every planner would say and planning principles would dictate that the parcel in question is the best place proceed with development or that it is where the population growth should be and that the landowner whose views we respect here will farm it and it will be de-zoned. The land would keep accruing potential value as well. You would end up going back and zoning it under the next development plan. Should we say we feel this is the best land to be zoned for population growth and if they want it de-zoned, it will remain that way and they will not come back in five years' time and look for it to be rezoned when its value has increased further? Consideration needs to be given to this matter in order that we do not end up with the latter being the case.
The Minister mentioned strategic land. Where local authorities have zoned far too much land over the past ten to 20 years, that is often called strategic land or phase 2 land. It is sometimes called tier 2 or tier 3 land. Different local authorities might use different names for it. It is important to have clarity for each local authority in the context of legal challenges.
One of the issues that has arisen is the need for consistency around the treatment of what you might call statutory phasing or tier 2 land. This is land that is not earmarked for immediate development but that is zoned. That is one of the issues that has arisen over the past year.
I suggest that such land should not be subject to zoned land tax because it is not developable and probably should not have been zoned in the first place.
We are providing for that in the Bill. I agree with the Deputy.
We should address how we will not end up with someone looking for land to be de-zoned knowing that when we come back to do a county development plan in ten years' time and we need to vary the current plan, he or she will seek to get it zoned then and get a better value uplift in it. If one is out, one is out and we will develop the town in another direction.
That is a matter for the Minister for Housing, Local Government and Heritage, Deputy Darragh O'Brien. The Department and the committee Deputy Matthews chairs will be active on this issue, but the Minister will be setting out the details of that in his correspondence.
I am still not convinced that anything is substantively changing here. All I am convinced of is that the can is being kicked down the road. The vast majority applications from farmers to their local authorities to have their lands de-zoned because they are actively farming on them have been rejected. What will change? Is the letter from the Minister for Housing, Local Government and Heritage going to change that? The law remains the same. The consideration of the planning executive is exactly the same. How a town or village grows will remain exactly the same. I do not see what is changing.
My problem is that we have a genuine issue. I am not trying to simplify it, because there is a serious issue whereby someone may have an active farm that is located where the next part of a development should happen. As Deputy Matthews said, it may have to be skipped over. That is not good planning. To put everything off for a year because of a farm is not the right way to go. Why not exempt active farming at this point? Where there is land zoned and there is an active farm on that land, it is a business. It is operating. It is viable. There are other policies that we have to try and support that. Why not exempt that and, therefore, this year, we capture all of the other zoned land which is the majority of it that is not being actively farmed, that is lying vacant and that needs to be developed with housing on it?
In recent months, a number of issues have arisen that have convinced me, and the Government more generally, of the need to defer the liability date. We are doing so while at the same maintaining the policy intent. The policy intent and the legislative framework remains in place. However, a number of issues have arisen, including the need for farmers and other landowners to have another opportunity to seek a change in the zoning of their land. It is right to provide that opportunity, and that is what we are doing.
The issue we are legislating for in this Bill is another one of strategic land reserve or statutory phasing. The inconsistencies that have arisen in how the mapping process has been applied across the country is an issue that, we believe, needs to be addressed. Then we have the national planning framework, which, as the Deputy will be aware, is under review to ensure that it is incorporated into development plans and to ensure that there is enough land zoned to meet the needs over the medium run. In addition, we are also receiving capacity updates from Uisce Éireann because that has an impact on whether land is genuinely serviced and capable of being developed quickly. That is another issue.
When we considered the matter in the round, we felt that the best course of action was protect the policy intent. The existence of the legislation and the impending introduction of the tax changes behaviour. It has had an impact. The Department of Housing, Local Government and Heritage would make the point that it has led to some land coming to the market that otherwise would not have come to the market, including some farm land that has been made available for sale and which will be the subject now of the planning process and, ultimately, be developed. Those were some of the factors that we considered in arriving at the conclusion that the best course of action was a one-year deferral of the liability date while protecting the policy intent and the objective of the legislation.
I go back to the point that a whole year has passed and there are no amendments. All we are doing is putting this off for a year, which is an issue. For the farmer who is actively farming his or her land and has gone to the local authority and asked for it to be de-zoned, has been rejected and has possibly even gone to An Bord Pleanála then and has been rejected, what will change for him or her?
The law stays the same. Genuinely, am I missing something here? The Taoiseach said this issue was going to be dealt with and others said the same. What am I missing? You can tell a farmer to knock his head against that wall and he might see a cow on the other side of it but he will not see the cow no matter how many times he knocks his head against it. Is something changing in respect of this law? I refer to farmers who have been rejected. The majority of farmers are rejected in terms of dezoning their land. I just do not get it. This has policy has been delayed many years and we are now in a situation where the Government is finishing its term office and the liability date has been kicked back another year. Is there something I am missing? Is the letter from the Minister, Deputy O’Brien, supposed to be the voilà moment? Senior planners will say, “We got a letter from the Minister, Deputy O’Brien, so forget about the strategy we have as a local authority." They considered applications and made determinations off it. I do not know what is different here.
The concern I have is that this is an issue that affects rural Ireland. We have heard much about rural Ireland in recent times. I know the proposal is to deal with it in a way that is intended and the Minister indicated that, which I welcome. It should not be forgotten, though, that in rural Ireland, a number of things affect residents there. I heard somebody recently discuss on radio the fact that it costs much more to provide a house in rural Ireland. It does not, is the answer to that question, because the individual proposing to build the house has to suffer to the costs of everything, for example, septic tanks and ESB power laid on. Somebody suggested recently on a television or radio programme that this is done by the State, but it is not. Per pole, bringing the power to the site falls on the applicant. There is no doubt about it. People in rural Ireland look at it and ask how this applies to the rest of the country. They will drive into a town and find whole streets that are semi-derelict or whatever the case may be. They will ask, “Why can they do that and we cannot?” In other words, people in rural Ireland claim there are two rules. There is some sympathy in recognising their particular situation. If it is an agricultural landholding that a particular individual wants to continue his current enterprise on and does not want to be penalised for it, I think he is entitled to that consideration. That should be done.
While we are on the subject of rural Ireland, we are getting into a difficult and dangerous situation where confrontation will eventually come as to who has the better or greater rights. I have seen this. I have been a member of the local authority, like everybody else here. I have seen strange situations that would indicate to me that two rules – two laws – may apply or are beginning to apply and will negatively affect those who live in rural Ireland. We have a Constitution in this country. Some other countries and some near neighbours do not have a written Constitution and they can do what they like; they can make it up as they go along. However, here we have a Constitution and constitutional rights have to be observed. They need to be observed and there needs to be manifestation of their observation as time goes by.
There is a tendency in some quarters – I am not pointing a finger at anybody here, or outside this room either – to ignore the constitutional rights of the individual. For example, we regularly hear, in respect of the development of lands for housing purposes, that somebody objects, the proposal is then closed down, nothing happens and the need for housing still remains. It is done on the basis that there is a right to object. Of course, that has to be observed. However, there is also the equal right not to object, which is very seldom exercised except by people who have a consideration. Those people might recognise that a particular area has a need for housing or, to some extent or other, a development. On that basis, we need to have an even-handed and balanced way of looking at it. The position remains, to my mind, that the possible development of a clash between urban and rural interests is coming closer. It is a dangerous development. I have always been reluctant to object unless there was a very valid and cogent reason for the objection that was visible and readily explained to all people. For instance, there are many such cases where somebody decides to develop in a particular way whether others like it or not, and we cannot have that either. We cannot penalise indefinitely the people who by virtue of their particular geographic location happen to be in the firing line and we do so, as it were, to punish them. I do not think it should apply.
Some of the feedback we received over the course of the year has been that some landowners did not know about this, did not know about the tax or did not engage in the process and seek a change in the zoning of their land, and made the case for another opportunity to be provided. Therefore, that is one of the motivations here. We are providing a further opportunity for people to engage in the process. The draft maps will be published by the local authorities on 1 February 2024. Alongside that, we have the circular already issued by the Minister, Deputy O’Brien, which will be accompanied or followed by the letter I referred to. Considering all of that alongside the other reasons and issues that have arisen across the year around the nature of the mapping process, the different application of that process across the country in the local authorities, the need to take account of the new provisions of the national planning framework and the updated capacity infrastructure of Uisce Éireann on balance, the Government felt the correct decision was to protect the policy and the policy intent. The existence of this legislation and the planned introduction of this tax is helping to make land available that would not otherwise be available for building homes. Therefore, we stand behind that and we have addressed as best we can the issues raised by those who are either subject to the tax or who believe they may be subject to it across this year.
Tá
- Durkan, Bernard J.
- English, Damien.
- Matthews, Steven.
- McGrath, Michael.
- McGuinness, John.
- O'Callaghan, Jim.
Níl
- Conway-Walsh, Rose.
- Doherty, Pearse.
I move amendment No. 42:
In page 119, line 31, to delete "amended-" down to and including line 39, to delete pages 120 to 125, and to delete lines 1 to 11 in page 126, and substitute "repealed.".
This amendment is to repeal the concrete products levy. This levy was introduced by the Minister's predecessor. The argument was that it was to offset the costs relating to defective concrete blocks in my constituency and elsewhere. In my view, it is not required. We are well aware of the fiscal position in terms of some of the surpluses we have that could fund this measure appropriately. It is not needed to raise revenue to fund this scheme; that is the first point. However, that is not the issue here. The most important point is that at a time when house prices are at the levels they are, when so many people are locked out of home ownership that many people are losing hope in that regard, and as I said, since this Government took office average house prices have increased by €70,000, what we need to do and what public policy needs to be about is to reduce the cost of building homes. This policy flies in the face of that. This policy places a charge on concrete products and that charge is borne by those purchasing homes. The ESRI said previously the burden of this levy will fall on residents of newly built homes, not to mention the financial implications it will have on those trying to remediate affected properties.
The Society of Chartered Surveyors Ireland, SCSI, has said, given the shortage of construction workers, spiralling construction costs and rising interest rates, it is vital that the Government does everything possible to drive down construction costs. Some measures have been taken. In earlier sections there was mention of water charges, development charges and so on. However, this one operates in the other way. It actually increases the cost of building a typical three-bedroom semi-detached house. It was suggested it would put €1,200 onto the cost of that. However, that figure was based on costs at the time when this levy was first legislated for, in November 2021. According to the CSO the price of cement has increased since by 37%, ready-mix mortar and concrete have increased by 38%, and concrete blocks and bricks have increased by 30%. Since the SCSI gave us the estimate of €1,200 we have seen cement, ready-mix mortar and concrete blocks go up by about 13%, 14% and 15% per item.
It makes no sense that we would be putting in place a house-building tax at a time when we should be trying to reduce the cost of building homes and trying to keep homes affordable for people. I understand the motivation in terms of sending a signal that we are making an investment in remediating defective homes and therefore we are offsetting it with this measure. We have done stuff like that, for example, in relation to insurance with the insurance levy. It is not required in this case. It is a one-off cost and we have the resources to meet these costs. Why would we do this at a time when it is pushing up house prices, when all of the Government should be looking in the opposite direction? This is an amendment that will immediately reduce the cost of building a home by probably €1,500 at this point in time. As finance Minister, I would immediately abolish this levy and I would do it without delay.
There are other issues that I will raise in relation to the levy. I am conscious that the Minister did not deal with the Finance Bill last year. It was pointed out very clearly by me to the then Minister that this levy did capture precast concrete products. Yet, he went ahead with it, the Finance Bill was guillotined and we have the situation we have now. I think I concluded the session by saying that other serious defects in relation to the concrete levy will come to pass. The Revenue Commissioners have confirmed to me that the definition of "concrete" within the legislation does not meet what the intended definition requires, namely, that it would capture autoclaved aerated concrete. Autoclaved aerated concrete does not have coarse aggregate in it. By definition, it does not. It is arguable whether it actually contains fine aggregate. There is no definition in this legislation as to what fine aggregate contains, but statutory instruments in the past have dealt with the sieve test that would include fine aggregate. The sand that would be included in autoclaved aerated concrete products is ground down to a pulp. It almost becomes a liquid in its essence. That is the unique feature of autoclaved aerated concrete products; they are so fine that they have those characteristics in terms of being lightweight, thermal energy-efficient and so forth. We have a situation now where those products were not legally chargeable during the course of this year, along with the issue of the precast concrete. It is a good example of why we should not guillotine legislation. Points were being made and now the Minister has to come forward a year later to change the definition of "concrete" in the legislation to "fine or coarse" as opposed to "fine and coarse", to change the legislation to ensure precast concrete products are excluded, and to introduce a rebate scheme. I make those points genuinely in relation to that. As I said, there are questions in terms of the aggregate that is contained in the products.
The core part of this amendment is about not increasing house prices. Let us implement a policy that will reduce house prices. I ask the Minister to accept this amendment and scrap the concrete products levy. It is not required, it is punitive on home-building and it makes no sense whatsoever in the context we are in. It should be got rid of. I genuinely say that as a Minister who is coming in from a different party - I know he is from the same Government that collectively signed off on this - he needs to look at it again. I genuinely say this. If there was a change of government, one of the first things I would do would be to get rid of this levy, because it would have an impact on reducing house prices.
The defective concrete products levy was introduced in the Finance Act 2022 and came into operation on 1 September 2023. The intention of the levy is to raise revenue to help to offset the funding of the defective concrete blocks grant scheme, which was introduced by the Minister for Housing, Local Government and Heritage. The legislation applies a levy on the first supply of a defined list of certain concrete products. The levy is calculated at 5% of the open market value of the products on the date of their first supply.
This section provides for a small number of amendments - I will turn to the Deputy's amendment in a moment - to the defective concrete products levy. First, as I announced on 6 September this year, ready-to-pour concrete used in the manufacture of precast concrete products will be removed from the charge of the levy with effect from 1 January 2024. A precast concrete manufacturer is required to make a declaration to the ready-to-pour concrete supplier that the ready-to-pour concrete that the manufacturer is acquiring or using will be utilised in the manufacture of precast concrete products. Second, the amendments will provide for the operation of a refund scheme for the levy paid on ready-to-pour concrete, where that concrete was utilised in the manufacturing of precast concrete products between the levy coming into operation on 1 September 2023 and 31 December 2023. A precast concrete manufacturer will make a claim for a refund to Revenue for the repayment of any such levy paid on ready-to-pour concrete used for the production of precast concrete products. A claim may be made within four months of 31 December 2023. The declaration and refund can be made in respect of ready-to-pour concrete utilised for precast concrete products. It does not apply to concrete cast in situ on sites. An amendment to the definition of concrete is also made to clarify that autoclaved aerated concrete blocks are within the scope of the levy.
I think it is important to underline the purpose of the levy. It is intended that the revenue from this levy will make a contribution towards offsetting the cost to the State arising from the enhanced defective concrete blocks grant scheme. That scheme, designed to provide redress for those homeowners whose homes have been affected by the issue of defective concrete blocks to repair, has an estimated cost that could be in the region of €2.7 billion. I believe it is essential that the entire cost of the redress scheme, which after all arises from the use of defective concrete blocks and other concrete products, is not borne in full by the Exchequer and, through it, every Irish taxpayer. The cost of the scheme, or at least the portion of it represented by the revenue that is expected to arise from this levy over time, must be borne by the industry. Of course, ultimately there will be an element of pass-through of that.
I intend to propose an amendment to this section of the Bill on Report Stage in the Dáil to ensure the reference to "final destination of use" unequivocally includes wholesalers and retailers.
I welcome the latter point. That is the point that I was going to bring up here. It is an issue that I raised with the Minister's officials during the briefing, namely, that under the current drafting, it does not allow for the on-sale of precast concrete products, and the tax will fall on them. I gave the example of garden kerbs. They will be exempt from the levy if they are manufactured in a controlled environment, but they have to go to the final destination. They have to go to a building site, and that is not what happens with garden kerbs. Customers buy them in building providers, therefore it falls outside of the scope of the legislation and the product will be subject to the levy. The same will happen with windowsills and lintels for houses and so on. I presume the amendment that the Minister is proposing to bring forward deals with the issue we discussed in the briefing session we had beforehand.
I go back to the point that it is a tax on building homes.
That is what it is at the end of the day. I do not think anybody thinks this is a good idea at this point. If the sole purpose of this tax is to offset the cost of the defective blocks scheme, that is not a good enough reason to put a tax on building homes at this point in time, particularly when we are not in a situation where we have deficits and need to raise this tax because otherwise the resources will not be available to us to finance these schemes. Thankfully, we are not in that position so, therefore, the rationale for bringing forward this tax makes no sense. There are inflationary pressures in the construction industry, some of which are outside of our control such as the pressure on supply chains following the pandemic and pushed up prices and general inflation problems. However, we can control this. We can say we will do no more harm to house prices by not introducing a tax, at least at this time, on concrete products. The tax is in effect at this point in time so by taking away this tax, the Minister should be reducing the cost of building a typical house, probably by €1,500. This does not resolve the issue in terms of house prices but at least it does not make it any worse and it improve things slightly in terms of affordability for individuals. I genuinely do not understand the rationale behind this.
I could consider that a Government announcement that it is bringing forward a scheme of €2.5 billion to €3 billion with an offset measure would seem very prudent and fiscally responsible, and would be a clear signal to the markets and lenders, but I do not think we need this at this point in time. The Minister has just deferred the zoned land tax, and this proposal should be deferred at the very least. It should not be amended just to tidy up the problems that existed last year. At the very least, it should be deferred. I am passionate about this. I find it very difficult to understand why the Government would do this because there is no real rationale for it. It pushes up house prices so why would the Government decide to do it? Could the Minister explain this to me? I am sure he accepts that this pushes up house prices. It does not make sense. At the very least, it should be deferred. It would be one of the first thing I would do if I ever had the opportunity to sit where the Minister sits and I would not wait for a finance Bill to do it either. I would bring forward an immediate amendment to legislation to get rid of this levy. It is bonkers in the middle of a housing crisis with house prices running away from us.
I will be proposing a further Report Stage amendment to ensure amounts of ready-to-point concrete are measured in cubic metres within a declaration to request exemption from the levy on the first supply or so much of that first supply as is utilised for the manufacture of precast concrete products. Again, we will share the details of that in advance.
I understand the points made by the Deputy but all of these individual decisions add up. The Deputy makes the case that we do not need this revenue now. Hopefully, we will not need this revenue in the future but it is important that where the State makes a decision to commit to a level of expenditure of the order of what we have committed to here, we can at least point to a revenue stream that will make a contribution to that. A figure of €25 million per year is not insignificant. It is an important contribution and having that principle reflected in Government policy and the legislation we brought forward is important. All of these revenue streams add up. I accept the Deputy's point that it comes at a time when the cost of construction is high and we have seen significant construction materials inflation, which is easing. However, we are all very conscious that the cost of building a home is expensive. This levy does not just apply to the construction of homes but my fundamental point is where we make a decision to commit an enormous amount of taxpayers' money, it is important at the level of principle that we can point to a revenue stream that over time will make a contribution towards those costs. This is fundamentally what this levy does and I stand over the decision. I think it is the right policy at this time and I look forward to seeing its implementation over the period ahead.
I fundamentally disagree with what the Minister has said. I can understand that this is his logic but the State makes commitments to invest in capital infrastructure on numerous occasions and we do not point to a funding stream. If we decide to build a metro, how much will it cost? It will cost billions. Are we going to introduce a levy on everybody who uses a train? It does not make sense. This is not the way it is done. It is nearly a punishment. The industry caused this so we are going to put a levy on it, which is what happened in terms of insurance. I can understand that logic but the problem is that it is passed on at a time when all public policy should be facing in a different direction, which is reducing housing costs. I do not accept what the Minister said. It is not the case that this happens all the time. Therefore, I will press this amendment to a vote because this levy is the wrong levy. Pushing up house prices in the middle of a housing crisis is not the way to go. We have sat here and spoken technically about numbers and percentages. Some of the numbers are in the billions. During the break, I was talking to a colleague of mine who told me that a nurse has no opportunity to own her home and the circumstances in which she finds herself are dire. This is just one example. When we go back up later on, there will be other cases. I spoke earlier about people in my community who will find themselves homeless. This is the lived reality of thousands of people across the State. Sometimes we can become immune to all of that and the fact that nearly 4,000 children are in emergency accommodation. Some children are thinking about Christmas and "The Late Late Toy Show" but thousands of children are not thinking about that because they have been in emergency accommodation for months and years in some cases. The issue is about creating more housing supply and making it affordable and this goes in the wrong direction.
There is a vote in the Chamber.
I will push this to a vote.
We will vote on it when we come back.
We are on amendment No. 42.
I wish to press my amendment.
Tá
- Conway-Walsh, Rose.
- Doherty, Pearse.
Níl
- Durkan, Bernard J.
- English, Damien.
- Matthews, Steven.
- McGrath, Michael.
- McGuinness, John.
- Murnane O'Connor, Jennifer.
Amendments Nos. 43 and 44 are related and may be discussed together.
I move amendment No. 44:
In page 126, between lines 11 and 12, to insert the following:
“Report on the impact of the Defective Concrete Products Levy on the cost, viability and affordability of construction and housing projects
90. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil
Éireann a report on the Defective Concrete Products Levy and its impact on construction
costs, the viability and affordability of housing projects, and the cost of remediation for
homeowners affected by defective concrete products.”.
I will withdraw the amendment.
Amendments Nos. 45 to 64, inclusive, 66 to 91, inclusive, and 93 are related and may be discussed together.
I move amendment No. 45:
In page 126, between lines 30 and 31, to insert the following:
“ ‘the Acts’ means the Tax Acts and the Capital Gains Tax Acts;”.
Section 90 of the Bill relates to the transposition of pillar 2. I propose to read a short note on the amendments and then read the note on the section as that places it in a context and we can have the discussion from there. Amendments Nos. 45 to 64, 66 to 91, and 93, are Government amendments to sections 90 and 92 of the Bill and are being taken together for debate. Section 90 of the Bill inserts a new Part 4A into the Taxes Consolidation Act 1997 to transpose the EU minimum tax directive into Irish law. Committee members will be aware that this is a very sizeable section of the Bill containing the bulk of the legislation required for the introduction of the pillar 2 rules in Ireland. Section 92 provides for consequential amendments to other Acts to reflect the introduction of the pillar 2 rules. The amendments I propose to these sections are all technical amendments to ensure the correct operation of the legislation as intended and to correct cross-referencing and typographical errors in the Bill, as initiated. A number of the amendments are updates to better reflect agreed OECD commentary and administrative guidance to the OECD pillar 2 model rules, which are used as a source of illustration or interpretation in order to ensure consistency in application across implementing jurisdictions. I will now proceed to put the note on the section on the record but before I do I would like to bring to the committee's attention that, having regard to the significant volume of legislation being introduced in the Bill to give effect to the new global minimum tax rate, I expect to bring forward a number of Report Stage amendments to the pillar 2-related provisions in the Bill.
Section 90 is the largest in the Bill at 125 pages and, as such, committee members will understand that this will be a relatively lengthy speaking note. Even with that, I will only be touching on the main points of what is being introduced, but I am aware that a technical briefing was sent to the committee following publication of the Bill and I hope that this has been of assistance to members. This section inserts a new Part 4A into the Taxes Consolidation Act 1997 to transpose the EU Minimum Tax Directive into Irish law. A number of consequential and related amendments are also provided for in sections 91 to 95. The directive is based on the OECD’s pillar 2 model rules, which seek to address the tax challenges arising from the digitalisation of the economy and implement a minimum tax rate for large groups and companies. This section is quite technical, providing as it does for both the pillar 2 charging rules and the tax base upon which the top-up tax is charged.
I will now give an outline of the main points contained in this section. Pillar 2 consists of a series of interlinked rules, known as the global anti-base erosion rules, referred to as the GloBE rules. These rules provide that, in general, in-scope businesses will pay a minimum effective tax rate of 15% on their profits in respect of each country in which they operate. The GloBE rules operate as a top-up tax, which is added to corporation tax charged under domestic rules to reach the 15% effective rate. The pillar 2 top-up tax is calculated by reference to financial accounting rules, subject to certain adjustments agreed upon by the OECD inclusive framework and set out in the legislation. The new provisions will apply to both multinational and domestic businesses with a global annual turnover of over €750 million in at least two of the preceding four years.
The three pillar 2 charging rules provided for in this section are as follows. First, an income inclusion rule, IIR, which imposes a top-up tax on a group’s ultimate parent entity, UPE, or certain intermediate parent entities, in respect of the low-taxed income of a constituent entity. A secondary rule is called the undertaxed profits rule, UTPR. The UTPR is intended to operate as a backstop rule in cases where an IIR does not apply, or does not fully apply. Ireland is also introducing a qualified domestic top-up tax, QDTT, which provides for the collection in Ireland of top-up tax due in respect of the profits of in-scope entities located in Ireland. The QDTT will allow Ireland to collect any top-up tax due from domestic entities before an IIR or UTPR rule in another jurisdiction would apply to collect it.
The QDTT liability will be directly creditable against liabilities otherwise arising under the IIR and the UTPR. A QDTT may result in the IIR or UTPR not applying in respect of domestic entities where QDTT safe harbour status applies. The QDTT legislation in the Bill has been designed with a view to obtaining safe harbour status under the OECD peer review. The provisions being introduced include a substance-based income exclusion, SBIE, in line with both the OECD model rules and the EU directive. The SBIE excludes a certain amount of income from the scope of the Pillar 2 top-up tax calculated by reference to payroll costs and tangible assets in the jurisdiction. The percentages reduce annually over ten years before settling at 5% for each category.
In line with published OECD guidance on Pillar 2 implementation, the legislation includes transitional and permanent safe harbours which aim to ease the administrative burden on in-scope businesses, particularly in the initial period of the application of the Pillar 2 rules. This section provides for the IIR and QDTT to come into effect from 31 December 2023. The UTPR backstop rule will come into effect generally from 31 December 2024 but may apply from 31 December 2023 in certain limited circumstances relating to a delayed implementation option provided for in the EU directive for member states with 12 or fewer UPEs in the jurisdiction. This section also provides for the administration of Pillar 2 by the Revenue Commissioners. This will include the obligation to register for the top-up taxes, being the IIR, UTPR or QDTT, the filing of a top-up tax information return, and pay and file obligations which will be due within 18 months of the first fiscal year end and within 15 months of each fiscal year end thereafter.
I would be happy to address any of the individual provisions in further detail if committee members have any questions on same.
I thank the Minister for his presentation. My amendment No. 65 proposes to delete lines 7 to 26 on page 200. Whether that passes or not, it is important that we take time to debate and really understand the changes that are coming in two months and how Europe may well be out of step with the rest of the world. I know it is a highly technical issue but unfortunately it has a significant real-world impact that will felt first by European companies, then by European economies and in the end, by those employed by or connected to European firms. We have been bombarded in recent weeks by media commentary and analysis about the dwindling corporate taxation receipts in this country and our reliance on corporate investment and yet, here we stand to implement changes that threaten the funding stream for Ireland's hard-fought advantages in relation to enterprise, employment, education, innovation and prosperity, potentially creating a tsunami of negative implications which could set Ireland back in a way that it might not recover from.
The technicalities of how these Pillar 2 rules work have been debated for a long time. What we have not had time to debate and truly understand is what has changed in recent months. There is much talk of global agreement on tax changes but we must examine the global implementation of this agreement. Some would say it is not there. The timeline for implementation of Pillar 2 is not uniform. The EU, including Ireland, is jumping in first with implementation from 1 January next year. Due to a growing realisation that other jurisdictions may not be willing to follow this timeline, a compromise was agreed to exempt countries like the US for a period of up to two years. If we pause on that notion of compromise, what was actually agreed is that European countries would ensure not only that the 15% minimum tax rate would be brought in, but that all EU company profits from other low-tax jurisdictions would be subject to this minimum tax rate. Companies headquartered outside the EU can continue to avail of incentives from the US, EU and elsewhere that are not subject to taxation if it lowers their effective tax rate below 15%. They can continue to operate in countries with low to no corporate tax without necessarily being punished. There is an expectation that this compromise is temporary in nature and that in two years the world will be signed up but this does not necessarily reflect the view that this is dependent on the outcome of the US elections - both presidential and congressional - and the approval that might be required to secure the passage of global tax reform. Other major trading blocs have said that they will not move until the US moves.
Why are we following a plan that was agreed in different circumstances? Alignment with and participation in the EU is hugely important to Ireland but there are times when we need to use our own voice and question. Is the time and the global climate right to continue with this plan? We need to debate the practical implications of these rules and how differences in implementation timelines, or even no implementation, will create very significant financial distortions for EU-parented companies as against those companies parented outside the EU. It is this point that I would like to address. Without a delay to elements of the current EU directives, subsidiaries of EU-headquartered multinational groups will be subject to the income inclusion rule beginning in 2024. The current reality is that because two of the main global economic blocs, namely, the US and China, have not - and may not - implemented Pillar 2, the objective of creating a level playing field is completely undermined. On the contrary, it simply creates a two-tier system that puts EU-headquartered companies at a competitive disadvantage to their US- and China-headquartered counterparts. The situation is compounded by the fact that many jurisdictions will not implement the rules until 2025 at the earliest, including Switzerland, Australia, Singapore and Hong Kong, emboldened by the fact that the US and China may not implement them at all. The logical step for a US- or China-based multinational company to take would be to move its low-tax subsidiaries out from under the EU, to the US, for instance, where more favourable rules would allow them to maintain the benefit of these low-tax jurisdictions and create even more of an advantage for themselves vis-à-vis EU-parented groups.
It is believed that the UTPR would operate as a backstop to tax these low-tax profits. However, this requires countries outside the EU to implement the UTPR and that certainly does not seem likely in the US, given the future political landscape that could be there. The Republicans have openly voiced their dislike of global tax reform and have stated that should they gain power, these rules may never be implemented. If the US does not implement the rules, then no-one else will implement them. Asking EU-parented groups to pay more tax than their competitors in the US, China and elsewhere, will necessitate a need to reduce costs for EU-parented groups. The quickest way to reduce these costs is to reduce jobs and cut investment programmes, both of which will have long-term implications for the EU and its competitiveness, as well as for Ireland. This behavioural response was not anticipated under the original Pillar 2 proposal as it was predicated on the vast bulk of the global economies being subject to these rules and implementing them at the same time. As this will not be the case, the Irish and EU approach to Pillar 2 needs to be reconsidered and implementation delayed until the US and China implement the rules. At the very minimum, a breathing space should be given to companies with EU operations, including EU-headquartered companies, to align the application rules within the EU to other implementing jurisdictions such as Singapore, Hong Kong and Switzerland.
In summary, Pillar 2 should be implemented in a manner consistent with its stated policy objective of ensuring that multinational groups are subject to at least a 15% minimum rate of tax in each jurisdiction where they operate. This requires that the Pillar 2 treatment of multinational companies and groups does not depend on where they are headquartered.
Now that two of the three major economic blocks in the world may not implement the 15% minimum tax, and since such a significant part of the world economy will not implement Pillar 2, the agreement could well lack coherence.
It follows that a change of approach is needed to prevent Irish and EU companies from being disadvantaged and to avoid an incentive to close EU and Irish operations.
I thank Deputy Cowen for his contribution. I know he raised this issue on Second Stage in the House. I want to acknowledge that he has written to me and I have responded on the issues which have been raised. It is worth taking a few moments to go through some of the key points of the Government's response to the issues which have been raised by Deputy Cowen.
We can all agree that the decision taken by the Government to sign up to the OECD inclusive framework of the global agreement on the Tax Challenges Arising
from the Digitalisation of the Economy – Subject to Tax Rule (Pillar Two) was not taken lightly. It was a very significant decision and was one taken after very careful consideration, and, indeed, consultation.
In recognising the significance of the decision we made, it is important to recall the very real and substantial risks associated with staying outside this agreement. As a small and open economy, we have strong ties with the EU, US, and other G20 countries and it remains essential for our long-term competitiveness that we remain in line with key partners. At EU level the minimum tax directive has been agreed by all EU member states. The minimum tax directive ensures that there is a consistent application of Pillar 2 of the OECD agreement on the minimum tax across all member states. All EU member states, therefore, are legally bound to transpose the EU minimum tax directive and bring the primary rules into effect by 31 December 2023. This obligation also encompasses the transitional undertaxed profits rule, UTPR, safe harbour as the directive provides for the recognition of agreed safe harbours which are the subject of a qualifying international provision. That is a key point, which is that the obligation does encompass the requirement to provide for the transitional safe harbour.
The Deputy has raised the impact of the situation in the United States and the approach it is adopting to the global tax agreement. As home to many of the world's largest multinational enterprises, the US is an integral part of the implementation of the global minimum tax agreement. The Biden Administration continues to work towards the implementation of Pillar 2. The US introduced the first global minimum tax, the global intangible low-taxed income, the GILTI rules, through the Tax Cuts and Jobs Act of 2017, which were recently supplemented by a corporate alternative minimum tax.
However, due to differences in base rate and scope, these taxes are currently not aligned with the Global Anti-Base Erosion, GloBE, rules. The co-existence of the US alternative minimum tax regimes with the GloBE rules has been one of the many technical issues addressed in the OECD negotiations. The system allows for an integrated application of the GloBE and GILTI rules on an interim basis, allowing for an application of the Qualified Domestic Top-up Tax, QDTT, in priority while not giving rise to double taxation for business through appropriate accrediting mechanisms. This is a significant positive for Ireland and provides stability for businesses as the rules are implemented globally over the coming years.
It is important to underline that the transitional safe harbour will apply for a time-limited period of one year after the implementation of the UTPR, which generally will be introduced one year after the Income Inclusion Rule, IIR. This means that the UTPR will come into effect from the end of 2025. This will allow jurisdictions the opportunity to apply the primary Pillar 2 rules, the IIR, and, where chosen by a jurisdiction, the QDTT, before another jurisdiction has an opportunity to apply a UTPR. This will mitigate complexity and disputes for businesses and tax administrations alike in Europe in year one. The safe harbour also recognises the challenges facing jurisdictions in implementing Pillar 2 by providing a limited additional grace period before the UTPR takes effect. Again, to reiterate, this is a limited period of one year.
That being said, we fully appreciate the concerns by EU-headquartered firms with regard to the potential delay of the application of the Pillar 2 rules globally and the potential distortive impact of the UTPR in the interim. It is important, however, to recognise that for international agreements to work, there must always be compromise. The rules have been agreed by almost 140 jurisdictions and include limited safe harbours with certain guardrails for valid reasons. We must be cognisant of the long-term objective which is to implement a long lasting global tax framework fit for the 21st century and to avoid the significant negative consequences that would ensue should Ireland unilaterally opt out of the agreement.
Throughout these negotiations, Ireland has sought to provide certainty and stability, to protect our strategic interests and to ensure that we remain an attractive location when multinational enterprises look to invest. Ireland will continue to play to the strengths of its wider offering beyond the tax system, the dynamic well-educated English speaking work force, our common law legal system and our business-friendly environment, seeking to ensure our continued competitiveness in light of the impacts of Pillar 2 implementation. Indeed, over the course of the Committee Stage of this Bill, we have discussed other matters which we believe will copperfasten and, indeed, enhance Ireland's attractiveness as a location for foreign direct investment.
With regard to how the UTPR temporary safe harbour operates, I just want to clarify one point. It is only the group entities in the parent jurisdiction and only where the parent jurisdiction tax rate is at least 20% that the safe harbour may apply.
I thank the Minister for his response and for the detail contained in it. He has made several points in response. The first one is where he states that we are a small open economy with strong ties to the EU, the US, and the other G20 countries, which is essential for a long-term competitiveness to ensure that we remain in line with key partners. What does the Minister believe is the risk to the US and other G20 countries, from their perspective, of being outside of the agreement?
On the minimum tax directive, which all member states are legally bound to transpose to bring the primary rules into effect by the end of December, this also encompasses the transitional safe harbour which is subject to qualifying international agreements of the OECD. Is the Minister saying categorically that this has to happen by 31 December 2023? Can I have that point clarified?
On the US and the Biden Administration and its commitment with regard to Pillar 1, when does the Minister believe the transition phase will expire? When will Pillar 2 rules be established globally and why does the Minister feel that we should move ahead of the globe?
The other point mentioned by the Minister was that the system allows for an integrated application of GloBE and GILTI rules on an interim basis, allowing for the application of the QDTT in priority by not giving rise to double taxation for businesses through appropriate credit mechanisms. The Minister stated, "This is a significant positive for Ireland and provides stability for businesses as the rules are implemented globally over the coming years." How, essentially, does the Minster believe that this is a positive for Ireland?
The transitional safe harbour will apply for a time-limited period of one year. This means that the UTPR or the backstop would come into effect from the end of 2025. How do we know that it would come in at the end of 2025, specifically?
The Minister stated:
We fully appreciate the concerns by EU-headquartered firms with regard to the potential delay of the application of the Pillar 2 rules globally and the potential distortive impact of the [safe harbour] in the interim. [However] it is important ... to recognise that for international agreements to work, there [has to] be compromise. The rules have been agreed by almost 140 jurisdictions and include limited safe harbours with certain guardrails for valid reasons.
Why should we and the EU compromise before the US agrees an implementation date?
I thank the Deputy. I am not going to go into any detail in terms of commentary about any other jurisdiction. I do think it is important to clarify that at the meetings in Luxembourg which I attended, Secretary Yellen confirmed that there are open issues in respect of pillar 1 of the OECD agreement, which concerns the reallocation of taxing rights, which will delay the US signing up to that aspect of the agreement into next year. The comments did not relate to the adoption of the global minimum tax under pillar 2 implementation, which the Biden Administration continues to support.
On the question of Ireland moving ahead of the world, I do not believe we are. It is important to put on record that pillar 2 legislation is already in place in a number of jurisdictions, including our nearest neighbour, the UK, South Korea, Japan. Pillar 2 is in the process of being enacted and is at least at draft legislation stage in over 20 countries as well as Ireland, including Austria, France, Germany, Italy, Netherlands, Denmark, Norway, Sweden, Finland, Luxembourg, Canada and New Zealand. Of those implementing pillar 2, like Ireland, most jurisdictions have confirmed their intention to implement a QDTT in order to collect the top-up tax themselves arising in their borders. Those who have so confirmed include most EU member states in addition to the UK, Australia, Canada, Norway and Switzerland.
It is important to cut to the core of the issue the Deputy is raising. I am very much aware of the concerns that have been expressed. Both I and my Department have engaged with some firms who have made that case. We very much understand the issues that arise. To clarify, pillar 2, including the income inclusion rule, comes into effect at the end of 2023, and the UTPR a year later at the end of 2024. The transitional UTPR safe harbour comes in at the end of 2025. The safe harbour has been specifically agreed for one year only. I think the Deputy was looking for an assurance on that point. To extend it beyond that one year would need the agreement of 140 countries in the OECD inclusive framework. That is the position in respect of those issues.
Of the EU member states, have any indicated their intention not to conform?
Under the directive, there are a number of countries that would have a small foreign direct investment base. Provision is made for them not to implement. In that scenario, any tax that arrives as due in those jurisdictions can be collected by other countries. I will have a technical note on the issue in a moment, but that is it.
There is no country that should be subject to it but has indicated its unwillingness to adhere to it. What is the position with Spain?
Spain is subject to the EU tax directive and will be implementing it.
That was an interesting discussion. It related to some of the points I want to touch on. The expectation was that everybody would jump together. There is a level of uncertainty on the implementation, particularly from an Irish context which is important for us in respect of the US. The UTPR safe harbour has been carved out for the US in that instance to the end of 2025. I am conscious, as the Minister has stated, that the Biden Administration is very clear that it supports pillar 2. Pillar 1 is a different issue and we are not dealing with it at this point. The Biden Administration has been supportive of a number of things that it has not been able to get through into law, however. How will this apply, particularly in respect of the guilty rate that operates in the United States? How will Irish subsidiaries that operate in the United States, some of which could be in scope of pillar 2, interact with pillar 2 and the US corporation tax regime if pillar 2 is not adopted in the United States? While the public position of the US Administration is that it is going to be adopted, we have to have that consideration as well and an opportunity for the Minister to spell it out.
I thank the Deputy. I will just put on record the formal answer to the question Deputy Cowen asked about a number of countries that have a derogation. The derogation provided for under Article 50 of the directive allows an EU member state in which no more than 12 UPEs of groups in scope of pillar 2 are located to elect for delayed operation of the IIR and the UTPR for six years. It is anticipated that five to six EU member states will so elect. Where the ultimate parent entity of a multinational entity group is located in a member state that has made an election, the constituent entities of the group located in the state shall be subject to the UTPR top-up tax amount allocated to the state for the fiscal years beginning on or after 31 December 2023. When the election is in effect, the ultimate parent entity is required to nominate a designated filing entity in a member state other than the member state in which the ultimate parent entity is located or, if the multinational entity group has no constituent entity in another member state, in a territory that has for the reporting fiscal year a qualifying competent authority agreement in effect with the member state in which the ultimate parent entity is located. The designated filing entity is required to file a top-up tax information return. The constituent entities located in a member state that has made an election will provide the designated filing entity with the relevant information and will not be required to file a return themselves. In respect of the decision point concerning the additional year, that would have been made at the OECD G20 inclusive framework. That was the basis of the decision.
On Deputy Doherty's question, in a scenario where the US does not pass any legislation, first, its guilty rate is due to increase to over 16% in 2025. This is expected to prompt legislative change in the United States as a result of that increase kicking in by default. After UTPR safe harbour comes to an end, where a US-parented multinational entity group has a group entity in any pillar 2 jurisdiction, then the UTPR will operate in those jurisdictions to collect the top-up tax from the US entities to reach the 15% rate. The Deputy can see how that raises a very significant issue for the US. As a result, we would not envisage that scenario being allowed to come to pass.
How can we stop it?
It is not a matter for us, it is a matter for the US to adopt pillar 2.
The issue here is the location. We understand the location of subsidiaries is not just an issue in taxation; it is access to markets and all of the rest.
The issue relates to subsidiaries based in Ireland of major multinational companies headquartered in America, of which there are many. If the United States does not adopt pillar 2 after 202, the State will be obligated to ensure the Irish subsidiaries apply the UTPR and, therefore, would charge the tax that should be collected by the United States Administration and it would come into the Irish coffers, which would cause major issues in terms of the company and international tax law. I assume in a scenario where the likes of US and other key blocs opt out of pillar 2, these issues will have to be examined all over again.
This is not expected and we do have a global agreement, which we are faithfully implementing. That was the right decision for Ireland and that is the decision before us now in the Bill. We are part of the European Union and we have agreed to implement the EU minimum tax directive. Issues that may arise down the line about other countries not implementing it are, first and foremost, provided for within the agreed framework. We went through one specific scenario that clearly would have very significant consequences for all involved so we do not envisage that situation developing.
That is fair enough, and that is a fair assessment, given that the administration's stated public intention is to sign up to pillar 2. The income inclusion rule, which allows for a parent company to apply the minimum effective tax to a subsidiary in a low tax jurisdiction or a jurisdiction that does not operate under pillar 2, and the UTPR, which allows a subsidiary to charge the tax on the parent company that is not allowing for it, was never designed for major economic blocs not to be part of it. If the agreement at international level unravels among larger blocs, obviously political negotiations and skill will be needed to bring that about again. That is my view of how we would have to move forward on this because it would bring up serious issues otherwise. The rules we have that would be applied to major economic blocs were never intended for that purpose. They were intended for a subsidiary in the Cayman Islands or somewhere like that as opposed to a major advanced economy that has opted out of pillar 2.
Is the consolidated version of the GLoBE rules on the Minister's agenda in respect of assisting with compliance? I am conscious that penalties have been deferred until 2028 but what is the Government planning to do in this regard? Our provisions are very closely aligned with the OECD model rules. Is any consolidated version being looked at?
I will make one point in response to the Deputy's earlier point. The purpose of the UTPR is to act as a backstop and to ensure implementation but I understand the broader point being made about any major economy ultimately not passing legislation.
Regarding the consolidated commentary on the GLoBE rules, the OECD is currently developing that so it is the intention to bring that forward.
Very good. Regarding the safe harbours provisions, Deputy Cowen's amendment dealt with one of them. I understand the point he was making but I do not understand the amendment because it would get rid of the safe harbour provisions, which means we would have to apply the UTPR to American headquartered companies immediately, which would cause a massive clash straight away.
We can pause the agreement. Everybody has signed up to this on the understanding that we trust one another. Unfortunately, in today's world apparently we cannot. There are signals from the US that it may renege on this. Despite what the Minister said, of course we are obliged to adhere to international agreements and, as a bloc in Europe, we want to remain committed to that but there is a fear and a worry that in the event of the government, president or Congress changing in the US, as the Deputy said, there may not be the same willingness in the new administration to adhere to something that we would expect them to honour.
In the absence of that, I am asking the EU to rethink and to pause from our perspective to allow the Commission to meet and discuss this matter with a view to finding some mechanism to safeguard against it. In recent times, we have seen the dropping off of corporate tax take as a result of the global situation. It will go through the floor altogether if this comes to pass.
I appreciate the points Deputy Cowen has made and I understand exactly where he is coming from. The point I was making was that the effect of deleting these lines, from my reading of it, would be to get rid of the UTPR safe harbour, which means that a subsidiary in Ireland would have to apply the UTPR to a parent company in America. This defers that for 12 months to give the opportunity for America to opt in to pillar 2.
They have since sought an extra 12 months.
This provision gives America an extra year because it has a tax rate of 20%. I completely understand the point the Deputy is making.
It is not that they would have to do it immediately; they would have to do so at the end of 2024.
As opposed to 2025.
Yes, exactly
The UTPR comes in one year after the implementation of the income inclusion rules and then, because of this section, the transitional UTPR safe harbour allows for America to not come under that provision for another year.
I do not want to get sidetracked by that. We have discussed the safe harbour provision that is very much aimed at countries that have a tax rate above 20%, and it gives them an extra 12 months but there are a number of other safe harbour provisions in the legislation, which in particular allow for the qualified domestic minimum top-up tax, QDMTT, the transitional country-by-country reporting and UTPR. Are all of these permanent? The transitional one is obviously temporary; it is 12 months. What about the country-by-country reporting and particularly, the QDMTT safe harbour, which is how we are operating our top-up tax? Is that an indefinite position or does this have an end date?
In simple terms, the QDMTT safe harbour is permanent. The transitional country-by-country reporting safe harbour is for three years. I have more detailed notes that I can put on the record for both but I think that is the information the Deputy is seeking.
That is fine. I just wanted it clarified that the QDMTT safe harbour is the permanent position and, therefore, we will not need further changes to how we operate this. I expect that there will be a lot of changes over the weekend.
I have mentioned that penalties are being deferred to 2028 to provide time for companies to acquaint themselves with the rules and familiarise themselves with this measure. How will a company that has a number of entities in this jurisdiction file returns regarding QDMTT? Am I correct that such a company will have 12 months in which to file a return?
Eighteen months for the first return and then 15 months thereafter.
Are there no penalties at all or are they deferred? Please explain the reason for no penalties until 2028.
Transitional penalty relief will be provided for the transitional period in line with published OECD guidance. This guidance provides that during a transitional period no penalties or sanctions should apply in connection with the filing of the GLoBE information return, GIR, where a tax administration considers that a multinational entity has taken reasonable measures to ensure the correct application of the pillar 2 rules. A tax administration may consider that a multinational enterprise has taken reasonable measures where the multinational enterprise can demonstrate that it has acted in good faith to understand and comply with the relevant domestic application of the pillar 2 rules. The transition period is for fiscal years beginning on or before 31 December 2026 but not including a fiscal year that ends after 30 June 2028. The transitional penalty relief will be provided for the transitional period in line with OECD guidance.
The Minister has mentioned that it is 18 months to file a return, which means that we will start to see returns in June 2026. Is there not a requirement on Irish entities to fill out a QDMTT within 12 months?
What level of information will be available to us as legislators and policymakers on the level of QDMTT that has been applied to different companies? Without naming or identifying any company, as we fast forward into 2026 will we be able to sit here and say that corporation tax receipts were "X" QDMTT for "X" year and was "X" amount, and the operation of the income inclusion rule by Irish parent companies had "X" or that the UTPR brought in "X" amount from subsidiaries of parented companies in a jurisdiction that is not applying pillar 2? Will those details be available to us in terms of reporting?
QDMTT pay and file returns will be published in the normal aggregate anonymised form by Revenue. In addition to the normal corporation tax data, there will be data in respect of QDMTT.
On the composition of that then, coming from the application of the IIR or UTPR, that will certainly be available to Revenue because of the nature of the returns. No final decision has been taken about the format of what gets published. In terms of the QDMTT and its composition, Revenue will certainly have the information.
On the QDMTT data, and please correct me if I am wrong, if there is a subsidiary in Ireland, which is taxed at 12.5%, then according to Revenue its effective tax rate is about 11.8% or something in that region so it must be increased to 15%. QDMTT will apply and increase the percentage by 3% so there will be a sum of money that that subsidiary will have to pay to reach the minimum effective tax rate of 15%. What if that same subsidiary's parent company is in a jurisdiction that is outside of pillar 2 and, therefore, the undertaxed profits rule will kick in? Let us say a company must pay €100 million to satisfy the 15% minimum effective tax rate. Is it above that the money that a company would get from the UTPR cannot be used to bring up its effective tax rates? Would there be a separate filing as the UTPR would be clearly identified and separate from the top-up tax?
Yes, there would be separate filings. It is 15% on a jurisdictional basis. The pillar 2 pay and file return requirements in Ireland can be summarised as follows. As the IIR, UTPR and QDMTT are three separate taxes with, possibly, three separate cohorts of taxpayers are in scope so three separate returns will apply. The returns would be filed on a self-assessment basis similar to current direct taxes. In line with other taxes, all returns should be required to be filed electronically. Revenue will design the returns, which may require the return of any information Revenue deems appropriate for the purposes of efficiently administering the GLoBE taxes.
Therefore, we should be able to see the level of all three taxes that are generated in future years on a group basis.
I anticipate we will decide to publish in that form - IIR, UTPR and QDMTT.
Notwithstanding concerns about implementation in different jurisdictions, and I hope that the OECD's base erosion and profit shifting, BEPS, process will be implemented faithfully by all those who have signed up, it is a significant piece of legislation. When I read in the media that the Finance Bill was going to be €800 I thought about packing my sleeping bag and flask but I was glad to see that the Bill ran to 271 pages. That being said, I do not think we have ever had a section as big as this one or at least not in my time as a representative. I commend the officials in the Department and Revenue who have worked on this legislation. They have legislated for something that is very fresh and kept pace with things.
We talked about deferral penalties for companies, Due to being familiar with how all of this works, the Revenue Commissioners will implement this measure and look at the cheques. What preparations are being done within that side to make sure we have enough staff? Do we have the relevant staff? Do we need to recruit more individuals to look at what is a significant change in Irish tax law and, indeed, global tax law? We need to ensure there is proper operation, as intended, of something that is very new.
The work is ongoing on designing the necessary returns, internal training and so on. Obviously the additional resources will have to be funded through the Revenue Vote on the expenditure side.
I thank the Deputy for his comments and his acknowledgement of the extraordinary amount of hard work. I strongly believe it is the correct policy decision overall, and I believe the Deputy does too. I thank Sinn Féin, as the main Opposition party, for its support on this issue. I believe it is strategically in our national interest to be part of the agreement. I pay tribute to my predecessor, the Minister, Deputy Donohoe, who did an enormous amount of work in helping to negotiate, influence and shape the final outcome of the deal which is categorically in Ireland's interests. I join the Deputy in thanking all our officials in the Revenue Commissioners, all our public servants and my own team in the Department of Finance for the extraordinary amount of work on this issue which I know they have put in over many months. I thank all the committee members for their co-operation in respect of this section. I know we have some further work to do on remaining sections but it is an enormous piece of work that the system has helped to deliver and I want to acknowledge that.
We have had this conversation on many occasions over the years in anticipation. I congratulate all the people involved in the compilation of this particular section because it is massive. It is of colossal import for Europe, world trade and trading conditions. To what extent has the World Trade Organization, WTO, been consulted in its compilation? I mentioned our friend, Mo Ibrahim, the other day. Then there is Sven Giegold, our old friend from the taxation committee. Has Sven Giegold been consulted about it? He has been one of the leading lights in promoting higher rates of taxation on this jurisdiction and continues to hold that view as do a number of others. To what degree has the WTO been consulted? It will have implications for the WTO ultimately as well as for Europe and US trade agreements, if they come in, and they were in the offing some time ago, for Europe and Canadian trade agreements and for a number of other trade agreements.
Some €740 million turnover seems like a lot of money but it is not in the context of international trade where it is minuscule. It kicks in very quickly. We realise a situation might have arisen where certain countries dragged their feet or, by virtue of their economic power, continued that process, no names mentioned. Is the Minister satisfied that we have managed to dot every "i", cross every "t" and so on? Can we assume that the competency of national governments on taxation remains with national governments throughout the European Union or in what way is it affected by these proposals?
I mentioned our pal, Mo Ibrahim, the other day. Did anyone consult him? He campaigned for a long time, to do as much damage as possible. I would like to know what his thoughts might be on the conclusion of the agreement, which I hope remains solid and is a settlement because without it, we could be into a world trade war or something like that which would cause really serious problems for smaller countries, in particular.
We are a small country but we have certain entitlements within the EU, the same as every other country in the EU and the same as other countries in the Single Market. We have all those things in our favour and we have a right to assert ourselves in every way possible and to fight off competitors, of whom there are many. They will be absolutely ruthless when it comes to achieving the superior end of the argument.
Those are just some things that come to mind. I do not want to go into a long harangue at this time. I hope everything works out well and that there are sufficient provisions. Delay in implementation of the entire package could be lethal. For one country or another to opt out now, or for another country to refuse to comply, would be a bad situation.
I thank Deputy Durkan for his support. The WTO was not formally consulted. It was not formally part of the process. Tax certainty and having as much mutual recognition globally of tax systems and having as much integration in the approach to taxing global multinationals facilitates open trade and is, in many respects, an essential ingredient when it comes to the conditions necessary for international trade. That is why this is a work in progress. Ireland wants to see the full implementation of the two-pillared solution - both Pillar 2, which is agreed, and Pillar 1, which is yet to be finalised.
Many will be surprised about the number of entities and the identity of some companies that will be in scope. Revenue estimates, and it is only an estimate, that there may be approximately 1,600 multinational entity groups with a presence in Ireland that will come in scope of Pillar 2. These groups contain an estimated 9,000 individual in-scope entities located in Ireland. Of the 1,600 multinational entity groups, approximately 67 have their ultimate parent entity located in this jurisdiction. It is a very important issue for Ireland and a significant number of companies have operations here and, in many instances, are actually based here.
There was one question I meant to ask. When this tax is applied to companies under this scope, how much additional revenue is expected to come in as a result of these sections in this Bill?
The approach by the Department and Revenue on that question so far has been to examine the combined effect of both Pillars 1 and 2. The estimate given is of a net cost of €2 billion. We have pushed out the inclusion of that, in the projections we set out in the budget, by a further year. It is a combined net cost of €2 billion of the two pillars being implemented. We have not calculated the impact of this pillar on its own because we anticipate that Pillar 1 will be concluded and will have an impact on Ireland, and it will be a negative impact.
I do not think I have ever dealt with a section in a finance Bill where a Minister for Finance was not willing to say how much the section, for which we are legislating - and we are not legislating for Pillar 1 - would actually accrue to the State. Is there a reason? We know Pillar 1 will have a negative effect. Pillar 2 will be more than €2 billion but what are the calculations? It will not be a State secret for much longer.
Is the Pillar 1 estimate of €2 billion up to date or is it historic?
That figure was first calculated in 2020. It has not been updated because Pillar 1 is not yet finalised so it is not possible to finalise the figure. The impact of Pillar 2 will not stand alone. It is part of a global agreement that involves the two pillars interacting.
This is why the Department has always taken the approach of estimating the combined effect of the two pillars being in operation. As the Minister, that is the information I have. That is the assessment that was carried out by Revenue and the Department.
I need to come back in here. We are not legislating for Pillar 1. Pillars 1 and 2 are separate now in law. We have signed up to it and the intention is to legislate for it. This committee is passing Pillar 2 into law. It is fair and reasonable for this committee, which is tasked with scrutinising this legislation, to ask for this information and to ask about the effect of this legislation in relation to revenue. It is a standard question that we ask on every matter we legislate for. We would not be doing our job if we did not scrutinise this. If the Minister's officials do not have the information to hand, perhaps they could make that calculation and determination, which should be provided to the committee. I would strongly urge this. This is the Oireachtas finance committee.
As the committee will be aware, revenues will actually not flow until 2026 with regard to the impact of Pillar 2. The precise impact on Ireland will depend on a number of factors, including the question of what jurisdictions we may be collecting IIR and UTPR from. It is not possible to provide an estimate at this time, given that the transposition is continuing and the implementation of it is continuing globally, and the interaction of the different elements globally has not been settled at this point. An estimate has not been calculated based on the information we have to date of what the impact would be in terms of revenue.
As this is developed and as this legislation is implemented, not just in Ireland but also in the other jurisdictions, and as some of those outstanding questions get settled, we will work towards developing an estimate of what that is. At this point in time, however, that is not possible.
I am forced to say that I do not accept that. The Minister could provide an estimate for Pillars 1 and 2 combined but cannot tell us that if they are separate components. That makes no sense. I am not asking for an accurate figure. Who knows what the accurate figure would be at the end of the day? However, the Minister could provide an estimate. We would not be doing our job if we did not ask the question, know what we are passing into law and ask about what the potential effect of this on revenues. The finance committee should have this information. Whether or not that is arranged, I am happy in relation to that, but at the point when we are passing legislation into law, we should know this information. If there is a reason for it not being done, other than what has been said, I am happy to hear that now or privately.
Is the Deputy accepting a background note to this, or further information on it?
If the two pillars together are €2 billion, then there has to be a calculation for Pillar 2 somewhere. That figure was probably outdated because this was done two years ago.
I am not withholding any information from the Deputy or the committee. However, I will ask the officials to go back and look at the nature and the origin of the calculation that was done. We will set out a comprehensive note and we will address the issue raised by the Deputy insofar as we can with the information available. This is heavily caveated because there are unknowns and there are questions that we cannot answer at this time. We will go back to the estimate that was made back in 2020 and revert to the committee in relation to that.
That is fair enough. I appreciate that.
I move amendment No. 46:
In page 155, line 13, to delete “and”.
Amendment agreed to.
I move amendment No. 47:
In page 155, line 14, after “expense,” to insert “and”.
I move amendment No. 48:
In page 155, between lines 14 and 15, to insert the following:
“(f) taxes accrued by an insurance company in respect of returns to policyholders to the extent that subsection (10)(a) applies in relation to those taxes,”.
I move amendment No. 49:
In page 158, line 15, after “value” to insert “adjusted for accumulated depreciation”.
I move amendment No. 50:
In page 158, line 29, after “value” to insert “adjusted for accumulated depreciation”.
Amendment agreed to.
I move amendment No. 51:
In page 158, line 32, after “value” where it secondly occurs to insert “adjusted for accumulated depreciation”.
I move amendment No. 52:
In page 158, line 33, after “value” where it firstly occurs to insert “adjusted for accumulated depreciation”.
I move amendment No. 53:
In page 164, line 14, to delete “and” and substitute “or”.
I move amendment No. 54:
In page 179, to delete lines 6 to 10 and substitute the following:
“(4) Where a qualifying loss election is withdrawn—
(a) any remaining qualifying loss deferred tax asset for a jurisdiction determined in accordance with subsection (1) shall be reduced to zero as of the first day of the first fiscal year in which the qualifying loss election is no longer applicable, and
(b) the deferred tax assets and deferred tax liabilities for the jurisdiction, if any, shall be taken into account as if they had been calculated in accordance with section 111X and 111AW for the prior fiscal year.”.
I move amendment No. 55:
In page 179, to delete lines 11 to 14 and substitute the following:
“(5) (a) Subject to paragraph (b), the qualifying loss election shall be made in the top-up tax information return delivered, in accordance with section 111AAI, for the first fiscal year in which the MNE group or large-scale domestic group has a constituent entity located in the jurisdiction for which the election is made.
(b)Where an election has been made in respect of a jurisdiction by the MNE group or large-scale domestic group in accordance with section 111AJ(2), the qualifying loss election for that jurisdiction shall be made in the first top-up tax information return delivered, in accordance with section 111AAI, in respect of the MNE group or large-scale domestic group after the election made in accordance with section 111AJ(2) ceases to apply.”.
I move amendment No. 56:
In page 182, line 36, to delete “fiscal year” and substitute “fiscal year in accordance with subsection (1)”.
I move amendment No. 57:
In page 188, line 11, to delete “excluded” and substitute “reduced”.
I move amendment No. 58:
In page 188, line 13, to delete “excluded” and substitute “reduced”.
I move amendment No. 59:
In page 192, line 13, to delete “subsection (1)(a)” and substitute “subsection (1)”.
I move amendment No. 60:
In page 196, to delete lines 13 to 15 and substitute the following:
“(ii) an authorised financial accounting standard and the information contained in the financial statements is reliable, or”.
I move amendment No. 61:
In page 197, lines 26 and 27, to delete “in respect of constituent entities resident in that jurisdiction,”.
I move amendment No. 62:
In page 199, to delete lines 18 to 21.
I move amendment No. 63:
In page 199, line 22, to delete “(14)” and substitute “(13)”.
I move amendment No. 64:
In page 200, line 4, to delete “(15)” and substitute “(14)”.
I move amendment No. 66:
In page 209, lines 21 and 22, to delete “adjusted covered taxes of the ultimate parent entity” and substitute the following:
“covered taxes paid by the ultimate parent entity and other entities that are part of the tax transparent structure”.
I move amendment No. 67:
In page 211, lines 12 and 13, to delete “adjusted covered taxes of the ultimate parent entity” and substitute “covered taxes paid by the ultimate parent entity”.
Amendment agreed to.
I move amendment No. 68:
In page 212, line 9, to delete “of adjusted covered taxes”.
I move amendment No. 69:
In page 212, line 13, to delete “tax” and substitute “distribution tax”.
I move amendment No. 70:
In page 213, line 32, to delete “paragraph (a)” and substitute “subsection (1)”.
I move amendment No. 71:
In page 214, lines 35 and 36, to delete “the allocable share of the MNE group or large-scale domestic group in”.
I move amendment No. 72:
In page 214, to delete line 42, and in page 215, to delete lines 1 to 4 and substitute the following:
“(b) Where more than one relevant investment entity of an MNE group or large-scale domestic group is located in a jurisdiction, the qualifying income or loss and substance-based income exclusion amounts of each relevant investment entity shall be combined to compute the effective tax rate of all of the relevant investment entities.”.
Amendment agreed to.
I move amendment No. 73:
In page 215, to delete lines 5 to 14 and substitute the following:
“(c) The substance-based income exclusion amount of a relevant investment entity shall be determined in accordance with subsections (1) to (7) and (10) to (12) of section 111AE, taking into account only eligible tangible assets and eligible payroll costs of eligible employees of the relevant investment entity.”.
I move amendment No. 74:
In page 219, to delete lines 33 to 38 and substitute the following:
“(a) an ultimate parent entity located in the State in accordance with—
(i) section 111E(1), in respect of constituent entities located in the State, or
(ii) section 111E(2), or
(b) an intermediate parent entity located in the State in accordance with—
(i) section 111F(1), in respect of constituent entities located in the State, or
(ii) section 111F(2), when the ultimate parent entity is an excluded entity, shall be reduced to zero where—”.
I move amendment No. 75:
In page 220, line 42, to delete “paragraph” and substitute “subsection”.
I move amendment No. 76:
In page 222, to delete lines 19 to 21 and substitute the following:
“(b) a joint venture or a joint venture affiliate in respect of which sections 111E to 111J apply to an entity with respect to its allocable share of the top-up tax of that joint venture or joint venture affiliate for a fiscal year in accordance with section 111AO(3), or would apply if that entity was located in the State, or”.
I move amendment No. 77:
In page 223, line 9, to delete “subsections (3)” and substitute “subsections (2)”.
Amendment agreed to.
I move amendment No. 78:
In page 223, line 37, to delete “statements” and substitute “accounts”.
I move amendment No. 79:
In page 223, line 39, to delete “statements” and substitute “accounts”.
I move amendment No. 80:
In page 223, line 43, to delete “statements” and substitute “accounts”.
I move amendment No. 81:
In page 224, line 3, to delete “statements” and substitute “accounts”.
I move amendment No. 82:
In page 224, to delete lines 5 to 19 and substitute the following:“
(3B) (a) Subject to paragraph (b), where any of the qualifying entities of an MNE group, large-scale domestic group or joint venture group, as the case may be, located in the State prepare financial accounts under more than one local accounting standard then, for the purposes of subsection (3A), the financial accounting net income or loss of a constituent entity for the fiscal year shall be determined in accordance with—
(i) the local accounting standard used for the purposes of determining the profits, losses or gains of the qualifying entity for the purposes of Case I or II of Schedule D, or
(ii) where no such profits, losses or gains exist, the local accounting standard used for the preparation of the financial accounts that are annexed to the annual return to be filed with the Registrar in accordance with the Companies Act 2014, for the accounting period which corresponds to the fiscal year.
(b) Where a qualifying entity does not prepare financial accounts—
(i) for the purposes of determining the profits, losses or gains of the qualifying entity for the purposes of Case I or II of Schedule D, or
(ii) that are annexed to the annual return to be filed with the Registrar in accordance with the Companies Act 2014, for the accounting period which corresponds to the fiscal year, the financial accounting net income or loss of a constituent entity for the fiscal year shall be determined in accordance with subsections (2) and (3).’,”.
I move amendment No. 83:
In page 225, to delete lines 10 to 13 and substitute the following:
“(4)Section 111AY shall apply for domestic purposes—
(a)where none of the ownership interests in a qualifying entity are held by a parent entity subject to a qualified IIR, and
(b)as if the following were substituted for subsection (1) of that section—
‘(1)The domestic top-up tax due by a qualifying entity in accordance with section 111AAC (1) shall be reduced to zero where—
(a) the qualifying entity is a member of an MNE group, in the first 5 years of the initial phase of the international activity of the MNE group, starting from the first day of the fiscal year in which the MNE group falls within the scope of this Part for the first time, notwithstanding the requirements laid down in Chapter 5,
(b) the qualifying entity is a member of a large-scale domestic group, in the first 5 years, starting from the first day of the fiscal year in which the large-scale domestic group falls within the scope of this Part for the first time, or(c)the qualifying entity is an entity within the meaning of section 111AAB(1)
(c), in the first 5 years, starting from the first day of the accounting period in which entity falls within the scope of this Part for the first time.’.”.
I move amendment No. 84:
In page 233, line 38, to delete “required”.
I move amendment No. 85:
In page 234, line 40, to delete “group”.
I move amendment No. 86:
In page 237, line 16, to delete “group”.
I move amendment No. 87:
In page 237, line 25, to delete “group”.
I move amendment No. 88:
In page 238, line 33, to delete “entity” and substitute “member”.
I move amendment No. 89:
In page 245, to delete lines 28 to 31.
I move amendment No. 90:
In page 249, to delete lines 9 to 22 and substitute the following:
“(2) Where, for a fiscal year beginning on or before 31 December 2028 and ending on or before 30 June 2030—
(a) all of the relevant QDTT members of an MNE group, large-scale domestic group or joint venture group, as the case may be, are members of a QDTT group for a fiscal year, and the QDTT group filer has prepared and delivered a QDTT return, in respect of all of the relevant QDTT members, for the fiscal year on or before the specified return date, or
(b) there is no more than one member of an MNE group or joint venture group, as the case may be, that is a qualifying entity for the fiscal year,
then, on the making of an election by a filing constituent entity for the fiscal year, the filing constituent entity shall complete, in accordance with the simplified jurisdictional reporting framework, the top-up tax information return for the fiscal year, in respect of —
(i) the relevant QDTT members of the MNE group, large-scale domestic group or joint venture group, as the case may be, where paragraph (a) applies, or
(ii) the member of the MNE group or joint venture group, as the case may be, where paragraph (b) applies.”.
I move amendment No. 91:
In page 250, line 6, to delete “Subsection (1)” and substitute “Subsection (2)”.
I move amendment No. 92:
In page 252, line 19, to delete “31 December 2023” and substitute “31 December 2024”.
I will not pursue the amendment pending the other information that is imminent on the further Stages.
I move amendment No. 93:
In page 256, to delete lines 9 to 12 and substitute the following:
“(3) The Provisional Collection of Taxes Act 1927 is amended, in section 1, in the definition of “tax” by the insertion of “, or IIR top-up tax, UTPR top-up tax, or domestic top-up tax (each within the meaning of Part 4A of the Taxes Consolidation Act 1997),” after “vacant homes tax”.”.
We have concluded Committee Stage of the Finance (No. 2) Bill 2023. I thank all members for their contributions. I thank the Minister and all his officials who attended here. We have had a very good exchange on the Bill. I offer my sincere thanks to everyone and to the clerk to the committee and others who have attended here.
I may need to introduce some further minor technical drafting corrections on Report Stage. I thank all members of the committee for their co-operation and for the spirit in which the Committee Stage was held. I thank all of our respective staff for the work they have done.
I, too, intend to bring amendments on Report Stage. At this late hour, I thank the Cathaoirleach and the officials for facilitating the committee. I also thank the Minister for his attendance here.
There are other engagements the Minister missed as a result of being here and he did not have substitutes. That is very important in legislation like this. The Minister has taken it right through. I also thank his officials from all of the different sections. There are obviously sections in this Bill I do not agree with. We have had a robust debate at times but I appreciate the efforts of the Department officials and indeed the Revenue officials in drafting the Finance (No. 2) Bill 2023. They put their time and effort into all the sections of the legislation. As I said, there were some very challenging new pieces of legislation as well. I appreciate all of that.
My thanks to the members who chaired the different sessions.