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ITI Comes Out In Support Of Business Expansion Scheme

by Jason Gorringe,, London

11 January 2007

The Chief Executive of the Irish Taxation Institute (ITI), Mark Redmond on Wednesday suggested that the review of the Business Expansion Scheme (BES) published this week provides “compelling evidence” that BES is central to creating and sustaining economic activity, particularly among small businesses.

Mr Redmond commented after the Government published its survey of companies who have used BES, which found that over 60% of these companies employed less than 15 staff and in two thirds of cases, their annual sales were less than EUR1million. 40% said it encouraged them to increase their workforce.

The Irish Congress of Trade Unions (ICTU) announced in December that it would lodge a formal complaint with the EU over the expansion of the Business Expansion Scheme because of concerns over tax evasion.

In a statement, ICTU Economic Advisor, Paul Sweeney last month described the measures BES measures as “expanded vehicles for tax avoidance for wealthy people".

"They are also state aid to the business sector at a time when the economy is booming," he argued.

ICTU lodged the complaint with the European Commission on the basis that, as state aid, the schemes require EU approval.

According to Sweeney, the schemes “may appear as if they are helping small businesses, but their main effect is to shield high income earners, who ‘invest’ in what are too often risk-free BES schemes, from income tax".

“The cost of these schemes to the taxpayer is likely to be far higher than the stated EUR178 million, because most tax expenditures are underestimated. The tax forgone by the exchequer will be made up by working people.”

Commenting this week, the ITI chief argued in response that:

“This review shows that taxation is at the apex of the Irish economy, especially for the small business sector. It presents compelling evidence that innovative tax policy like BES helps companies grow, creates jobs, leads to improved services, supports Irish exports and generates revenue for the exchequer."

Mr Redmond drew attention to the influential role BES is playing in incentivising new businesses, products and services; 52% of respondents said BES made them more ambitious to grow, with 47% attributing BES finance as a key factor in launching new or improved products and services.

“These findings demonstrate that a proper functioning BES is often a key factor in getting new ventures up and running and new products and services onto the market,” he observed.

Mr Redmond suggested that the future of BES should continue to be shaped by economic and social needs. He urged Finance Minister Brian Cowen to build on improvements announced in the Budget by expanding BES to key national needs like renewable energy, infrastructure and broadband in the forthcoming Finance Bill.

“Tax policy is a proven tool in meeting key economic and social needs. With this in mind, ITI is calling on the Minister to expand BES to positive effect in key need activities like renewable energy, infrastructure and broadband. Investment in these activities is now imperative if we are to meet the stated objective of achieving a high value economy,” he concluded.

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