Mary Butler (Waterford, Fianna Fail)
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This meeting has been convened to consider Committee Stage of the Knowledge Development Box (Certification of Inventions) Bill 2016, which was referred to the select committee by order of the Dáil of 1 March. Apologies have been received from Deputy Niall Collins, for whom Deputy James Lawless is substituting. In order to ensure the smooth running of the meeting, any Member acting in substitution for a member of the committee should formally notify the clerk if he or she has not already done so.

I welcome the Minister of State responsible for training, skills and innovation, Deputy John Halligan, and his officials. There are ten amendments tabled. It is intended that we will consider this Bill until we conclude Committee Stage today. Is that agreed? Agreed. I refer members to the circulated list of amendments grouped for the purpose of debate. We will now proceed to the consideration of the Bill.

Maurice Quinlivan (Limerick City, Sinn Fein)
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We have a problem with the Bill. We might abstain or oppose but I am not tabling any amendment. Do I have to agree to that now?

Mary Butler (Waterford, Fianna Fail)
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We will go into private session for a moment to deal with that.

Mary Butler (Waterford, Fianna Fail)
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We will proceed with our consideration of the Bill until we reach section 18, on which section amendments have been tabled. We have only dealt with section 1. What the Deputy seeks should be ready by the time we reach section 18. We will have to suspend in about ten minutes for the voting bloc in the Dáil.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Have we dealt with any of the amendments yet?

Mary Butler (Waterford, Fianna Fail)
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No. The amendments commence on section 18. We are only now about to consider section 2.

Maurice Quinlivan (Limerick City, Sinn Fein)
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Are we agreeing this to go forward or what are we doing? I am still a little confused.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I do not agree to the section.

Mary Butler (Waterford, Fianna Fail)
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Is the Deputy substituting for someone?

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I am substituting for Deputy Bríd Smith.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I do not agree to the section. May I comment on it?

Mary Butler (Waterford, Fianna Fail)
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Yes.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I will make just one comment for now and it will cover all the sections. The reason I am opposing these sections and would have opposed the first three, had I been fast enough, is that I oppose the Bill in total.

Mary Butler (Waterford, Fianna Fail)
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There is a vote in the Dáil Chamber so we have to suspend.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Section 6 allows for a certificate to be given to a group of inventions. Can the Minister explain this? My concern is that minor upgrades or improvements in a particular innovation could be made just for the purposes of getting the tax break and the certificate. They would not necessarily have to be new innovations. There might be one new thing to which minor changes are made, which then qualify for a tax break but this is not really innovation.

John Halligan (Waterford, Independent)
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Normally the certificate is given to one invention but it has to be novel and different under the regulations. The objective is that it be useful. If somebody went to the trouble of doing innovative research on something and followed the criteria it would hardly be likely they would do it as a long-term tax scheme. I am sure they would do it for the sake of their invention and the statistics relating to SMEs and entrepreneurs appear to show that. A lot of thought, effort and research is put into inventions. I see where the Deputy is coming from but I do not know of any case where this has been used.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I want to flag my concerns about this. I am opposing the entire Bill because we have had clear evidence that corporations are using every means available to avoid tax and push the boundaries of the available tax breaks to minimise their tax bill. The criteria under which one can get the 12.5% tax rate reduced to 6.5% appear to be wide open to abuse and I do not see the safeguards against this. There are, for example, constant upgrades to mobile phones or the iPhone and these could be, as the legislation states, a group of inventions that are part of a general inventive concept. In these cases the companies in question could pay 6.5% for ever and a day.

James Lawless (Kildare North, Fianna Fail)
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Deputy Boyd Barrett has legitimate concerns about the Bill and that the abuse of the legislation could lead to tax avoidance and tax evasion, but if we take it as a fundamentally good thing to encourage innovation, research and development through the tax code we should not stop doing that just because it may be abused by certain parties. Let us do something good and stop any abuse by other means. I worked on a project which qualified for the research and development tax credit and it is not as easy as the Deputy might think to reassess and resubmit for the scheme. It is difficult to qualify and, provided the criteria are sufficiently tight and rigorous, abuses should be prevented. Repeat inventions do not qualify and submitting the same thing again with a few tweaks is not sufficient to be rare, non-obvious or novel. I understand the Deputy's concerns but I do not think they are well founded.

John Halligan (Waterford, Independent)
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The Patents Office administers the certificate. The invention has to be novel, non-obvious and useful and the applicant must self certify that it is a relevant company as set out in the Finance Act 2015. There is a possibility of misuse of the invention but we have to have some trust in the Patents Office, which has a pretty good record in the application of the criteria.

We need to remember that it has the power to refuse the certificate based on that novel, non-obvious and useful provision. The Deputy spoke about possible abuse. That may be the case. I do not know of any instances as of yet.

Returning to SMEs, entrepreneurship and novel projects that have gone to the Patents Office, statistics apparently show that a lot of effort, time and even people's money went into it because they believed their inventions were novel and non-obvious. If we were to put something in place that would make it more difficult because of a tiny minority or one individual case or deliberately try to go outside the criteria, we may then hold back many individuals or small groups of people who may want to push forward with their ideas. We need to find a balance. It comes back to the criteria in legislation; the Patents Office would be quite capable of knowing if something was not non-obvious, not novel and not useful. Many patents are not granted.

Tom Neville (Limerick County, Fine Gael)
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I support what the Minister of State has said. We do not want to put in something that might stifle creativity, and stifle research and development of products particularly in the IT area. We are marketing Ireland as an IT hub and IT leader. We want to continue that from a research and development point of view. I understand the Deputy's concerns, but we do not want to use a sledgehammer to crack a nut. We do not want to stifle the creativity and I fully endorse what the Minister of State said.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I am making a more general point, although I also have a specific point on this amendment. We will move through this and some of the other amendments that cover some of the same ground. There is no doubt that we need to encourage innovation. We should support innovators. I am not convinced that giving tax breaks to companies is the best way to support innovation, which is why I opposed the Bill in the first instance. Every cent lost in tax revenue is money that could potentially be going to the universities.

We have a choice. Do we go the private route in supporting and encouraging innovation or do we take the public route? We could even provide grants to small producers, which might be more helpful to them. The biggest problem for small operations or individuals trying to develop something new is not tax but having a bit of money to do the research and development and develop an idea rather than a tax break on the revenue they generate once they have it up and running. My fear is that this is not the best way to achieve the Bill's stated objective. The unintended - possibly intended - consequence is providing another mechanism for profitable corporations to pay less tax. Obviously, there is a context for that because big questions arise regarding the extent of the tax being paid by corporations. Even people who might disagree with my perspective on these would accept that there are questions to be answered following the Apple case. Just looking at the revenue figures of corporation tax take as against pre-tax profits, dividing one by the other does not give 12.5%, but about 6%. That is the effective rate of tax being paid at the moment. As we know, for some companies it is considerably less because most domestic small and medium-sized enterprises are paying 12.5%. If the average is 6%, it means that a small number of very profitable companies are paying very little.

John Halligan (Waterford, Independent)
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The office referred to in the Bill only looks at the criteria for patentability. The taxation issue is for the Revenue Commissioners and has nothing to do with the Bill which relates to patenting.

It is not just to do with the individual or the small people who come together to form a company - sometimes not even a company - to come up with a product. There is the PTRLA, the funding for researchers in universities. A lot of that is on the other end of it as well. I have met many of them throughout the country and the last thing on their mind is whether they will get a tax break out of this. They are already being funded to do the research developments in 12 dedicated research centres throughout the country and in universities. I know that is not totally relevant to what the Deputy is saying.

Inevitably, some of those people when they leave university start to develop something themselves. That is what this is about. We want to encourage the ordinary person who comes up with an idea and thinks he or she can get employment as a result. We also want to encourage the researchers in universities who leave further education and do not get jobs in companies. I take the point the Deputy is making and I know it comes back to the Department of Finance.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I have not had time to read all the cross-references to all the legislation, although I remember debating intensely the knowledge development box at the time it was proposed in the Finance Bill. I ask the Minister of State to remind me what we are dealing with here. What does the existing legislation from the Finance Act do in terms of excluding small and medium-sized enterprise such that it is necessary to have a certificate that is directed at small and medium-sized enterprise? Does the Finance Act distinguish between different companies? Are companies over the threshold set out in this Bill currently benefiting? Is there certification for them and are they benefiting from the tax break? Does the legislation distinguish between small, medium and large enterprises?

Mary Butler (Waterford, Fianna Fail)
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Before I call the Minister of State, Deputy Lawless indicated.

James Lawless (Kildare North, Fianna Fail)
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I indicated because I want to advise the committee that I intend to table an amendment in respect of this section on Report Stage. I give formal indication of that.

Mary Butler (Waterford, Fianna Fail)
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That is noted.

John Halligan (Waterford, Independent)
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We need to remember the existing schemes already available to people to participate. We need to be careful that we do not attempt to put too many barriers in the way of people regarding the knowledge development box. When we look into it in depth over a period of time, it may well appear to have some faults regarding tax.

I understand the issue in regard to tax and whether it can be used by people to set up bogus companies or otherwise. Section 7 sets out the qualifying criteria and financial limits for companies that can apply under the KDB certification scheme and establishes the information requirements for applications under the scheme. Having read the legislation, I am conscious that there may be difficulties but we should consider the overall benefits offered by the scheme. The benefits far outweigh some of the difficulties we may experience down the road when people start to work within the scheme.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I made a slightly different point. This is genuinely a question rather than an argument. Why do we need a certificate specifically for small and medium-sized enterprises? Obviously, the Government wants to help small and medium-sized enterprises. I am not asking that question either. Is there a distinction in the existing legislation? Section 7 refers to relevant companies. Does the legislation distinguish between different sized companies such that we need a specific certificate for small and medium-sized companies? Why does the provision not just apply to all companies? I am not saying it should. I simply want to know why the existing legislation requires a certificate.

John Halligan (Waterford, Independent)
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I remind the Deputy the OECD set out the guidelines in the first place and the certificate is in line with what was set out by the OECD. The KDB certificate will allow SMEs to exploit their intellectual property, IP, assets without incurring the costs associated with obtaining a patent in the first place. That is a big asset for SMEs.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Is there a different certification process for big companies that exceed the threshold?

John Halligan (Waterford, Independent)
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It is already available to larger companies. It is not a new process for them.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Do they get a certificate from the Department?

John Halligan (Waterford, Independent)
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The Irish Patents Office must make that decision. I cannot make the decision. The Irish Patents Office deals with small, medium and large companies that have an idea, invention or piece of innovation. It would be unfair to exclude small, medium or large companies from applying for a patent.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Where in the existing legislation were small and medium enterprises excluded? I do not understand why they were excluded in the first place.

John Halligan (Waterford, Independent)
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They are not excluded. As I said to the Deputy, this measure is more in their interest. Big companies can incur costs when applying for a patent because of the huge emphasis they place on confidentiality, etc. Small and medium sized enterprises do not incur costs. The scheme seeks to ensure that the Irish Patents Office treats all companies in the same way, regardless of size. It is important to note that intellectual property assets will qualify for patents and copyright software.

In terms of smaller companies, there is a third category of intellectual property assets that share features of patents. Since January 2016, for instance, patents and copyright software automatically qualify for the knowledge development box. The third category that specifically targets small companies are IP assets that share characteristics with the patents. As I said, the patent can be novel, non-obvious and useful.

My Department works within the OECD guidelines and recommendations. The OECD is pretty comfortable with the scheme, taking into consideration how it may very well be - I do not want to use the word "abused"-----

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I will not labour the point. Perhaps we can have a more detailed discussion with the officials or whoever in order to understand this measure between now and Report Stage. I listened to the Minister of State's response but I do not quite understand why we need this measure. If there are provisions governing the knowledge development box in the Finance Act, and other bigger companies above the thresholds are benefitting from it, I do not understand why small and medium-sized enterprises have been excluded. Are they excluded from availing of the tax break for their intellectual property assets? If they are not excluded then why do we need this legislation? I do not understand.

Mary Butler (Waterford, Fianna Fail)
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I will allow Deputy Lawless to comment before the Minister of State replies.

James Lawless (Kildare North, Fianna Fail)
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I have a similar question to the one asked by Deputy Boyd Barrett. I understood that the provision was initially included in the Finance Act two years ago. Other measures were removed at the time and were replaced with this provision with the OECD's approval. The Minister of State, if I heard him correctly, mentioned a number of categories of patents, IP assets and other ways to qualify under the KDB or Finance Act. He said that some things would qualify automatically. I ask him to circulate a note to the committee with that information in advance of Report Stage.

John Halligan (Waterford, Independent)
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Yes.

James Lawless (Kildare North, Fianna Fail)
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A note would give us a clearer picture of how IP qualifies.

Mary Butler (Waterford, Fianna Fail)
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Does Deputy Boyd Barrett wish to comment briefly before we move on?

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I agree with Deputy Lawless that a note would be helpful. I have nothing more to say on the matter.

I wish to mention an issue that I raised on Second Stage. It is appropriate to raise it now as we are discussing the section that outlines who can apply, etc. How does this legislation protect us against bigger companies setting up companies as a front, or a series of them, that are under the threshold and, consequently, exploit?

John Halligan (Waterford, Independent)
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I was going to answer the Deputy's query in the Dáil. One of the things that would happen is that Revenue would examine this matter through tax queries. The responsibility would fall to Revenue. This is only my view but if that were to be the case - I cannot say that it will not be the case - and if a bigger company set up smaller subsidiaries or companies and they encouraged employment, productivity and a turnover, it would be very difficult for anyone in government to say he or she thinks this big company is setting up a couple of minnows so that it can claim tax. All that the Government and the Department could do on that would be to make sure that all relevant documentation and monetary evaluation of the larger company, and the smaller companies associated with it, would be dealt with by the Revenue Commissioners.

This legislation is due to be debated again on 29 March by which time Deputy Boyd Barrett may have tabled an amendment on this matter. The Revenue Commissioners can examine this matter through transfer pricing. Under EU legislation transfer pricing is illegal. It would be difficult under the present EU legislation for companies to do as the Deputy has suggested. I am not saying it is impossible, knowing how some companies could react. There is sufficient EU legislation to deal with this matter. There are measures associated with Revenue and the EU. We should be careful about this matter. How would we examine a mother company that may have set up three or four SMEs or three smaller companies to maybe benefit the mother company? Where would be bring in legislation to counteract such activity? How can we stop this happening if it is inevitable that these companies were going to create jobs and generate a turnover every year that would benefit an economy?

I take the point, but I do not know how this could be dealt with legally. I am not a legal expert. It might be worth the Deputy's while tabling an amendment in order that we could examine it.

Tom Neville (Limerick County, Fine Gael)
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During the recession I worked in a digital house in Limerick where we were trying to get small businesses off the ground. Many IT engineers who had graduated from UL went to Silicon Valley for three or four years and established a network. They worked in big organisations but then went out on their own, brought in their own software and got involved in research and development. They had backing, but they set up in their own way. These are one-man or one-woman bands and they had support from a parent company, but they were working on a new product. I do not know how that support worked, but they were starting out, given help and, lo and behold, had to hire a salesperson to sell the product and then an administrative person. Jobs began to flow. I understand the Minister of State does not want this measure to be abused, but we do not want to stifle what is happening. Unemployment is decreasing and much is happening on the back of this.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Does the fact that I have flagged issues mean that I must formally say I may table amendments?

Mary Butler (Waterford, Fianna Fail)
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It is noted.

Maurice Quinlivan (Limerick City, Sinn Fein)
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Is it on this section or all sections?

Mary Butler (Waterford, Fianna Fail)
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The specific section. If a Deputy intends to table amendments to every section, he or she can indicate it on each section.

James Lawless (Kildare North, Fianna Fail)
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I intend to table an amendment to this section on Report Stage.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I may do so also.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I reserve the right to table an amendment to this section on Report Stage.

James Lawless (Kildare North, Fianna Fail)
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I intend to table an amendment to this section on Report Stage.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I also reserve the right to table amendments.

Mary Butler (Waterford, Fianna Fail)
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Amendments Nos. 1 to 3, inclusive, are related and will be discussed together.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I move amendment No. 1:

In page 14, between lines 23 and 24, to insert the following:"(3) The Minister may seek the introduction of appropriate categories or sectoral headings in respect of applications and request information from the Controller as to the proportion of applications under each heading.".

This and most of the amendments that follow flow from our general concern about the potential loss of revenue and the potential abuse of the legislation to avoid tax and the conferring of advantage on particular companies or industries which will benefit from significant reductions in tax. Notwithstanding our general opposition to the Bill, the amendments seek safeguards and to have the most extensive information available on who is benefiting from these certificates and the tax break that goes with them in order that we can assess as we go along potential abuses or particular companies or sectors which are gaining major advantages as against others. Even those who agree with the general thrust of the legislation might acknowledge the merit of having such information available to us on which sectors or regions are benefiting from it in order that we can assess the effectiveness of the legislation and assess abuses, revenue losses, etc.

Noel Rock (Dublin North West, Fine Gael)
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Amendments Nos. 1 and 2 are reasonable. Generally, the more data we have on changes, the better. Deputy Richard Boyd Barrett is correct; it is good to analyse and scrutinise provisions such as this. However, amendment No. 3 is vague and would be non-specific in its application as opposed to the first two amendments which have a constructive, data driven purpose. My only concern about the three amendments as a package is how onerous it might be on the Department to compile the data and how confidential data for companies might be exposed. I have no problem with the principle and thrust of the amendments.

John Halligan (Waterford, Independent)
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I thank the Deputies for the amendments, but I do not propose to accept them. Deputies Bríd Smith and Richard Boyd Barrett propose to specify in the Bill a number of additional reporting requirements. Section 18(2) provides that the annual report of the Comptroller and Auditor General on activities under the KDB certification scheme will include information on such matters as the Minister may direct. In addition, section 18(4)(h) provides for a wide-ranging and catch-all provision which permits the Minister to request the inclusion of such other statistical information as he or she prescribes. I am satisfied that the combination of these two catch-all provisions neatly provides a sound basis for the Minister to request the inclusion in the annual report of the Comptroller and Auditor General of statistical information in a format he or she may decide.

For example, this could include the type of information that the Deputies have an interest in such as statistics on the breakdown of the knowledge development box, KDB, applications on a geographical or sectoral basis. I refer here to any part of the State. It has the benefit of providing the Minister with the ability to seek statistical information on whatever basis he or she sees fit. I believe there is an inherent danger in being overly prescriptive in legislation. Good legislation would provide a sound basis for ensuring that the Minister gets the information he or she wants at a particular point in time and at any time, rather than adopting an overly prescriptive approach in the content of the actual KDB report. In my view it should be allowed to evolve in response to emerging developments and to be able to respond to new requirements. The Bill provides a sound basis for this. I assure Deputies that it has been the practice of the Comptroller and Auditor General, in this annual report on the activities of the Office of the Comptroller and Auditor General, to provide a very rich account of activities and to include statistics, county by county. This is in line with providing good customer service where flexibility is a key response to changing requirements. In other words, throughout all of this the Minister and his Department can intervene, can continuously get reports on how this scheme is operating and can make interventions based on the information he or she will require, for the benefit of the taxpayer and to ensure all the points made by Deputy Boyd-Barrett are adhered to and that there is no abuse of the scheme. It would be a folly on any Minister not to do that and have these measures in place. I know the Deputy opposes the Bill in its entirety but this was specifically put in to address the points raised by the Deputy. What would we do otherwise; do we set up a forum or a committee? We must have some faith in the Comptroller and Auditor General. All of this still comes back to the Minister's office which, at any stage, has the right to check and go through the process county by county if needed to see that legislation is being adhered to. If I was sitting in opposition I would look at this as being very reasonable.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I will not labour the point I have made. I thank Deputy Rock for endorsing the spirit of the amendments. While I have no doubt about how conscientious the Minister of State, Deputy Halligan might be in these matters, future Ministers may not be so conscientious. It is helpful for the Minister to have information that breaks down who it is that benefits from a particular measure or from the tax benefit for these companies. It would be helpful if Ministers, others who are not Ministers and for the public to have access to that information so they can assess whether they think this is a good measure and whether the tax benefits conferred are value for money for the public, as against the value of other measures.

The area of corporate tax is, to put it mildly, opaque. There are a lot of tax breaks out there. I know that pertains to Revenue but when one gets this certificate then one is going to get the tax break and the two things are connected. I do not have the figures to hand but it is worth saying, and I said it on Second Stage, gross pre-tax profits in Ireland for corporations are in the region of €95 billion. By the time we take out all the allowable allowances, deductions and tax breaks, the €95 billion goes down to around €65 billion in taxable income. That is in the region of €30 billion to €40 billion worth of loopholes, tax breaks, incentives, deductions, allowances or whatever one wants to call them. I believe the public and the public representatives need to have more information about these in order to understand them. They need to be transparent and readily available. I am a member of the Committee on Budgetary Oversight and in the run-up to Finance Bills and budgets, all members and parties must think about whether these are good measures to benefit the public interest. The more information we have the better.

John Halligan (Waterford, Independent)
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I will be very brief because I do not want to go over everything I have said. There is no legislation for the Comptroller and Auditor General to do what he does in this regard, and he does actually take it county by county. When it is being taken county by county and all the statistics are accumulated and collated, it is hard to hear that it is not a fair and equitable way to do it. It comes back into the Minister's Department, county by county, as to how the scheme operates in every aspect of its operation, financial and otherwise. I believe this to be very reasonable.

Mary Butler (Waterford, Fianna Fail)
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Before I put the amendment I advise the committee that we are discussing amendments Nos. 1 to 3, inclusive, together. There will be no other opportunity to discuss these amendments other than now. Are there any further comments on amendments Nos. 2 or 3? No, we are okay.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I should know this as I have been through it so many times. Can I put this amendment in again?

Mary Butler (Waterford, Fianna Fail)
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Yes, on Report Stage.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I move amendment No 2:

In page 15, between lines 2 and 3, to insert the following:“(h) figures in respect of the geographical or regional distribution of applications,”.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I move amendment No 3:

In page 15, between lines 2 and 3, to insert the following:“(h) such general information as to the operation of the scheme as may be appropriate or relevant,”.

Mary Butler (Waterford, Fianna Fail)
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Amendments Nos. 4 to 10, inclusive, are related and may be discussed together.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I move amendment No 4:

In page 15, between lines 3 and 4, to insert the following:“Review and scrutiny

19. (1) The Minister shall, as part of the annual Budget process, produce a report on the operation of the KDB including a consideration of the intersection of the KDB with other tax expenditure measures and its impact on the delivery of an effective tax rate for corporations.

(2) The Minister shall ensure appropriate annual information exchange between the Department of Jobs, Enterprise and Innovation and the Office of the Revenue Commissioners in order to facilitate the publication of information on the cost of this initiative, including the cost to date for the Exchequer in revenues forgone, as part of the annual budgetary process.”.

Members can see that the amendments in this group are all covering the same ground and it is an extension of the logic of the earlier group of amendments. These amendments are to ensure that at the intersection of this certificate with Revenue matters and with other State supports that may benefit the companies that are also benefitting from the knowledge development box tax break, there will be the maximum oversight at the level of the Dáil and the relevant Oireachtas committees. This is to have the maximum information, reports and scrutiny at Dáil and committee level on all of these things for the reasons I have already set out.

I refer here to the anxiety that these tax breaks are not actually, or may not be, beneficial, that they do not represent good value for money, or that they may be abused or exploited by or be beneficial to particular small groups of companies, rather than being of general benefit to most companies or the public at large. For all of those reasons, these are sensible proposals to ensure that, at the very least, we have the level of oversight, scrutiny and information necessary to make an ongoing assessment of the benefit and value of this measure.

John Halligan (Waterford, Independent)
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I listened to the rationale for the amendments proposed by Deputies Bríd Smith and Boyd Barrett. It might be useful to remind Deputies of the intention behind the Bill. It is the introduction of the KDB certification scheme for SMEs to be administered by the Patents Office. The process before the office involves the examination of the application to ensure that the invention the subject of the application meets the criteria of being novel, non-obvious and useful. If an application meets these criteria, the office will grant a certificate. If not, it will not issue one. The certificate provides the gateway for small to medium enterprises to apply for the 6.25% corporate tax rate on profits arising from the invention. The grant of the certificate does not, however, guarantee that an SME will qualify for the lower rate of corporation tax. I am saying all this because I did not get an opportunity to say it in the Dáil. Revenue will consider tax returns on the basis of the provisions applying to the KDB scheme, which was introduced by the Minister for Finance in the Finance Act 2015 and which came into effect in January 2016. Revenue will always have the ability to obtain necessary information on the KDB in order to provide reliable information in return to the Government, particularly the Department of Finance, on the use of the KDB, including information on revenue foregone by the Exchequer. That is very interesting.

I understand the Deputies' desire to ensure monitoring and evaluation of the existing schemes in the research, enterprise and taxation areas. It is, of course, necessary to protect taxpayers' money to ensure that the new schemes introduced provide the State with value for money, as they must. I assure the Deputies that the process of monitoring and evaluation of all research, enterprise and taxation is ongoing and regularly reviewed. In the case of the KDB scheme, I remind Deputies that the reports on tax expenditure published with the budget in 2015 provided an ex anteevaluation of the KDB. That evaluation outlined the basis for the best estimate of tax foregone of €50 million. This €50 million is in respect of all aspects of the KDB, not just certification.

To answer one of the questions on monitoring and evaluating and the opportunity for Deputies such as those opposite to carry out an analysis of the scheme, the annual Estimates allow that. That, as far as I know, is correct, is it not? Any Deputy in the House may, during the Estimates process, bring an evaluation or assessment of the scheme before the Dáil based on the information that has been given. The information comes from the Comptroller and Auditor General to the Minister, who is obliged to provide it. It would be folly for any Minister to provide wrong information because he would be failing to provide the proper information accredited by the Comptroller and Auditor General. As such, there is an opportunity in the Dáil to, as each Deputy sees fit, evaluate how the scheme has worked in all its aspects including tax credits, small to medium businesses and large business. It is open for any Deputy to do that in the Dáil, particularly in the context of matters relating to the portfolio of the Minister for Finance.

Noel Rock (Dublin North West, Fine Gael)
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A great deal of this is onerous and would be difficult to establish effectively. Much of what is being asked for is already done by the Department of Finance in the form of budgets and technical papers. I am of the view that a lot of it is covered and we must be careful not to create unnecessary red tape. When one looks at amendment No. 8 and the obligation it would impose on companies to list any past or previous grants, subsidies, tax incentives or research supports, one sees how that would become tremendously onerous. It is not entirely clear if it would be a positive that a company succeeded in obtaining these things in the past or whether it would be a negative in the context of its application. If we put it all in the full context of where the economy stands, companies with research and development departments increased employment between 2000 and 2014 by 101% in the service sector. In effect, they doubled the level of employment whereas the employment rate among manufacturing firms that were not actively engaged in research and development was down by 72%. There is a clear divergence which is the full context for the Bill and the thrust of its provisions. While I appreciate the points being put forward, an onerous burden and a great deal of red tape are being proposed. I understand where Deputies Boyd Barrett and Bríd Smith are coming from, but I am not inclined to support these amendments having given them due thought.

John Halligan (Waterford, Independent)
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To assist Deputy Boyd Barrett, I remind the committee that the Comptroller and Auditor General will publish on an annual basis the information about the KDB certification scheme and that will be laid before the Houses of the Oireachtas. It then goes into the public domain. Everything is done. The Revenue Commissioners will have access to the report of the Comptroller and Auditor General as will the general public and every Deputy in the Dáil. It is open and transparent in that sense. Once that comes before the Dáil, it gives Deputy Boyd Barrett or any other Member an opportunity to carry out his or her own evaluation or analysis of whether the scheme has been successful or abused.

Tom Neville (Limerick County, Fine Gael)
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We are talking about section 19. Is that all the amendments?

Mary Butler (Waterford, Fianna Fail)
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We are taking amendments Nos. 4 to 10, inclusive. Anything relating to those will be discussed at this stage.

Tom Neville (Limerick County, Fine Gael)
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To follow on from what Deputy Rock said, the increase in new products will hopefully have a spin-off effect in terms of an increase in manufacturing. If a new product works well and one has done one's due diligence, one starts manufacturing it and one goes from there. I agree with the Minister of State on this. Much of the language used in the amendments is vague. There is a proposal to include the cost to date to the Exchequer of revenues foregone. The opposite side of the argument is that many of these companies might not have invested if they had not received a tax break to mitigate the risk of investing to get these off the ground. That language is vague and there is an argument that they might not have come in had they not had the tax break. I understand Deputy Boyd Barrett is asking how much money is foregone if they are not charged 12.5%, but they might not come in at all if they do not have the KDB break. That is the issue with that. Another issue is the language on an impact on the delivery of an effective tax rate. Is that Deputy Boyd Barrett's interpretation of an effective tax rate? There is also an issue with the language relating to appropriate annual information. What constitutes such information? That has not been defined. The Minister of State has explained that the Comptroller and Auditor General can provide the information we have anyway, but the language around a great deal of this is vague.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Obviously, we disagree on these things. I will not labour the point, but will make my final intervention on the group of amendments. In direct response to the last point, I note that the Bill is supposed to deal specifically with small and medium enterprises. It is not supposed to give rise to a debate about foreign direct investment. As such, that particular argument does not hold.

Ironically, it might be relevant if some of my other questions are not addressed adequately. Could this measure be abused by companies that are not supposed to benefit? Under its own terms, the Bill is not supposed to be about foreign direct investment but about extending tax breaks to encourage domestic SMEs.

On the issue of information already available from the Comptroller and Auditor General, the amendments are trying to achieve an intersection of various Departments or State aids for companies that link together. The Bill is from the Minister of State's Department, but its subject matter also involves Revenue and possibly other Departments that are supporting companies. We will not fully understand how much of a benefit may be conferred on particular companies, how much public money will be expended and whether we will receive any benefit in return unless we have the whole rather than a fragmented picture. The amendments in this series try to ensure we would have the full picture.

In terms of revenue forgone, come on. Surely I only have to say the words "Apple" and "section 110". Regardless of what the Minister of State thinks about this or which side he takes - we take different sides on these matters - all sides agree that section 110 was abused. The information was not available or scrutinised. It was not transparent enough to allow people to know that the vulture funds which had many property assets were paying no tax at all. We only found out after the fact. We still do not know how much tax was forgone because of section 110, but the estimates run into billions of euro. This is serious stuff. To my mind, it is a minimum requirement that we know how much tax will be forgone under a measure such as this in order that we can monitor the position. I am unsure as to whether the Minister cited an estimate on Second Stage. Does the Minster of State have a projected estimate of how much tax will be forgone in the first year or over time? If he does, we will need to test it against the actuality as time passes. If we find that the figure balloons beyond the estimated amount, it might be evidence of major abuse. It is critical that we have this level of oversight, reporting and monitoring of such tax breaks. I have argued strongly that the Committee on Budget Scrutiny should examine every subhead under the corporate tax heading through which tax liability is reduced.

John Halligan (Waterford, Independent)
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According to the Department of Finance, the overall amount for the scheme is €50 million.

I will address a number of small points. As part of the medium-term economic strategy in 2013, the Government carried out regular evaluations of tax expenditure. It is not the responsibility of my Department but that of the Department of Finance to evaluate reliefs on a regular basis. This is to ensure they meet the policy objectives and support job creation and innovation. The knowledge development box, KDB, legislation provided for in the Finance Act 2015 included a review clause in order that an evaluation would be conducted. The Comptroller and Auditor General will undertake a county by county assessment which will be given to the Minister's office. The Minister will assess the scheme. It will then be placed before the Dáil, through which forum it will be open to the public and every Deputy to assess and debate how the scheme has operated financially and otherwise county by county. That is as open as one can get. The Comptroller and Auditor General does not have to do this, but he will do so to ensure transparency.

Mary Butler (Waterford, Fianna Fail)
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Are there further comments before I put the question?

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I have a brief point to make. I will not elaborate on my argument, but I want to flag it in case I have to raise it on Report Stage because it is worth making. The issue of intellectual property is new territory to some extent. It has been at the centre of widespread and aggressive tax avoidance, not just in this country but internationally. This certificate relates specifically to intellectual property. At this point, no one can say how we can measure its value or legislate for it. That is another reason we need to have a tight oversight regime. I will revert to this matter on Report Stage.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I move amendment No. 5:

In page 15, between lines 3 and 4, to insert the following:“Review and scrutiny

19. The Minister shall, as part of the annual Budget process, produce a report on the operation of the KDB including a consideration of the intersection of the KDB with other tax expenditure measures and its impact on the delivery of an effective tax rate for corporations.”.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I move amendment No. 6:

In page 15, between lines 3 and 4, to insert the following:“Review and scrutiny

19. The Minister shall ensure appropriate annual information exchange between the Department of Jobs, Enterprise and Innovation and the Office of the Revenue Commissioners in order to facilitate the publication of information on the cost of this initiative, including the cost to date for the Exchequer in revenues forgone, as part of the annual budgetary process.”.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I move amendment No. 7:

In page 15, between lines 3 and 4, to insert the following:“Committee scrutiny

19. An annual report on the operation of the KDB including a consideration of the intersection of the KDB with other tax expenditure measures and its impact on the delivery of an effective tax rate for corporations should be presented and discussed by the Joint Oireachtas Committee on Jobs, Enterprise and Innovation.”.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I reserve the right to table an amendment to this section on Report Stage, specifically regarding the adequacy of a maximum fine of €50,000 or prison sentences of no more than six months or not exceeding three years. At the very least, whether they are adequate is debatable. Sometimes white collar crime is not treated with the seriousness it should be. It is arguable whether the penalties are sufficiently severe to act as a disincentive to such crime.

Mary Butler (Waterford, Fianna Fail)
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That is noted.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I move amendment No. 8:

In page 16, after line 36, to insert the following:

"Intersection with wider enterprise and innovation strategy 25. (1) Companies applying for the KDB certificate should be asked to indicate at the time of application whether they are presently or have been previously in receipt of grants, subsidies, tax incentives or other enterprise or research and development supports from a public or semi-state body.

(2) Companies applying for grants, subsidies, tax incentives or other enterprise or research and development supports from a public or semi-state body should be asked to indicate whether they are presently or have been previously granted a KDB certificate.

(3) Information on the level or frequency of intersection between the KDB and other enterprise or research and development initiatives is to be made available to the Minister for Jobs, Enterprise and Innovation in order to inform overall jobs, enterprise and innovation strategies.".

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I move amendment No. 9:

In page 16, after line 36, to insert the following:

"Intersection with wider enterprise and innovation strategy 25.(1) Companies applying for the KDB certificate should be asked to indicate at the time of application whether they are presently or have been previously in receipt of grants, subsidies, tax incentives or other enterprise or research and development supports from a public or semi-state body.

(2) Companies applying for grants, subsidies, tax incentives or other enterprise or research and development supports from a public or semi-state body should be asked to indicate whether they are presently or have been previously granted a KDB certificate.".

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I move amendment No. 10:

In page 16, after line 36, to insert the following:

"Intersection with wider enterprise and innovation strategy25.Information on the level or frequency of intersection between the KDB and other enterprise or research and development initiatives is to be made available to the Minister for Jobs, Enterprise and Innovation in order to inform overall jobs, enterprise and innovation strategies.".

Mary Butler (Waterford, Fianna Fail)
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I thank the Minister of State and his officials for attending. The select committee will meet again at 4 p.m. on Tuesday, 28 March, when we will consider the Revised Estimates for the Department of Jobs, Enterprise and Innovation. I wish everybody an enjoyable St. Patrick's Day.