Enda Kenny (Mayo, Fine Gael)
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Question 22: To ask the Minister for Finance the total number of vessels qualifying for the tonnage tax concessions; and if he will make a statement on the matter. [18394/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I have been informed by the Revenue Commissioners that no more than four companies have opted to participate in the tonnage tax scheme and, accordingly, paid tax in that manner. The total tax paid under the scheme in 2003 was €100,000. There does not appear to be cause for concern about the appropriateness of tonnage tax to the circumstances of any of the companies in question. The tonnage tax system was introduced in the Finance Act 2002 to help the Irish shipping sector when, like its counterparts in other EU member states, the sector faced the possibility of shipping companies relocating their economic activities to other countries, including countries with a tonnage tax regime.

Several member states have introduced a special low tax regime, known as tonnage tax, under which tax is paid by reference to the tonnage of ships. The system applies in 12 EU member states, including Ireland. The member states' tonnage tax regimes had to be cleared with the European Commission for state aid purposes. The Commission is conscious of the need to protect the EU shipping sector. It took that key objective into account when it approved the various tonnage tax regimes, including that of Ireland.

Richard Bruton (Dublin North Central, Fine Gael)
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Will the Minister indicate the shipping sectors in which the four vessels in question operate? Do they operate in the freight sector, for example, or the private passenger sector? Can the Minister estimate the total amount of taxation that has been foregone? He mentioned that €100,000 was paid under the scheme in 2003, but how much tax has been foregone? Will the tonnage tax regime, which has been in operation for three years, be considered as part of the review of tax relief schemes that is taking place? The Minister hopes to outline the benefits and costs of the various tax reliefs to the Dáil when the review has been completed. Will the tonnage tax relief scheme be included in the review so that the Oireachtas can be informed on an ongoing basis of the benefits and costs of this system, which has been approved for state aid purposes by the EU?

Brian Cowen (Laois-Offaly, Fianna Fail)
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I do not think it has been envisaged that the tonnage tax system will be included in the review. I have no problem with ensuring that the system is examined in the context of the preparations for the 2006 budget, given the recent interest that people have shown in it. I do not think it was originally included in the review, but I can arrange for someone to examine it as part of the review.

The type of vessels that qualify for this type of tax are sea-going vessels of a sufficient size to engage in reasonable commercial operations and which comply with the requirements for navigation at sea imposed by the competent authorities of any country. Also included in the definition are vessels which are to be excluded from being a qualifying ship such as recreational vessels, including pleasure craft or dredgers.

I do not have information on tax foregone. Tonnage tax operates on the following basis. A company may elect into the tonnage regime. Where it does so, it must remain within the regime for ten years for all of its qualifying ships. The notional tonnage profit per day would be €1 per 100 tonnes, up to 1,000 net tonnes, which decreases to 25 cent for each 100 tonnes above 25,000 net tonnes. The 12.5% corporation tax rate is then applied to the total tonnage profit figure to arrive at the tax yield. However, a company cannot sustain the normal corporation tax regime based on normal taxation rules. It is a tax based on a notional profit for a qualifying ship dependent on the net tonnage of the ship or ships. The total notional profit for all the qualifying ships is aggregated and the 12.5% corporation tax rate is then applied to this total to determine the tax change.

Joan Burton (Dublin West, Labour)
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Given that it has undergone renovation to enlarge its capacity as a passenger ship, does the Christina O yacht qualify for tonnage tax? Will the Minister confirm that this has already cost Irish taxpayers €40 million in tax breaks to a consortium of Irish investors, even though it cruises exclusively in the Mediterranean and the Bahamas? The yacht will probably never see Irish waters or an Irish port. Is it one of the four ships to which the Minister referred or has it just happened in recent times?

When introducing this tax break, the former Minister, Mr. McCreevy, tabled an amendment which made it clear that providing ship management services would qualify for tonnage tax. Will the Minister confirm if the yacht Christina O, which has been involved in such an attractive tax avoidance scheme for Irish high-rollers, is included in the four ships to which the Minister referred? I understand the profits calculated for tonnage tax purposes are approximately €50,000 and the total tax paid over a number of years amounted to just €100,000. One Irish shipping company, which I assume qualifies for tonnage tax, reported profits of approximately €25 million. Therefore, if one company has profits of approximately €25 million, the tonnage tax would appear to be a very significant deal for companies in terms of tax foregone. Has the Minister a view on such companies employing crews at wage levels negotiated according to trade union rates and normal pay and working conditions here?

Dan Boyle (Cork South Central, Green Party)
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I understand from the Minister's answer that it is not four ships that are covered by this but the ships of four companies. Will he clarify how many ships are covered by this tonnage tax exemption?

Brian Cowen (Laois-Offaly, Fianna Fail)
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I do not have that information. I will try to provide it for the Deputy, but it is not included in the supplementary reply.

A company is not entitled to capital allowances in respect of ships that qualify for tonnage tax. The effect of this is that a company is not entitled to capital allowances in respect of capital expenditure on assets such as ships and other plant and machinery which are used in the company's tonnage tax trade for the duration of their use in the trade. Individual lessors are prohibited from obtaining the capital allowances which would otherwise be available in respect of capital expenditure on plant and machinery used in the company's tonnage tax trade.

Joan Burton (Dublin West, Labour)
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If the yacht is converted as in the case of the yacht Christina O, I understand one can get the accelerated shipping allowances and later convert to tonnage tax.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I do not have information on specific tax issues. However, where capital allowances are sought for purposes which were not contemplated in the provisions of the tax Acts, Revenue challenges them.

Joan Burton (Dublin West, Labour)
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Will Revenue take a case against the consortium who own the Christina O yacht?