David Norris (Independent) | Oireachtas source

I welcome many of the provisions of the Bill but I have some concerns. The Bill is intended to remove a lot of red tape and, in particular, to favour small and micro companies. Article 43 of the directive permits exemption from full statutory audit for small and micro entities. A small company is set out in the directive as having a turnover of €12 million or less and a micro company as having a turnover of €800,000 or less and about ten employees. To avail of the exemption, the only condition laid down in the directive is that the company meets the size criteria as a small or micro entity, and no other conditions are laid down. All of the other EU member states have enacted the directive in full and there are no other conditions laid down, aside from the size criteria that takes away a company’s entitlement to the exemption. However, the main Bill of 2014, at section 363, states that if a company is late filing its annual return with the Companies Registration Office, CRO, it must pay significant late filing penalties and lose its entitlement to the exemption from full statutory audit for two years. This does not happen in any other European country. Let us consider the number of people who are contracted by multinational companies and told to form companies through which they have to bill for their services. If they overlook the filing of an annual return, they are in serious trouble.

Article 43 of the directive states: “The annual financial statements of small undertakings should not be covered by this audit obligation, as audit can be a significant administrative burden for that category of undertaking, while for many small undertakings the same persons are both shareholders and managers and, therefore, have limited need for third-party assurance on financial statements." That is the EU directive, clear and simple. It is supposed to exempt small and micro companies but the 2014 Act, at section 363, states:

Notwithstanding that section 358 is complied with, a company is not entitled to the audit exemption referred to in that section in a financial year unless-(a) there is delivered to the Registrar, in compliance with section 343, the company’s annual return to which the statutory financial statements or (as appropriate) abridged financial statements for that financial year are annexed.

There is a clear conflict here between the EU directive and the main legislation of 2014. There have been European court rulings on this subject and I draw the Minister's attention to these. For example, one statement from the European Court of Justice states that although the member state and the national court may impose penalties on an individual or company which has not complied with the provision of EC law, this is subject to the condition that the penalties must not be disproportionate and must not undermine a basic Community right. It is a question of not having complied with EC law, not Irish law, yet we are saying a contravention of section 363 of the main 2014 Act imposes these penalties on small companies. That seems to me to be going very much against the spirit of the Bill which is specifically focused on small business and small business accounts. Therefore, it is the right time to remove this section and I have tabled an amendment to do so.

Under the EU directive, a company is entitled to the exemption on account of size and no other conditions are laid down that can take away entitlement to the exemption. The cost and administrative burden of a full statutory audit is referred to in section 43 and I have already put that on the record of the House. I would also like to record the view of Companies Registration Office which contradicts this. It states that, as a matter of law, if a company's annual return is filed late, audited accounts must be filed in the current year and in the following year, so the loss of audit exemption could entail considerable expense for the company over a two-year period. This is what the CRO itself states, namely, this is going to really harm the financial interests of a company. It goes against the spirit and the letter of the EU directive. It is generally established that enactment by a member state of an EU directive should be full and proper. It is not permitted that enactment can, on the one hand, bestow a right or entitlement laid down by an EU directive and then, on the other, remove that entitlement as a penalty.This is a penalty not applied in other EU states. The Minister stated that a company can apply to the District Court for an extension to the annual return date but that is routinely opposed by the Companies Registration Office. That is another tangle and it will cost micro companies a great deal of money. The fact of the matter is that, as it stands, advisers now propose to entrepreneurs to incorporate their new businesses in other EU states where this penalty does not arise and the companies can then trade in Ireland having duly registered for taxation here.

I have an example of a case from somebody who briefed me on the issue and I would like to put it on the record. I was contacted by an accountant who prepared accounts for a small wine shop for filing with the Companies Registration Office last year. The company is small and entitled to exemption from audit. The accountant sent the accounts to the two directors, who are a married couple, for signing but they were on holidays. They had not told the accountant they were going away so he had no knowledge of that. The company lost the audit exemption as a consequence of late filing and the accountant in question had to walk away from it. The situation had become so complex that he was advised by his professional association to walk away. The only remedy was to approach a firm of solicitors to represent the company in petitioning the District Court for an extension to the return filing date. However, as I said, the Companies Registration Office is now opposing such applications. I wish to inform the Minister that I will table an amendment to delete section 363 in order to bring us into line with other European countries.

There is one other issue of which I have been advised, namely, the requirement to change the name of a company if it is unlimited to include the word "unlimited" in the name. I have been briefed by Pfizer on this issue. I have no connection with Pfizer, no interest or no axe to grind at all but I have been informed that it deals with a large number of companies, approximately 130, in 36 languages and it is extremely arduous, time-consuming and expensive to make the changes. The Minister has given Pfizer a six-year exemption, which started from last year so there are about five years of it left. I am interested to hear the Minister's response. What Pfizer is seeking is a further exemption from the measure or some tinkering with the legislation. The company has not provided me with a brief but it has suggested that the situation should be examined.

There is a further complication in terms of red tape. There is increased red tape due to the Companies Registration Office not accepting paper filings. Accounts must be filed online. Frankly, as a Luddite, I resent that very much, or I would if I was an accountant. I do not see why that should happen. My main point is that I will oppose section 363. I will study the Minister's reply when she makes it.