Written answers

Tuesday, 4 December 2007

9:00 pm

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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Question 205: To ask the Tánaiste and Minister for Finance if his attention has been drawn to the fact that the anti avoidance rules of Section 499(2) has the effect of extending to seven years the redemption date under BES if the investor makes an investment in two consecutive years; and his views on whether this represents an undesirable restriction on the use of BES. [32577/07]

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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The position is that, in general, an investor may dispose of BES shares after the specified five-year holding period without impacting on the relief previously granted in respect of those shares. Where shares are disposed of before that time, relief may be reduced or withdrawn.

Where, however, as mentioned in the Deputy's question, an investor has invested for two consecutive years in the same BES company, redemption by the company of the first holding of BES shares would have consequences for the relief available on the second holding. Where the consecutive investments are not in the same company or a connected company, there are no such consequences.

Section 499 of the Taxes Consolidation Act 1997 operates to discourage an individual from withdrawing capital in any form (including a redemption of shares) from the company in the period beginning two years before and ending five years after the making of the investment. Consequently, where a company redeems an individual's BES share capital and that individual makes a second investment in the same company within two years, the BES relief on that second investment will be reduced by the amount of the capital withdrawn. This is to prevent an individual from withdrawing his/her capital after five years and immediately reinvesting the same amount, thereby availing of a second tranche of relief without any consequent increase in the company's capital.

If the company does not redeem the individual's shares but instead he/she disposes of the shares to an unconnected third party and the share capital of the said BES company is not, as a consequence, reduced, the provisions of section 499 would not apply. A second immediate investment by the same individual would thus qualify for relief.

I believe that Section 499 is generally working as intended. The BES rules seek to strike a balance between the needs of business and the targeting of relief where it is most needed. The purpose of the BES is to attract long-term risk capital into certain small to medium-sized enterprises that would otherwise find it difficult to attract investments. Additionally, the scheme is designed to provide that relief is given only in respect of additional money coming into the company.

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