Arthur Morgan (Louth, Sinn Fein)
Link to this: Individually | In context

Question 468: To ask the Minister for Finance the way the current tax reliefs for mining and petrol exploration are applied and the cost to the State in a full year. [33069/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

The tax code provides various allowances for investment in mining and petroleum exploration in recognition of the particular requirements and capital-intensive nature of these sectors of economic activity.

In relation to mining, allowances are available for capital expenditure incurred in

exploring for mineral deposits,

acquiring mineral deposits,

developing, constructing and operating a qualifying mine, and

rehabilitating a mine site following closure of a mine.

The allowances apply in respect of scheduled minerals as listed in section 672 of the Taxes Consolidation Act (TCA), 1997 and are available to persons (usually companies) carrying on a trade of working a qualifying mine (i.e. a mine containing deposits of scheduled minerals). They are detailed in the following appendix.

In relation to petroleum, there are allowances available for capital expenditure in respect of exploration activities, abandonment and decommissioning of petroleum fields, and production and development of petroleum extraction facilities for the purposes of a petroleum trade.

Details of the various allowances available are outlined in the Appendix.

I am informed by the Revenue Commissioners that the information from Corporation Tax returns is not recorded in such a way as to enable an estimate of the cost of the specific tax reliefs for mining and petroleum exploration companies to be compiled. In any event, it should be borne in mind that any potential cost should be viewed in the context of the overall purpose of these allowances, which taken together are aimed at encouraging economic activity in the mining and petroleum sectors.

I should add that profits from a trade of working minerals and profits from a trade in petroleum activities are each subject to Corporation Tax at the higher rate of 25% under section 21A TCA 1997. Provision is also made under section 683 TCA 1997 for a 25% tax charge under Case IV of Schedule D on the net proceeds of the sale of any deposit of scheduled minerals, including land comprising such a deposit.

Furthermore, the Finance Act 2008 introduced an additional Profit Resource Rent Tax in respect of any petroleum lease entered into by a petroleum company following on from an exploration licence awarded by the Minister for Communications, Energy and Natural Resources. The new tax, which is applicable to petroleum profits which exceed certain defined levels and ranges from 5% to 15%, is in addition to the Corporation Tax rate of 25%.

APPENDIX

Capital Allowances for Mining and Petroleum Exploration

Allowances for mineral exploration expenditure

Under section 673 of the Taxes Consolidation Act (TCA) 1997, a company may claim an allowance for the amount of exploration expenditure incurred in an accounting period and the allowance may be claimed whether or not a deposit of scheduled minerals is found as a result of the exploration expenditure. The allowance may be offset in full against profits of a mining trade in the accounting period in which the expenditure is incurred and any unused allowance may be carried forward for offset against future profits of the trade. An exploration company which is not carrying on a trade of working a qualifying mine may, by virtue of section 679, offset exploration expenditure against other profits of the company. A company incurring exploration expenditure may, under section 675, surrender any unused exploration allowances to an associate company within a group thereby enabling the associate company to claim the allowances against its profits from mining activities. Also, section 676 provides that where a company incurs exploration expenditure resulting in a finding of a scheduled mineral deposit and, without having worked the deposit and claimed any exploration allowance, sells the assets to another company, that other company may claim the allowance instead when it commences to work the mineral deposit.

Section 677 TCA 1997 provides that a company engaged in petroleum exploration activities may claim an additional investment allowance of 20% of exploration expenditure incurred by it in an accounting period. This means, in effect, that a company can obtain total allowances of 120% of the amount of exploration expenditure incurred. Unlike the allowance for exploration expenditure under section 673, the 20% investment allowance may not be surrendered to another group company.

Allowance for acquired scheduled mineral deposits

Section 680 TCA 1997 enables a company carrying on a mining trade to obtain a mineral depletion allowance in respect of capital expenditure incurred in acquiring deposits of scheduled minerals or land containing such deposits for the purposes of engaging in a mining trade. The allowance is spread, on a straight-line basis, over the estimated life of the mine subject to a maximum of 20 years. The amount of the allowance is equal to the total capital expenditure incurred in acquiring the deposits less the estimated residual value of the assets at the end of the useful life of the mine.

Allowance for mine development expenditure

Under section 673 TCA 1997, a company carrying on a mining trade can claim an allowance for capital expenditure on the development and construction of a qualifying mine. The allowance may be offset in full against profits of a mining trade in the accounting period in which the expenditure is incurred and any unused allowance may be carried forward for offset against future profits of the trade. The amount of the allowance is equal to the total capital expenditure incurred less the estimated residual value of the assets representing that expenditure when the mineral deposits are exhausted.

Allowances for Plant and Machinery

Companies carrying on a mining trade are entitled to the normal wear and tear allowances for plant and machinery under which expenditure is written off on a straight-line basis over 8 years. Also, under section 678 TCA 1997, there is an additional investment allowance available of 20% of expenditure on new plant and machinery (other than certain motor vehicles) acquired for the purposes of a mining trade. The allowance is made for the accounting period in which the expenditure is incurred and means, in effect, that a mining company can obtain total allowances of 120% of expenditure on such new plant and machinery.

Allowance for mine rehabilitation

Section 681 TCA 1997 provides relief for expenditure incurred in connection with the closure of a mine and the rehabilitation of the mine site in accordance with environmental planning requirements. Where such expenditure is incurred after the mine has closed it is treated as incurred on the date of closure so that it is allowable in the final accounting period of trading and, where the allowance generates a terminal loss, the excess allowance may be carried back and offset against trading profits of the previous three years. Alternatively, to facilitate a mining company making advance provision for mine closure costs while working a qualifying mine, an allowance is available for payments made by the company to a mine rehabilitation fund approved by the Minister for Communications, Energy and Natural Resources. Subject to certain conditions, the allowance is computed on the basis of the total amount of scheduled payments spread over the estimated life of the mine.

Where any of the allowances referred to above are not used or fully used by a mining company in an accounting period, the unused amount may be carried forward and offset against profits of the company's mining trade in subsequent accounting periods.

Petroleum exploration allowances

Section 693 TCA 1997 provides for a 100% allowance for petroleum exploration expenditure against the profits of a petroleum trade and for recovery of such an allowance by way of a balancing charge where an asset representing such expenditure is realised. Section 694 allows a petroleum exploration company to surrender any unused exploration allowances to an associated company within a group thereby enabling the associate company to claim the allowances instead. This facility is similar to that available for the mining industry.

Section 695 provides for a 100% deduction for tax purposes in respect of expenditure in connection with the abandonment and decommissioning of a petroleum field in respect of which a licence has been granted by the Minister for Communications, Energy and Natural Resources. The allowance is made for the accounting period in which the company incurred the expenditure. Provision is also made for a 3 year carry back of losses for tax purposes attributable to abandonment expenditure and for the carry forward to a new petroleum trade of any unused allowances for abandonment expenditure incurred in connection with a permanently discontinued trade.

There is also provision for an allowance of 100% of capital expenditure on production and development work in connection with a trade of working a relevant petroleum field under a lease granted by the Minister for Communications, Energy and Natural Resources following on from an exploration licence.

Where any of the petroleum allowances referred to above are not used or fully used by a petroleum company in an accounting period, the unused amount may be carried forward and offset against profits of the company's petroleum trade in subsequent accounting periods.

Arthur Morgan (Louth, Sinn Fein)
Link to this: Individually | In context

Question 469: To ask the Minister for Finance the cost outstanding of discontinued tax reliefs and the amount of these tax reliefs that are related to property. [33070/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

I am informed by the Revenue Commissioners that the information provided in tax returns on the annual amounts of claims for property based and other tax reliefs is not sufficiently detailed to provide a basis for deriving an estimate of the remaining legacy cost to the Exchequer. I am not therefore in a position to provide the information requested by the Deputy.