Brian Stanley (Laois-Offaly, Sinn Fein)
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Question 17: To ask the Minister for Enterprise, Trade and Innovation if he will examine, with the Department of Finance, an extension of the corporation tax break for start-up companies introduced in budget 2009 to other small firms to allow them to use their own cash to reinvest in the business; and if he will make a statement on the matter. [10005/11]

Richard Bruton (Dublin North Central, Fine Gael)
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The Finance (No 2) Act 2008 introduced a scheme of relief from corporation tax for the first 3 years of operation for companies incorporated on and from 14 October 2008 that commence to carry on a new trade in 2009. The relief is granted by reducing the corporation tax on the profits of the new trade and on the gains from disposal of assets used for the purpose of the new trade to nil. Full relief is available where the corporation tax otherwise payable by the company in respect of any of its first 3 years is €40,000 or less. There is marginal relief where the corporation tax liability is between €40,000 and €60,000.

The scheme has since been extended in Finance Acts 2010 and 2011 to new companies commencing a new trade in 2010 and 2011.

The Finance Act 2011 also modified the existing relief so that the value of the relief will be linked to the amount of employers' PRSI paid by a company in an accounting period, subject to a maximum of €5,000 per employee and an overall limit of €40,000. Credit is also given for any employers' PRSI exempted under the Employer Job (PRSI) Incentive Scheme in respect of a company's employees in determining the amount of corporation tax relief available to the company. If the amount of qualifying employers' PRSI paid by a company in an accounting period is lower than the corporation tax payable in respect of the trade, relief will be based on this lower amount.

This Finance Act 2011 change targets the relief at companies generating employment and applies in respect of accounting periods commencing on or after 1 January 2011. A company does not have to employ a specified number of people to get corporation tax relief under the scheme. The corporation tax relief is limited to the employer PRSI paid by the company subject to an overall maximum of €5,000 per employee and total corporation tax relief in any one year of €40,000 (the overall limit which applied under the scheme as introduced).

An extension of the start-up relief to non-corporate trading entities is one of a range of tax issues worthy for consideration. The factors of relevance to the specific issue of extending the start-up exemption to non-corporate trading entities include the following:

· Lower costs and administrative burdens are generally associated with setting-up and trading via a non-incorporated structure.

· The legal requirements associated with companies and directorships may be relatively onerous for the owners of many micro-businesses.

· Many professional advisors are inclined to advise small/micro business clients, for whom limited liability is not a priority, to initially set-up as a sole-trader or partnership and retain the option to later transfer the business to a company structure. The tax reasons underlying this professional advice include, inter alia, that the tax advantages of trading profits being taxed at 12.5% only apply to profits retained within the business. This approach also minimises the costs of setting up such businesses and reduces the costs and administrative burdens associated with closing down unsuccessful businesses.

· Any extension of the scope of the scheme to non-corporate entities would result in an increase in the overall cost of the scheme. Specifically, if the scheme was extended in the form of a full exemption from income tax and other taxes on income, the cost of the scheme would include tax relief on trading profits otherwise taxable at marginal personal tax rates.

· The availability of the scheme to corporate entities, in effect targets the relief towards profits earned by the business. Funds withdrawn from companies by owner-directors as salary payments fall outside the scope of the scheme and are in fact subject to income tax in full. The extension of the scheme to non-corporate entities would not automatically impose any requirement on non-corporate entities to reinvest profits within the business, thereby increasing the cost of the scheme and extending the scope of the scheme to include profits not reinvested.

· The availability of the scheme to companies focuses the benefit of the relief more towards the productive sectors of the economy.

· The current restriction of the scheme to new companies facilitates monitoring and controlling compliance with the requirement that only genuine new businesses avail of the scheme.

· The option exists for all new businesses to be conducted from within a new company and thereby potentially qualify for the start-up company relief.

· The existence of the start-up company exemption may result in a behavioural change as certain businesses are incorporated that would otherwise have not been incorporated.

· There are other non-tax policy options, such as various grant-aid and other supports available to persons setting up a new business from Enterprise Ireland and the County Enterprise Boards. The role of the CEBs is specifically to provide support for the micro-enterprise sector in the start-up and expansion phases and to stimulate economic activity and entrepreneurship at local level.