Written answers

Tuesday, 8 July 2014

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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210. To ask the Minister for Finance the amount raised by the close company surcharge, and the professional close company surcharge for the years 2007 to 2013 and the estimate for 2014; and if he will make a statement on the matter. [29786/14]

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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211. To ask the Minister for Finance if he will estimate the cost to the Exchequer of raising the de minimis level of the close company surcharge from €2000 to €5,000; and if he will make a statement on the matter. [29787/14]

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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212. To ask the Minister for Finance if he will estimate the cost to the Exchequer of raising the de minimis level of the close company surcharge from €2000 to €5,000; and if he will make a statement on the matter. [29788/14]

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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213. To ask the Minister for Finance if he will estimate the cost to the Exchequer of abolishing the professional close company surcharge; and if he will make a statement on the matter. [29789/14]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 210 to 213, inclusive, together.

By way of background, the tax code in Ireland has a number of long-standing general anti-avoidance rules relating to what are called 'close companies'.  A close company is, broadly speaking, a company under the control of 5 or fewer people.

Two of these rules impose an additional tax charge (or surcharge) on certain close companies: 

Firstly, a surcharge of 20% applies to any investment and rental income that is not distributed within 18 months of the accounting period in which that income was earned.

Secondly, a surcharge of 15% on 50% of any business income of a professional service close company that is not distributed within 18 months of the relevant accounting period.

The purpose of these surcharges is to prevent the avoidance of personal income taxation through the accumulation within a company of income that would otherwise be subject to income tax at a person's marginal tax rate. 

In relation to the Deputy's specific questions about the cost of amending these surcharges, I am informed by the Revenue Commissioners that based on information included on a self-assessed basis on the corporation tax returns filed for the tax years 2007 to 2012, the estimated amounts raised by the surcharges referred to in the questions are as shown in the following table. The amounts shown in the table may not include additional yield of approximately €2.5m tax that was secured following a specific programme of checks carried out nationally on close company surcharge compliance since the returns were filed.

YearClose Company Surcharge (€m)Professional Income Of Service  Companies Surcharge (€m)
200719.26.3
200823.75.7
200920.74.7
201019.03.8
201118.43.6
201217.95.5

Data for the tax year 2013 is not yet available as the bulk of tax returns for 2013 are not due until later this year.

It is tentatively estimated on the basis of tax returns for the year 2012 that the corporation tax loss associated with increasing the de minimisamount associated with the close company surcharge to €5,000 and €10,000 could be of the order of €2.4 million and €5 million respectively. This cost does not include any cost associated with increasing the de minimus amount for the surcharge associated with professional income of service companies nor does it include any potential income tax loss associated with lower distributions as a result of the proposal.

Regarding Question No. 29789, it is tentatively estimated on the basis of tax returns for the year 2012 that the corporation tax loss associated with abolishing the surcharge associated with professional income of service companies could be of the order of €5.5 million in a year. This cost does not include any potential income tax cost associated with the diversion of income into close companies that could arise as a result of the proposed abolition of the surcharge.

I would emphasise that the primary purpose of the close company surcharges is to counter attempts to avail of lower company taxation rates on personal income. 

In order to assist small companies with liquidity constraints and improve their cash flow position, these rules were relaxed modestly in Finance Act 2013 following the Budget announcement of a renewed focus on the SME sector.  The measures enabled companies to retain a higher amount of income for reinvestment without being liable to a surcharge. 

By way of example, at the current limits a company may keep up to €100,000 on deposit at an interest rate of 2%, and retain the resulting interest income of €2,000 for use in their business without suffering the surcharge.

I am satisfied that the current thresholds are now set at an appropriate level and I have no plans to amend them further.

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