Irish companies still waiting for EII scheme to deliver investments
ANOTHER year and another consultation on the Employment Incentive and Investment (EII) scheme. The EII scheme replaced the Business Expansion Scheme (BES), which was for many years the state-supported source of funding for Irish companies. In its heyday BES secured hundreds of millions of euro for Irish businesses. Well-known names to have tapped into funds from wealthy individuals include Irish Continental Group, Largo Foods, and Cooley Distillery.
However, since it was dropped in late 2011, its successor, the EII Scheme, which offers tax relief of up to 40pc of the sum invested, has found little favour with the business community.
It has undergone several tweaks since being introduced.
In Budget 2013 it was tweaked to make it more attractive to wealthy investors. At that time, a clampdown on all tax incentives for high earners meant that hardly anyone could avail of the scheme — few investors could benefit from the tax break.
Allowances were made for the scheme back then, but more problems have followed.
In 2016, the Revenue began applying State aid (GBER) rules to the scheme last year. That was the year of the Apple state aid ruling and everyone in officialdom started to look very closely at anything which might give Europe cause for concern. Several restrictions were introduced, resulting in the amount being invested via the scheme falling by around half.
Last year Finance Minister Paschal Donohoe appointed consultants Indecon to review the scheme. Accountancy firms, Enterprise Ireland and representative bodies were among those which have made submissions seeking changes to the scheme.
Tax bodies highlighted how small businesses were no longer able to rely on the schemes as a source of funding. That is a particular shame given that SMEs still complain that bank lending is now not meeting their needs.
A submission from the Institute of Taxation (ITI) gave several examples of companies being let down by the scheme, with delays on Revenue’s side apparently causing much of the problem.
In one example, a Dublin-based hospitality
company planned to raise €3m-€4m through EII finance.
An application for outline approval was submitted in September 2017. Revenue sought additional information on the company’s business plan — this information was previously submitted to Revenue in September 2017, as part of the outline approval application.
The managing director was naturally worried that potential investors would lose interest and look elsewhere. In the end he turned to private equity, abandoning the EII scheme. Aside from the time lost, the private equity alternative was a more expensive way of raising money.
For a scheme designed to support Irish business, it has been letting them down. Revenue has faced its own issues, particularly with retirements in the organisation, so is not entirely to blame.
Tweaks to date may have helped aspects of the scheme but one issue which will be raised in the latest consultation will be a move to self-assessment. As with the Section 481 film relief scheme, which I recently reported on in these pages, self-assessment is seen as an additional risk for investors. Some in the accountancy world believe that investing in an small Irish business is already risky enough without adding another element of uncertainty.
As Donohoe knows all too well, Ireland’s tax system is seen as serving international businesses all too well. Isn’t it time we made sure that small indigenous companies have an incentive scheme which works for them?
Billionaire David Tepper announced last week that he is planning to return money to investors and leave behind the hedge fund industry. He founded Appaloosa Management in 1993 and will now convert it into an family office. Readers may remember Tepper for his Bank of Ireland bond buys.
In 2013 he bragged about beating the Irish Government’s attempt to force his hedge fund to take a loss on investments in the bank’s risky subordinated bonds back in 2011.
In a Bloomberg TV interview he grinned, telling the interviewer that Appaloosa was able to bully the Irish government because of the hedge fund’s huge size. Tepper will now spend more time focusing on the Carolina Panthers American football team which he bought last year.