S.I. No. 757/2004 - European Communities (Income Tax Relief For Investment in Corporate Trades - Business Expansion Scheme and Seed Capital Scheme) Regulations 2004

STATUTORY INSTRUMENTS.

S.I. No. 757 of 2004 .

EUROPEAN COMMUNITIES (INCOME TAX RELIEF FOR INVESTMENT IN CORPORATE TRADES - BUSINESS EXPANSION SCHEME AND SEED CAPITAL SCHEME) REGULATIONS 2004.

S.I. No. 757 of 2004 .

EUROPEAN COMMUNITIES (INCOME TAX RELIEF FOR INVESTMENT IN CORPORATE TRADES — BUSINESS EXPANSION SCHEME AND SEED CAPITAL SCHEME) REGULATIONS 2004.

I, BRIAN COWEN, Minister for Finance, in exercise of the powers conferred on me by section 3 of the European Communities Act 1972 (No. 27 of 1972) and for the purpose of giving effect to the provisions relating to aids granted by States as provided for by Articles 87, 88 and 89 of the Treaty establishing the European Community and to Commission Decision C(2004)3617 of 20 October 2004, in respect of the Business Expansion Scheme and the Seed Capital Scheme, hereby make the following regulations:

Citation and operative period.

1. (1) These Regulations may be cited as the European Communities (Income Tax Relief for Investment in Corporate Trades — Business Expansion Scheme and Seed Capital Scheme) Regulations 2004.

(2) These Regulations remain in force until the passing of a money bill in 2005 containing provisions giving effect to Commission Decision C(2004)3617 of 20 October 2004.

Construing of section 18 Finance Act 2004.

2. During the period to which Regulation 1(2) of these Regulations relates, section 18 of the Finance Act 2004 ( No. 8 of 2004 ) has effect as if —

(a)  in subsection (2) —

(i)  there were substituted the following for paragraph (b):

“(b)  in section 491 —

(i)  in subsections (2)(a) and (3)(a), by substituting ‘€1,000,000’ for ‘€750,000’,

and

(ii)  by inserting the following after subsection (3):

‘(3A)  Notwithstanding anything in subsections (2) and (3), relief shall not be given in respect of a relevant issue to the extent that —

(a)  the amount raised by the relevant issue, or

(b)  the aggregate of —

(i)  the amount to be raised through the relevant issue, and

(ii)  the amount or amounts, if any, raised through the issue of eligible shares, within the period of 6 months ending with the date of that relevant issue, by the company or by all of the companies (including the company making the relevant issue) which are associated within the meaning of this section, as the case may be, exceeds €750,000.’ ”,

(ii)  there were inserted the following after paragraph (c):

“(cc)  in section 495 —

(i)  by substituting the following for subsections (1) and (2):

‘(1)  In this section —

“EEA Agreement” means the Agreement on the European Economic Area signed at Oporto on 2 May 1992, as adjusted by the Protocol signed at Brussels on 17 March 1993;

“EEA State” means a state which is a contracting party to the EEA Agreement;

“qualifying subsidiary”, in relation to a company, means a subsidiary of that company of a kind which a company may have by virtue of section 507.

(2)  A company shall be a qualifying company if it is incorporated in the State or in an EEA State other than the State and complies with this section.’,

(ii)  in subsection (3)(a), by substituting ‘which is resident in the State, or is resident in an EEA State other than the State and carries on business in the State through a branch or agency,’ for ‘which is resident in the State and not resident elsewhere,’,

(iii)  by inserting the following after subsection (3):

‘(3A) The company shall —

(a)  as respects the period 5 February 2004 to 31 December 2004 be a small or medium-sized enterprise within the meaning of Annex 1 to Commission Regulation (EC) No. 70/2001 of 12 January 2001¹ , and

(b)  as respects the period commencing on 1 January 2005 be a micro, small or medium-sized enterprise within the meaning of Annex 1 to Commission Regulation (EC) No. 364/2004 of 25 February 2004² .’, and

(iv) by inserting the following after subsection (15):

‘(16) Notwithstanding the foregoing provisions of this section, a company shall not be a qualifying company while the company is regarded as a firm in difficulty for the purposes of the Community Guidelines on State Aid for rescuing and restructuring firms in difficulty³ .’ ”,

and

(iii) there were substituted the following for paragraph (d) —

“(d)  in section 496 —

(i)  in subsection (2)(a) —

(I)  in subparagraph (i) —

(A) in clause (I), by substituting ‘this Part,’ for ‘this Part, and’,

(B) in clause (II), by substituting ‘this Part, and’ for ‘this Part,’, and

(C) by inserting the following after clause (II):

‘(III) as respects a subscription for eligible shares issued on or after 5 February 2004, trading operations consisting of software development services referred to in subparagraph (ii) of paragraph (a) of section 443(10) and which would be qualifying trading operations if the employment grants referred to in subparagraph (I) of that paragraph were made, shall, notwithstanding anything in subparagraph (ii), be regarded as qualifying trading operations if approval for the making of such grant is obtained,’, and

(II)  in subparagraphs (iv) and (xv), by substituting ‘on or after 1 January 2003 and on or before 31 December 2004’ for ‘on or after 1 January 2003’,

and

(ii)  by inserting the following after subsection (4):

‘(4A) Notwithstanding the provisions of this section, trading operations carried on in the coal industry or in the steel and shipbuilding sectors shall not be regarded as qualifying trading operations for the purposes of this Part.’ ”,

and

(b)  in subsection (3)(b) —

(i)  in subparagraph (i), there were substituted “5 February 2004” for “4 February 2004”,

(ii)  there were substituted the following for subparagraph (ii):

“(ii)  as respects paragraph (b)(i), in relation to eligible shares issued on or after 1 January 2004 and as respects paragraph (b)(ii), in relation to eligible shares issued on or after 5 February 2004”,

(iii) in subparagraph (iii), there were substituted “5 February 2004,” for “4 February 2004, and”,

(iv) there were inserted the following after subparagraph (iii):

“(iiia) as respects paragraph (cc), as on and from 5 February 2004, and”,

and

(v) in subparagraph (iv), there were substituted “5 February 2004” for “4 February 2004.”.

EXPLANATORY NOTE.

(This note is not part of the Instrument and does not purport to be a legal interpretation.)

These Regulations provide for temporary amendments to the Finance Act 2004 in order to give effect to the decision of the European Commission approving the Business Expansion Scheme (BES) and the Seed Capital Scheme (SCS). That approval was conditional on the changes being made.

The changes, which apply from 5 February 2004, may be summarised as follows:

—  qualifying companies must be Small and Medium sized Enterprises (SMEs) within the European Commission definition in force for the relevant period;

—  tax relief will be available for individual investments in companies registered in the European Economic Area but with an establishment in Ireland carrying out qualifying activities;

—  while a company may raise equity capital up to a general maximum of €1 million in the lifetime of a company, a company may not raise more than €750,000 in any six-month period;

—  a number of sectors are being explicitly excluded viz. shipbuilding, coal and steel, and firms while they are in difficulty as defined by the European Community Guidelines on State Aid for rescuing and restructuring firms in difficulty.

The Regulations remain in force until the passing of the Finance Act 2005 .

¹OJ No. L10 of 13 January 2001, p. 33

²OJ No. L63 of 28 February 2004, p.22

³(a)   OJ No. C288 of 9 October 1999, p.2 up to and including 9 October 2004, and

 (b)   OJ No. C244 of 1 October 2004, p.2 as on and from 10 October 2004.