Software industry calls on Cowen to raise BES to €5m

9 Nov 2004

The Irish Software Association (ISA) has made a dramatic plea to new Finance Minister Brian Cowen TD to increase the limits of the Business Expansion Scheme (BES) and Seed Capital Scheme (SCS) to €5m during the lifetime of any applicant company, as opposed to the current €1m.

The IBEC-backed organisation said that it welcomed the European Commission’s decision to allow the current BES and SCS schemes to run until 2006, following a period of almost a year where the schemes were suspended pending an investigation.

As well as requesting Cowen, on his first official budget, to up the limit of the BES to €5m, the ISA also called for the individual limit to be raised to €300k per investor. The figure is based on the UK Venture Capital Trust System, which encourages individuals to invest in the UK’s smallest and potentially fastest-growing companies and has been instrumental in encouraging investment.

“At present, there is a structural gap in the market for companies seeking relatively modest sums of risk capital, particularly between the €500k and €3m per round,” said Cathal Friel, chairman of the ISA.

“We need to take our lead from the UK model. This has been shown to be successful in addressing this issue – it is estimated that since 1995, 35,000 people have invested more than £1.5bn sterling in venture capital trusts. If the Irish software sector is to maintain and develop its role as one of the most successful global software players, more needs to be done to encourage individuals to invest directly or indirectly in smaller, higher-risk companies by offering income tax relief to such investors,” Friel added.

The ISA also pointed out that the research and development tax credit announced in last year’s budget should also be improved upon as small and medium-sized enterprises (SMEs) are not benefiting from it. “Currently the scope of the model has disappointed many SME. It has proved quite restrictive and it is for this reason that the ISA would support a formal structure to monitor and access the effectiveness of tax credits,” the organisation said in a statement.

The ISA has also called for the amendment of legislation governing the tax treatment of employee stock options under a revenue-approved scheme, with a view to allowing more schemes to qualify for approval and more employees to benefit. At present, only a small number of companies in the software sector qualify to participate, as the current rules governing the tax treatment of employee stock are very restrictive.

Due to changing demographic trends, the ISA warned, the supply of childcare needs to be increased over the next five years. “For this reason, the cost of supplying childcare in the workplace should be tax deductible at the marginal rate,” the organisation said.

By John Kennedy