500 jobs a year could be lost over BES investigation

8 Apr 2004

A pipeline of up to 500 jobs created every year in the software industry could be lost through the loss of the Business Expansion Scheme (BES), the ‘friends and relatives’ tax amnesty that many early stage software companies rely on, Fine Gael’s enterprise, trade and employment spokesman Phil Hogan TD (pictured) has warned.

It emerged this week that the European Commission forced the suspension of the BES because it believes that state aid issues arise from the investor tax relief components of the BES and Seed Capital Scheme which were extended to 31 December 2006 and the limit increased from €750,000 to €1m by Finance Minister Charlie McCreevey TD in the recent budget. The BES was originally scrapped and was only restored following relentless lobbying by the ICT sector in Ireland.

The investigation by the European Commission is expected to take at least a year. It is unclear at present if there will be any retrospective implications of the schemes which have cost the exchequer hundreds of millions in foregone tax over the last 20 years.

Last night, Hogan lashed out at the European Commission’s investigation. “The decision by the European Commission to suspend the Business Expansion Scheme and Seed Capital schemes generally is a serious blow to innovation. Many software companies were set up under these schemes and have contributed enormously to employment in this country.”

Hogan continued: “BES schemes have helped to create around 500 new software jobs every year, and the suspension of this scheme is bound to damage growth in this vital sector of industry. This is a very serious matter for entrepreneurs who are in the process of launching new start-ups. Speed to market is critical for many start-ups, particularly in the hi-tech sector. If Irish companies are not being formed to launch new products, you can be sure our competitors in the US and Israel will be.”

Hogan said it was regrettable that Finance Minister Charlie McCreevy did not seek prior approval for the extension of the schemes before the completion of the Finance Act 2004, which prompted the EU investigation. He urged McCreevy to use his position as Ecofin president to bring the investigation to a conclusion within weeks and not months in order to restore investor certainty. “Many projects may now have to be suspended or delayed until the European Commission completes this unwieldy and unnecessary investigation,” Hogan warned.

Earlier this week Enterprise Ireland said it was working closely with the department of Enterprise, Trade and Employment and the Department of Finance to ensure the continued operation of the schemes as a priority. “If the current position persists in any protracted way it will create a serious barrier for entrepreneurs at a point when the development of their businesses and securing international sales requires early stage risk finance not available from other sources,” Enterprise Ireland said in a statement.

By John Kennedy