ISA calls for expansion of tax schemes

29-03-2005

by Deirdre McArdle

The Irish Software Association has advised the government not to restrict the tax incentives that have helped to support the growth of the software industry.

This is just one of the points made by the Irish Software Association (ISA) in its latest taxation review of the software sector in Ireland. The association goes on to say that investment by the government is crucial if indigenous software firms are to continue to grow and take advantage of available opportunities.

"Despite the recent slowdown in the global economy, opportunities exist for Ireland to continue to develop software companies who are capable of dominating niche markets," said Michele Quinn, director of the ISA.

In spite of this optimistic view, the software sector in Ireland is still facing a number of challenges, such as the lack of early stage funding and increasing threats from emerging low-cost software economies, according to the ISA. Acknowledging the challenges and creating initiatives that will encourage the emergence of new software companies are ways in which Ireland can maintain its position as one of the largest exporters of software in the world, the organisation believes.

While initiatives like the Business Expansion Scheme and the Seed Capital Scheme have been highlighted by the ISA as ways in which investment has encouraged growth, the organisation thinks the schemes should be expanded. It has suggested an increase in the company limit available in the BES scheme to EUR5 million, and that the personal limits of these schemes be increased to EUR300,000 per investor per year.

"High-growth businesses in Ireland continue to face difficulties in raising capital. For those companies not yet generating sufficient cash flow to service debt payments, equity finance is more appropriate," said Gerry Jones, a member of the ISA taxation group. "However, there is a structural gap in the market for companies seeking relatively modest sums of risk capital. This gap is most acute for companies seeking equity between EUR500,000 and EUR3 million per round. Such sums are beyond the financial means of most individual investors and are also too small to attract mainstream venture capital funding."

The ISA has also called for the creation of an internal research and development fund for government departments, local government and semi-state organisations, which would be used to highlight innovative software systems that could be used within government departments.

The ISA also recommends that the government amend the somewhat restrictive legislation concerning the tax treatment of employee stock options under a revenue-approved scheme. The organisation believes this would allow more schemes to qualify and therefore more employees would benefit.