ISA supports Government BES scheme

16-01-2007

by Ciara O'Brien

Irish tech firms were given a boost when the Government reaffirmed its support for the extension of the Business Expansion Scheme (BES).

The Government commitment came after its survey of 1,400 businesses using the BES schemes revealed that they have heped to create significant economic benefits, including job creation, and funding for research and development.

In this year's Budget, Finance Minister Brian Cowen increased the amount an individual is allowed to invest in the scheme from EUR31,000 to EUR150,000, and doubled the amount of cash businesses can raise to EUR2 million. However, the move is being studied by the European Commission as a possible state aid.

The Government's commitment has been welcomed by the Irish Software Association: "There are many small firms, particularly in the software and technology sector, that depend on BES investment to survive the difficult start-up development phase," said ISA director Michele Quinn.

"The extension and expansion of BES and Seed Capital schemes, announced in the Budget, will give a boost to the indigenous technology industry, which is a highly productive sector and will help sustain Irish competitiveness in a technologically advancing global economy."

According to the ISA, some 50 percent of software start-ups relied on a combination of BES and the Seed Capital Scheme, including Ocuco, Rococo and technology spin-offs from Iona.

"Start-up technology firms can find it virtually impossible to access the finance needed," said Quinn.

"We lobbied strongly over the past 18 months for this decision to be made and are confident that the Government made their decision to recommend the extension of the schemes based on economic grounds and as a support measure for the productive sector of the economy."

However, not everyone is happy about the expansion of the scheme. The Irish Congress of Trade Unions (ICTU) has complained to the European Commission about the move, saying that it was an "expanded vehicle for tax avoidance for wealthy people".

"They are also state aid to the business sector at a time when the economy is booming," said ICTU's economic advisor, Paul Sweeny, in statement.

Sweeny pointed out that although the schemes appeared as if they were helping small businesses, their main effect was to shield high earners from income tax by allowing them to invest in the often "risk-free" tax efficient BES schemes.

"The cost of these schemes to the taxpayer is likely to be far higher than the stated EUR178 million, because most tax expenditures are underestimated. The tax forgone by the exchequer will be made up by working people," he said.

ICTU's move has been criticised by business lobby groups, who believe the complaint is "sabotage".