On 12 February, the Institute responded to the Department of Finance’s public consultation on the Employment Investment Incentive (EII). The EII scheme is a vital source of finance for early stage and small businesses. Rather than solely relying on Government to inject cash into the economy, the EII could be used, by the private sector, to support the return to business following the Covid‐19 pandemic and to boost the creation of new jobs.
Whilst EII relief is very valuable for companies and investors, the complexities of availing of the scheme can act as a barrier to expansion. The Institute’s submission makes 15 tax policy and administration recommendations for EII (including SURE). We believe these are necessary enhancements to improve the overall effectiveness of the schemes.
| 1. | Streamline the administrative process with non-mandatory template forms. |
| By introducing a streamlined administrative process for small/micro companies, it would ease the extensive burden for them. Adopting non-mandatory template forms (for business plans, cashflows etc.) will help them avail of the much-needed EII finance. | |
| 2. | Introduce a carve‐out from the connected party rule linked with a control test. |
| This will prevent shares/share options granted to non‐executive directors or other key employees from automatically disqualifying them from being a qualifying investor. | |
| 3. | Broaden the rules governing EII scheme to attract institutional investors. |
| Expanding the rules governing EII will cater for investors pooled in vehicles which mirror the operation of an alternative investment fund which was established to invest in “qualifying companies” of the scheme. | |
| 4. | Permit the use of capital redemption window. |
| Allowing Designated Investment Funds (and other fund investments) to utilise the capital redemption window provided under the rules of the scheme, would facilitate more follow‐on investment. | |
| 5. | Expand the definition of financial intermediary for the 7-year window for firms in difficulty beyond regulated bodies. |
| Otherwise, companies deemed financially viable by a regulated body cannot extend the benefit of the positive outcome of that due diligence of the scheme to investors who invest directly in the company or via another non-regulated fund, notwithstanding that the due diligence may have been shared and collectively relied upon. | |
| 6. | Make a technical amendment to section 490 (3)(a)(ii) TCA 1997. |
| This ensures that a “qualifying company” for the purposes of EII includes a Renewable Energy Community (the “Relevant REC”) for Community‐Led Projects under the RESS. | |
| 7. | Amend section 490 TCA 1997 to address exclusion of holding company structures. |
| The exclusion of holding company structures is causing genuine businesses to be precluded from raising EII finance. In our view, this is in stark contrast to other Government funding sources. Amending section 490 TCA 1997 would address this issue, specifically for holding companies established by founder(s). | |
| 8. | Establish a carve-out in “qualifying trading activities” for green/energy efficient specific projects. |
| This would permit companies that would not normally qualify for EII, to raise EII finance for investment in products which help their business to become energy neutral. | |
| 9. | Commit appropriate and adequate resourcing to processing EII applications. |
| This could be achieved by establishing a dedicated single point of contact/team for all EII‐related queries within Revenue. This is in addition to applying an appropriate Revenue customer service standard to EII applications. | |
| 10. | Impose a monetary penalty as a sanction for administrative error or late filing. |
| We believe it would be more proportionate to impose a monetary penalty as a sanction for an administrative error or the late filing of a return. This is favourable when compared to a clawback of the entire EII relief. | |
| 11. | Recognise exit strategies for investors beyond share redemption or trade sale. |
| Given the high commercial risk investors assume, we believe the EII scheme should recognise exit strategies for investors beyond what is provided by way of a share redemption under section 508R (9) TCA 1997 or trade sale. | |
| 12. | Consider having a 4‐year holding period for all EII investments. |
| If the 7‐year rule for investments up to €500,000 is retained, we believe only a partial clawback should occur between years 5 to 7. At the very least, the first €250,000 beyond year 4 should not suffer a clawback. | |
| 13. | Enable the Statement of Qualification to be issued once an investment has been made. |
| This would reduce the administrative burden for early stage, qualifying companies. | |
| 14. | Allow capital losses, net of tax relief already received, incurred on EII investments. |
| This would be in line with the recommendation made by Indecon in their 2018 evaluation of the scheme. | |
| 15. | Extend the SURE scheme to include new business founders and increase awareness. |
| The scheme should extend to founders who were previously self‐employed and starting up another business (as well as those coming from employment). Increasing awareness of the SURE scheme should also be prioritised. |
You can read the Institute’s Employment Investment Incentive submission here which includes our above recommendations and the responses to consultation questions. You can find all our submissions on our website.
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