Investors may have to give back €25m under flawed SME incentive

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As much as €25m may need to be taken back from investors in SMEs after parts of a jobs incentive scheme over the last three years was discovered to fall foul of EU State aid rules.

Finance Minister Paschal Donohoe said he took the advice of the attorney general and had rushed to amend the Employment and Investment Incentive scheme in the latest Finance Bill.

The Department of Finance said it had “held our hands up” and acted quickly when told by Revenue of the error and had informed the European Commission of the error a week ago.

It was now up to the commission to decide whether the Government would be forced to retrieve the monies, said a Department of Finance spokesman.

Headed by Margrethe Vestager, the European competition commissioner who oversees State aid cases, had previously ruled that Ireland should retrieve at least €13bn in back taxes from Apple.

The department estimates the value of questionable incentives under the scheme cost the exchequer between €6m and €10m last year.

That accounts for about 30% of the €32.5m total tax cost of the overall scheme in 2016.

The overall cost of the investments could rise as much as €25m when the cases from 2015 through this year are assessed.

Last year, there were 1,768 qualifying investors involving 261 companies under the scheme, but not all these investors or companies will likely fall foul of the error.

Revenue is working through the cases to discover the number of cases involved. The error appears to have been made when the incentives were given to investors who are connected to the companies.

The Department of Finance said that the Finance Bill was amended to ensure the incentive complies with State aid rules with immediate effect.

The department said the Employment and Investment Incentive scheme will continue to be available for eligible enterprises to raise monies from eligible investors.

It said individuals who are investing in companies with which they are not connected are not affected by the amendment to the Finance Bill.

It also said the Employment and Investment Incentive will continue to be available to independent investors.

Mr Donohoe said he was “acting decisively to correct the error in the scheme”.

“I now propose to review the Employment and Investment Incentive scheme, and the legislation underpinning it, to ensure it operates as a competitive, efficient, and effective measure in accordance with State aid rules and my department’s tax expenditure guidelines.

“The review will be completed in the first half of 2018 so that any resultant legislative changes can be brought forward in the context of Budget 2019.”

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