EU to investigate tax break scheme at request of Ictu

The EU is planning to investigate a State scheme for supporting small business following complaints from trade unionists.

Last month, Minister for Finance Brian Cowen announced plans to extend the Business Expansion Scheme (BES), used mainly by small companies to raise investment.

But the Irish Congress of Trade Unions (Ictu) has complained to the EU Commission, alleging that the scheme constitutes illegal state aid, as investors get tax breaks for putting their cash into BES funds.

Brussels's competition directorate wrote this week to the Ictu to say it will "carry out the necessary investigations" into the scheme on the basis of the information provided to the commission by the congress.

If the commission finds that the BES is an illegal state aid, it can prevent the Government from extending it.

Ictu, which represents unions with 600,000 members, or around 28 per cent of all workers in the State, says the scheme is used by wealthy people as a "shield" against paying tax.

Announcing the scheme's extension in his Budget speech, Mr Cowen said that the Government would have to get the EU's approval. His department has yet to formally seek this, but officials have been in touch with the competition directorate regarding the Government's plans.

The Government yesterday published the results of a survey of 1,400 companies that raised cash through the scheme.

It found that 40 per cent of them used the money to create extra jobs. Almost 60 per cent of the businesses that used BES investment were involved in manufacturing, a key area of the economy. A further 34 per cent used the cash to fund research and development.

The information released yesterday also showed that 72 per cent of the companies that raised cash got up to €500,000, while 22 per cent of them raised the maximum allowed, €1 million.

Under Mr Cowen's proposals, the new BES will allow companies to raise a maximum of €2 million, a move welcomed by business organisations. The limit that individual investors can place in the scheme has been raised to €100,000 from €31,750.

Ictu said yesterday that it was not prepared to comment at length on the survey's findings as it wanted to wait for details of the entire review.

The trade unions also want the Government to name the companies and investors involved in the BES, to show how much it costs taxpayers and to provide a cost-benefit analysis.