BES decision to hit start-ups

A DRAMATIC drop in the number of new start-up software companies is expected after the suspension of the Business Expansion Scheme (BES) and seed capital tax reliefs following the intervention of the European Commission.

The Irish Software Association said they expect the number of start-up software companies that will get off the ground this year to be close to half the number that commenced operations in 2003.

The EC forced the effective suspension of BES tax relief following budget changes introduced by Finance Minister Charlie McCreevy because of potential State aid breaches.

An investigation into the tax relief by the Commission is expected to take at least a year and this will mean no BES funding for high potential start-up companies this year at the very least. The Commission can order the scheme to end and may even take retrospective action, if they feel it is merited.

Fine Gael enterprise trade and employment spokesman Phil Hogan said it was regrettable Mr McCreevy did not seek prior approval for the extension of the schemes.

“It is most embarrassing that this investigation is announced at the time of the Irish Presidency. It would appear from this decision that the Minister for Finance and the European Commission have dealt a serious blow to the objective of creating a European innovative economy,” he said.

Mr Hogan called on Mr McCreevy to use his role as President of Ecofin to ensure the Commission’s investigation is brought to a conclusion in weeks rather than months “so investor certainty can be restored”.

BES schemes, introduced in 1984, help create close to 500 new jobs each year in the software sector. ISA director Kathryn Raleigh said they are lobbying for the immediate re-introduction of BES finance. “It’s the only game in town when you are talking about finance for start-up software companies. It is only after the BES phase the venture capital takes an interest,” she said.

The State’s job creation agency Enterprise Ireland said it was also extremely worried about the suspension of BES finance.

“If the current position persists it will create a serious barrier for entrepreneurs,” it said.

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