Dáil Éireann debate -
Wednesday, 21 Jun 1944

Vol. 94 No. 6

Finance Bill, 1944.—Committee.

Sections 1 and 2 agreed to.

SECTION 3.

Mr. M.E. Dockrell

I move amendment No. 1:—

Before Section 3 to insert a new section as follows:—

(1) Where in any year of assessment a person sustains a loss in any transaction or activity, whether he was engaged therein solely or in partnership, being a transaction or activity of such a nature that, if any profits had arisen therefrom, he would have been liable to be assessed in respect thereof under Case VI of Schedule D, he may claim that the amount of the loss sustained by him shall, as far as may be, be deducted from or set off against the amount of any profits or gains arising from any transaction or activity in respect of which he is assessed for that year under the said Case VI, and that any portion of the loss for which relief is not so given shall, as far as may be, be carried forward and deducted from or set off against the amount of any profits or gains arising from any transaction or activity in respect of which he is assessed under the said Case VI for any of the six following years of assessment.

(2) In the application of this section to a loss sustained by a partner in a partnership the expression "the amount of any profits or gains arising from any transaction or activity in respect of which he is assessed" shall be taken to mean in respect of any year such portion of the amount on which the partnership is assessed under Case VI in respect of any transaction or activity as he would be required under the Income-tax Acts to include in a return of his total income for that year.

(3) Any relief under this section by way of the carrying forward of the loss shall be given as far as possible from the first subsequent assessment in respect of any such profits or gains as aforesaid for any year within the said six following years, and, so far as it cannot be so given, then from the next such assessment and so on.

(4) The provisions of Section 34 of the Income-tax Act, 1918, shall apply to a loss under this section as if the loss were sustained in a trade.

(5) The provisions of this section shall extend so as to apply to a loss sustained in the year ended on the fifth day of April, nineteen hundred and forty-four.

As the House is aware assessments have been made recently in many cases under Case VI of Schedule D, where until now no attempt was made by the Revenue authorities to raise taxation. Assessments have been made on such bodies as the Incorporated Law Society, the Nursing Council and the Dental Board, based on the excess of their fees from registration over expenses. The amendment is not different from the method of ascertaining profits in trade. It proposes to give relief similar to that now enjoyed by trades. I believe that a somewhat similar provision has been in operation in the United Kingdom Finance Act since 1927. I ask the Minister if he can see his way to grant this relief to these bodies as the amount involved is not very large. These are mainly bodies which are not making any profits whatsoever, but are only trying to make running expenses. If they were put in the position of setting off losses against profits it would be a great benefit to them.

Minister for Finance (Mr. O Ceallaigh)

I cannot accept the amendment, not necessarily because I do not accept that there is something in the case the Deputy has made, but unfortunately this Finance Bill has been a bit rushed this year, and this is a rather ticklish and delicate matter which we have not had time to go into as thoroughly as we would like. I know what the case is, and have had it examined, but the drafting of a suitable amendment requires a good deal of preliminary study. I am quite prepared to have it examined fully during the course of this year and, if it is thought necessary, to bring in an amendment on the next Finance Bill.

Mr. Dockrell

I shall be very glad if the Minister will do that.

Amendment, by leave, withdrawn.

Section 3 agreed to.

SECTION 4.

General Mulcahy

I move amendment No. 2:—

In sub-section (2), line 46, to delete the words "but for this sub-section" and in line 50 to delete all words after the word "assessment" and substitute therefor the words: "he shall pay by way of refund to the Revenue Commissioners a sum equal to the amount he is entitled to receive in the corresponding year in respect of any such child in excess of two such children under the Children's Allowances Act, 1944".

Under the Children's Allowances Act a man might, in certain circumstances, get 2/6 per week for a child over a whole year, amounting to £6 10s. 0d., but this section would result in a loss to him of £7 10s. 0d. on the income-tax side. A calculation will be made on forms on which the income-tax is made up. I do not know if the forms are standard ones indicating what money and tax should be raised, with certain deductions by way of relief for personal allowances, wife's earned income and children's allowances. It simply means that a certain calculation is made for children's allowances because a man gets £6 10s. 0d. for a child in another way. My idea is that it should be perfectly clear from the forms in which the information is given that a man has been entitled to a certain allowance for children, but with the forms and value made up in the old way, a certain addition would be put on to the amount which has to be paid to the commissioners, and there would be added to the proper amount of income-tax to be paid an additional amount by way of refund.

In these circumstances, if a man actually received allowances in respect of two children, he would have got over the year £13. Instead of making up what his income-tax was, the calculation would be made in the ordinary way. A simple provision would be put down at the end "refund of monies paid under Children's Allowances Act, £13." By that simple process, a man would simply refund in this way the benefit he had got in another way. Under the clause as it stands, certain classes of people will lose £1 per child, and that does seem inequitable. For the sake of administrative convenience —and I do not know what convenience is served—it is unfair that a certain number of people should have to pay £1 per child. That is simply because a calculation cannot be made in the Revenue Commissioners' office in one way instead of in another. I should have thought that a great deal of work would be avoided by the issue of a certificate that no benefit had been sought under the Children's Allowances Act. I quite understand that it is just as well to have the children's allowances paid universally as it is a universal service. I do not want to argue that now, but I think it is quite reasonable to ask the Minister for Finance not to put additional cost on a class of people who, because they have children, should be fairly dealt with. We admit that the burden of maintaining a family should rest with the head of that family, but a certain number of families will actually lose a certain amount of money because of that principle and because of this provision. Even administratively the method of dealing with the matter which I suggest will be more convenient than that proposed in the Bill.

Mr. O Ceallaigh

This is not a matter of mere convenience. It is much more complicated than that. I cannot imagine any more difficult method of trying to find a solution of the problem than that which the Deputy suggests. It is true that a number of income-tax payers who are assessed at the standard rate—7/6 in the £— will, if they have more than two children, lose £1 a year each for the additional children, as the Deputy suggests. To find a way out of that difficulty would cost a considerable sum more than any loss which would accrue to individuals. So far as I have gone into the matter, that is what I have found. One thing emerged from my examination—that it would be necessary for me to have a considerably increased staff to examine the details of all forms going out and coming back. Many suggestions were made in the course of the examination of this matter in the Department of Industry and Commerce, when the Bill was being drafted, and, later, when it was submitted to my Department.

When the matter came to me, I said: "Every time my Estimates or matters relating to finance come before the Dáil, I hear bitter complaints about the increase in the number of civil servants and the cost of the Civil Service. I want to avoid that. Do not let me have one extra person unnecessarily in my office to deal with these things. We shall have to put up with the £1 loss." The people who will lose that £1 will be those who pay at the higher rate of income tax, and £1 for every child over two will not break them. It would, possibly, cost them more if I employed additional staff so as to obviate that difficulty. I agree that, in principle, it is not proper that we should introduce a Bill for children's allowances and then leave it to any person to say that his third or fourth child is costing him £1 more than it did. But it might cost that individual a good deal more if I did what is suggested by Deputy Mulcahy or if I adopted other suggestions made to get over this difficulty. If I adopted Deputy Mulcahy's suggestion, the man paying at the standard rate of 7/6 would save his £1 per child, but the poorer man paying at half the standard rate would lose £2 15s. 0d. As between those two, I think we should place the burden on the man who is better able to bear it.

General Mulcahy

The Minister will understand that my amendment was put down simply to draw attention to the position?

Mr. O Ceallaigh

I am aware of that.

General Mulcahy

It refers to a case where a man does, in fact, receive the benefit of the rebate for children under the income-tax code. Would the Minister admit that it would be perfectly simple to do what I propose here?

Mr. O Ceallaigh

On the contrary, I believe that it would be most involved and that it would be a difficult thing to do. It cuts across the whole idea of income-tax and of the work of the Department dealing with that tax. You ask the Revenue Commissioners to deal with refunds in respect of things that are not tax. From the Revenue point of view, that is a wrong principle.

General Mulcahy

That is like telling a plumber he must not drive a nail in a piece of wood.

Mr. O Ceallaigh

I would never be guilty of that.

General Mulcahy

That is why I am astonished at the Minister taking the Revenue Commissioners so seriously— regarding them as being inside such terrible barbed wire. If anybody will take the form that the Revenue Commissioners send out showing the various reliefs given and will look at the example given at the end of the form, it cannot be said that there is the slightest difficulty. Instead of making a change much more complicated than what I suggest, there would not be much difficulty, seeing from the information given in regard to children that two or three definite allowances have been given over the period, in arranging the refund. That is the position so far as I can see it, and I think the Minister ought to try to furnish us with a copy of the sheets made out in the Revenue Commissioners' offices. I think it is due to the Revenue Commissioners and to the Government administration to clear themselves of the charge of administrative convenience. It is due to the administrative staffs to clear themselves of the charge that people will be asked to pay money unnecessarily. When the amount of income-tax is actually made up and it is seen that the full benefit of the allowance in respect of children does not materialise because of the nature of a man's income, I think it should be quite easy to see that the man would not be asked to refund more.

Mr. O Ceallaigh

That would require considerable additional staff.

General Mulcahy

I would like to see it on paper.

Mr. O Ceallaigh

I shall try to get that information for the Deputy.

Mr. Hughes

Is the Minister aware that during the debate on the Children's Allowances Bill, when we were discussing that particular aspect, it was put to the Minister that where, in such a case as we are discussing, a declaration was made by the individual that he had not made any application for children's allowances or had not drawn any children's allowance, he would be entitled to the normal allowance made for children under the income-tax code? The Minister agreed to that and that is on the records of the House.

Mr. O Ceallaigh

A few people came to me when the Bill was being discussed in the House and they said: "We would never apply for the children's allowances and why should we be obliged to take them?" I discussed the matter with the Minister for Industry and Commerce, but I could not get him to budge an inch. He insisted, and that is the way it is in the Bill. I am not permitted to alter that principle.

Mr. Hughes

If the Minister will read over the discussion he will find that that point was put to the Minister for Industry and Commerce. I distinctly remember it. He agreed to it.

Mr. O Ceallaigh

It is not in the Bill.

Mr. Hughes

It is not in the Bill, but there was a promise given.

Mr. O Ceallaigh

I do not think that could be so, not in view of the Minister's conversation with me.

An Ceann Comhairle

Is the amendment being withdrawn?

General Mulcahy

I would like to press the amendment, to show my conviction in the matter.

Mr. H.M. Dockrell

Perhaps the Minister will reconsider the matter. He has admitted the principle, and what seems to be between us is that the Minister says the way Deputy Mulcahy has suggested is too difficult. He admits the justice of the matter. There is another point that has not been mentioned and which should be mentioned, namely, that the people who will pay this extra £ will also have to contribute their share of the allowances to other people who are drawing children's allowances.

Mr. O Ceallaigh

That is true.

Mr. H.M. Dockrell

So in describing it as £1 extra which they will not feel, I am afraid it is a sum a good deal bigger than that. Deputy Mulcahy has suggested one way, and Deputy Hughes has suggested that there is already either a promise or a half-promise by the Minister who is associated with children's allowances that a way would be considered in which the people could contract out, namely, that they would furnish the income-tax people with a certificate that they had not demanded, and did not propose to apply for, children's allowances. Surely as between these two points of view the Minister could have another examination and see if a whole army has to be added to the Civil Service in order to examine whether people who come under income-tax are also drawing children's allowances.

Mr. O Ceallaigh

I do not think it is right to suggest that the Minister for Industry and Commerce agreed to let people opt out. I do not think that is correct. I was not in the House and I have no recollection of having read the discussion on that point, but I know I spoke to the Minister and I got a most definite and clear refusal. He would not listen to the suggestion.

Mr. H.M. Dockrell

Would it not simplify the position if that were the case?

Mr. O Ceallaigh

No, I am afraid not. I agree that there is a certain case there in principle—I am not denying that at all—but I suggest it is a small problem and it will not touch a great number of taxpayers and those who are likely to be affected, if that can be forwarded as an argument against the principle, are those who can best afford it.

Mr. H.M. Dockrell

That is a matter of opinion.

Mr. O Ceallaigh

It is, of course, whether it can be used as an argument or not, but I know that those who would, according to my figures, have to lose the extra £ would be people whose incomes would be over £600 a year. People under that would not be likely to be affected.

Mr. Sheldon

Surely the comparison is rather unfair. You are comparing them with people with a lower income, whereas the point is that those having an income of £600 a year and with no children are, under this arrangement, much better off than the man with children.

Mr. O Ceallaigh

The man with children is always better off, Deputy.

Mr. Costello

Financially.

Mr. O Ceallaigh

I am not saying financially.

General Mulcahy

You mean in the next world.

Mr. O Ceallaigh

In this, particularly—I imagine so. I have not experience of the other place. There is one type of individual whose case has been brought to my notice and who may be affected by this section. There are a few people, not a great number, who reside outside our jurisdiction, and who because they are obliged to reside outside our jurisdiction, maybe temporarily, for official reasons or other reasons, will lose the benefits of children's allowances. I propose, with the permission of the House, to introduce a small amendment on the Report Stage to meet that type of case.

Amendment put and declared negatived.

Sections 4 to 7, inclusive, agreed to.

SECTION 8.

Mr. Costello

I move amendment No. 3:—

To delete the words "to the satisfaction of the Revenue Commissioners" wherever they appear in the section.

I raised the substance of this amendment on the Second Reading, and the Minister rather indicated that he was not going to give it very sympathetic consideration on the Committee Stage. I quite appreciate that the provisions of this section are inserted by way of relief to certain traders or manufacturers who have done certain work which eased conditions in the emergency period. What I really object to is the principle underlying the phrase "where a person shows to the satisfaction of the Revenue Commissioners."

I object to depriving a taxpayer of his right to resort to the courts. I have no objection, naturally, to the substance of the section but I wished to direct attention to the principle that there ought to be from an administrative body such as the Revenue Commissioners an appeal to the courts by the citizen or taxpayer. It is that principle that I wish to emphasise in the amendment that I have put down. I had no other object in putting it down. In connection with the determination by the Revenue Commissioners of matters arising out of the topics that are dealt with by this section it is very conceivable that there will be complicated issues of fact which would require judicial determination. I have no doubt that the Revenue Commissioners will determine them to the best of their skilled ability and with fairness to the taxpayer. At the same time I want to repeat what I have said in this House many times before, that there will be a better spirit amongst taxpayers from the point of view of paying their taxes if they feel that their rights as citizens are not merely safeguarded but completely safeguarded and, in particular, that they have the right to go to the Circuit Court. All these matters of appeal to the Circuit Court are done privately. It is some safeguard to the taxpayer—at least he feels it is. I believe there will be a better spirit amongst taxpayers if they have that right to appeal rather than to have fostering in the minds of taxpayers the idea that they are completely in the hands of those who are imposing and indirectly collecting the tax from them. As I put it, I think, on the Second Reading of the Bill, the advocate is judge in his own cause under that phrase "to the satisfaction of the Revenue Commissioners" and I think there would be a better spirit and, probably, a better approach towards the payment of not merely this particular tax but all taxation if the citizens or taxpayers felt that they had the ordinary rights of appeal to the courts. It is for the purpose of drawing attention to that principle that I put down this amendment.

Mr. O Ceallaigh

As I already intimated to the Deputy, I do not intend to accept the amendment. I must say, from my experience as Minister for Finance for almost five years, I have not had five complaints that would lead me to think that there is any dissatisfaction amongst taxpayers with the administration of the law by the Revenue Commissioners in regard to this particular matter. I think I could even reduce the number. I have not got one per year. If there was, as the Deputy would seem to suggest, a very considerable feeling of dissatisfaction, a feeling that they were being deprived of getting through the courts what might be described as full justice, if there was any dissatisfaction of the kind of a general nature amongst taxpayers, I am sure I would have heard of it. If I had heard it I certainly would have the matter examined but, as far as my experience goes, it seems to suggest that the taxpayers are satisfied that the Revenue Commissioners should, in certain types of cases at any rate, be permitted to be the last word on the matter. As far as my experience goes, there is no feeling of dissatisfaction among taxpayers and, if there is a general feeling of dissatisfaction or anything approaching what could be described as such, I would certainly have the case examined with a view to seeing whether the public clamour, if there were such, could be met. But there is nothing approaching anything of that kind that has come to my notice as Minister for Finance in the last five years.

Mr. Costello

I think the one place that the Minister will not get clamour is from taxpayers, because they are too scattered and too disorganised. I think the Minister may take it that there is at least some dissatisfaction.

Mr. O Ceallaigh

Very good.

Mr. H.M. Dockrell

The Minister says that he has not had very many complaints, but surely this is a section the full effects of which will not arise until the post-war period.

Mr. O Ceallaigh

In many other sections of the income-tax code the same phrase occurs.

Mr. H.M. Dockrell

I am only pointing out that that rather tends to do away with the Minister's argument. The Minister has not got any complants about a position that will not arise until after the war.

Mr. O Ceallaigh

Literally, that is true—yes.

Mr. H.M. Dockrell

I make Deputy Costello a present of that for his consolation.

Mr. O Ceallaigh

A very empty present, I suggest.

Mr. H.M. Dockrell

Quite. Another point I should like to make to the Minister is: why should not the ordinary citizen be able to have recourse to the courts? Is the Minister not satisfied with the courts? Why does he want to be the judge?

Mr. O Ceallaigh

I am satisfied with the Revenue Commissioners.

Mr. Cosgrave

No one else is.

Mr. H.M. Dockrell

Again, it is an empty satisfaction because if the Minister is satisfied I do not see why we should attempt in the case of the Revenue Commissioners to set up special courts—because that is what it amounts to. The taxpayer has not got a remedy. He cannot apply, after he is finished with the Revenue Commissioners, to the courts, and while, as Deputy Costello says, you may not get very much clamour from the taxpayers, it is not a very desirable precedent. It is one that, from the purely moral point of view, one objects to.

Mr. Costello

Perhaps the Minister would find the explanation as to why there is no clamour from the taxpayer in his own Budget speech. In one of the opening phrases of his speech, at column 2118, Dáil Debates, 3rd May, 1944, he says:—"It may be that the shocks inflicted by repeated doses of severe taxation have dulled the sensory nerves of the taxpayer and reduced him to a state of coma." Possibly that is the explanation as to why the Minister has not heard more complaints about it.

Mr. H.M. Dockrell

Undoubtedly.

Mr. O Ceallaigh

They have had a little time to revive.

Mr. Costello

Just as they are about to revive, they get another shock.

Amendment, by leave, withdrawn.

Sections 8 to 11, inclusive, put and agreed to.

SECTION 12.

Question proposed: "That Section 12 stand part of the Bill."

Mr. Cosgrave

I asked the Minister earlier if the word "remuneration" includes perquisites or if it means merely salary in the form of money. I wonder if the Minister would enlighten us further on the point. If a director of a company is allowed heating and lighting or other amenities, is that considered remuneration?

Mr. O Ceallaigh

Anything in the nature of what the Deputy suggests— fuel, light, and things of that kind— would not be brought in under the title of remuneration.

Mr. Cosgrave

Even under this enlarged interpretation which is given?

Mr. O Ceallaigh

Anything that is not cash, in other words.

Question put and agreed to.

SECTION 13.

General Mulcahy

I move amendment No. 4:—

In sub-section (1), page 7, lines 20 and 21, to delete the words "for any accounting period ending".

The general object of this part of this Bill is to catch in future companies who have made considerable excess profits but have found legal ways of avoiding the payment. This section, as it stands, would act unfairly in that it would allow companies who made up their accounts to a period, say, either on or before the 31st December to escape for a particular period, while companies who made up their accounts for a date subsequent to the 1st January would be caught for a particular period from which the other people escape. I submit to the Minister that he would want a firm date marking the time upon which the effect of this will operate on all companies alike, and therefore I move that we delete the words "for any accounting period ending" and that it shall be taken to operate after the 31st December, 1943.

Mr. O Ceallaigh

Again, I might agree that there is something in principle in the amendment. But, if I were to do what I would regard as complete justice in this matter to all the bodies concerned—Section 13, of course, only relates to what might be called family-owned companies—I would make the section retrospective to 1st January, 1941, the date when the tax began. That would be fair to everybody; they would all begin on the one date. But I know that the House objects strongly—I have no love for it myself—to retrospective legislation. Therefore, I cannot do full justice and I have to fix a convenient date. I did not want to go back to any accounting period beyond the current financial year, and therefore I fixed the 31st December last, which seemed a convenient date. I am perhaps letting some people away who ought to pay tax for periods anterior to that, but I cannot select any other date that will not let somebody away. I think the 31st December is a convenient date, and it does not infringe on the ideas of the Dáil with regard to what might be called retrospective legislation. It certainly would not get rid of whatever injustice may be inherent in the section if we fixed any other date which would mean a portion —any date that may be selected may mean a portion.

General Mulcahy

That principle was applied before.

Mr. H.M. Dockrell

Of course. I agree with the Minister that there would be no justice or equity in going back a couple of years.

Mr. O Ceallaigh

If I am to do justice between one company and another, between all the companies concerned, to do justice so far as we can do justice in this particular case, I must go back to January 1st, 1941.

Mr. H.M. Dockrell

I should like to suggest to the Minister that there is another alternative, and that is apportionment. It would be much fairer and present little trouble to apportion the accounting periods so that the section would only apply to that part of the accounting period from 1st January, 1944. I should like to remind the Minister also that when this method was adopted the excess profits tax was introduced on the 1st January, 1941.

Mr. O Ceallaigh

That is true.

Mr. M.H. Dockrell

Would you consider apportionment?

Mr. O Ceallaigh

I have considered it, and I found it would be unjust to a number of companies and to the revenue.

Mr. H.M. Dockrell

Would it not put them all on one footing?

Mr. O Ceallaigh

It would not.

Mr. Costello

I should like to say a few words, as amendment No. 14, in my name, raises much the same principle.

An Ceann Comhairle

It is out of order.

Mr. Costello

I understand that actually, as framed, it is out of order.

An Ceann Comhairle

Yes; a change of date would put it in order.

Mr. Costello

That is the point I wish to make. It was merely put down for the purpose of raising the principle of apportionment. I was not tied to any date whatever. Provided there was one date fixed to apply to all companies and the principle of apportionment was fixed, then we would be perfectly satisfied and the people interested would be perfectly satisfied. As it stands, with 31st December, 1943, in it, a number of companies who have their accounting period up to that date will completely escape, as I am informed. Any company that has its accounting period, say, from the 1st January, or any date after that, merely fortuitously, will be caught for a whole year's tax, while a company who happened, purely fortuitously, to have the accounting period up to a day or two before will be completely exempt from tax.

An Ceann Comhairle

The Deputy sees that his amendment would impose a tax and is out of order?

Mr. Costello

I agree it is out of order, but, with your permission, Sir, I would like to discuss the principle of apportionment raised by this amendment and then we need not speak on the other amendment.

An Ceann Comhairle

On the principle, yes.

Mr. Costello

It is only the principle that I am interested in, not any particular date. The date that was put down—the 5th October—was merely a date which would give a half-year's retrospective tax. It would in effect give the Minister more tax than he is getting at present, which the Minister is not very often made a present of, particularly from this side of the House. At all events, the principle contended for is the principle of equality of treatment of all taxpayers. I might interpolate that any observations I make on this or any other amendment down in my name or in Deputy Mulcahy's name are not being made and will not be made for the purpose of helping anybody to evade tax, or for the purpose of enabling anybody who has got excess profits as a result of this war to escape liability. We are all for the principle of taxing excess profits, but equally we are for the principle of equality of taxation, and it is to secure that principle of equality of taxation that we put down this series of amendments in order to see that everybody, so far as it can be reasonably achieved, will be treated alike. This allows a number of companies to escape by mere chance. I appreciate the Minister's difficulty in connection with the matter, which is possibly an administrative difficulty rather than a difficulty of principle. But, at the same time, this matter of apportionment is one of serious principle involving, as it does, equality of treatment, and it is for that reason that we press it on the serious attention of the Minister.

Mr. O Ceallaigh

This amendment, or any one approaching it, would not be sufficient to allow apportionment under this particular section. It would need an elaborate series of amendments to the present code to achieve the power to apportion. This section is brought in to catch people who have deliberately set themselves out to evade tax and who have deliberately evaded tax, in some cases amounting to considerable sums, by the payment of huge sums to directors. That is the purpose of it. We know the people—there are numbers of cases— who have deliberately set themselves out to evade the tax and have got away with it. We want to prevent that in future, and there is only one way, if I may be permitted to repeat myself, of doing justice in this particular matter to the taxpayers and treating them all alike, and that is to go back to January 1st, 1941. There is no other way in which we can be just between all of them; no other date will do equal justice.

Mr. Costello

If I may be allowed to repeat myself also, I should like to say that the Minister may be assured that we do not want to allow people who have set themselves out deliberately to evade tax to get away with it.

Mr. O Ceallaigh

I take it that is true.

Mr. Costello

Accepting that principle, and that principle being accepted on all sides, I should like that principle of the equality of taxation to be applied by some method. When putting down amendments in this House, the only desire is to draw attention to what is wanted. We are not acting as the draftsman; we have not either the machinery or the experience to enable us to cover the point precisely. The Minister says that it would require a series of elaborate amendments. Even if it did require a series of elaborate amendments, it might be well worth while.

Mr. O Ceallaigh

That is to achieve apportionment; but apportionment would not mean equal justice for all the companies concerned.

Mr. Costello

I suppose the Minister has information on which he bases that statement. I cannot quite follow how it would be necessary to go as far back as January, 1941, to do equal justice to them. If you fix a date, any date you fix, such as the 5th October, as being merely half the financial year, or even the 1st January, and then apply these provisions, it would be better.

Mr. O Ceallaigh

As, I am sure, the Deputy himself is aware, there have been quite a variety of devices adopted to evade this tax since it was introduced in 1941. I admit that the number of companies who have tried to evade this tax is a limited number, but, even so, we were losing heavily as a result of such evasions, and I can assure the Deputy that I have had this matter very thoroughly examined. As I have said, there is only a limited number of companies concerned, but there is no way of doing equal justice as between all the companies concerned, except by going back to January, 1941. I quite appreciate what Deputy Costello has said, to the effect that Deputies in this House have not the expert knowledge and advice that is at the disposal of the Ministers, but I wish to say that it would not be possible to do what Deputies Mulcahy and Costello have in mind without introducing a very elaborate series of amendments.

An Ceann Comhairle

Is the amendment being withdrawn?

General Mulcahy

Well, yes, Sir, but the Minister evidently is trying to frighten us with this threat of having to introduce an elaborate series of amendments. I do suggest to the Minister, however, that it is remarkable how many points like this arise when it comes to a question of dealing with the Revenue Commissioners, and how grievances and irritations arise, apparently, for no reason at all in the world. It may be necessary to go back to 1941 in order to see that the same principle of justice involved here is carried out in full.

Mr. O Ceallaigh

The object is to make the tax collectible.

General Mulcahy

The point we are trying to make is that people who have to render their accounts on, say, the 24th December, are completely exculpated for their misdoings and do not come under this at all, whereas, if their accounts are not made up until the 31st January, then their misdoings must be paid for. That does not seem to be a very businesslike way of doing things.

Mr. O Ceallaigh

I think it should be obvious to everybody that when people are feeling the pinch, as they obviously are at the moment, with income-tax at 7/6, and with super-tax, and so on, at such a high figure, people will try to evade payment of these taxes. Human nature being what it is, it is only natural that people will try to get away with these evasions, but it is our job to see, so far as we can, that they will not get away with them.

General Mulcahy

I quite agree and, as Deputy Costello has pointed out, we are determined to help the Minister to fight such attempts at evasion and to get after offenders.

Mr. O Ceallaigh

Thank you.

General Mulcahy

But we also feel that there ought to be some better system to deal with the situation. If a person commits an offence, for instance, on the 1st October, 1943, and is found out, under the Minister's proposals here he is accountable for that, and the fact that he happened to make up his accounts for the year up to the 24th December should not wipe out the offence, whereas, if he makes up his accounts to the 31st January, he will have to pay.

An Ceann Comhairle

Is the amendment withdrawn?

General Mulcahy

Very well, Sir.

Amendment, by leave, withdrawn.

An Ceann Comhairle

I think that amendments Nos. 5, 6 and 7 might be debated together. I think that the same principle is involved in these amendments.

Mr. M.E. Dockrell

I think, Sir, that there is a difference, so far as amendment No. 6 is concerned.

An Ceann Comhairle

There are slightly different points in the other amendments, but amendments Nos. 5 and 7 could be discussed together.

Mr. Costello

I think they could all be discussed together.

Mr. M.E. Dockrell

I move amendment No. 5:—

In sub-section (1) to delete paragraph (c), page 8, and substitute the following paragraph:—

(c) In the case of a company the standard profits of which are the substituted standard or the sum of two thousand five hundred pounds and which had no trade year ended in the year ended on the 31st day of August, 1939, not being an auxiliary of another company within the meaning of Section 14 and to which the provisions of Section 42 of the Finance Act, 1941, and Section 13 of the Finance Act, 1942, are not applicable no deduction shall be allowed in respect of remuneration paid to a director in excess of an amount calculated at the rate of £1,000 per annum.

The draft of this particular section in the Bill, I think, will have an effect on companies that the Minister did not quite envisage when he started it. We all know that we want to catch people who are evading the payment of their taxes, and, as the Minister has said, that was the purpose of the section, but I am afraid that this draft will also tend to choke enterprise, because it is extremely repressive. It will choke enterprise, especially, in connection with people of limited means, people who are young and active in small companies, or people who are desirous of exploiting an invention or a new process. At the present moment, and in the post-war period, that type of concern is likely to increase, and the country, generally, will be very anxious to see such companies being started, but these companies will be placed in a very invidious position if they are only able to pay their managing directors or directors £30 per £1,000 as a salary. Another point in connection with this is that a number of people have assumed that this relates, or will relate, mainly or entirely, to private companies, but of course it will not. I take it that it is a company, the directors of which will have a controlling interest therein. That does not necessarily apply to private companies, and I am afraid that it will effect other companies also.

However, to go back to this question of the £30 and the relation between capital and the type of company and the services that that company carries out or gives to the community, these services vary enormously. There are many companies with very small capital because, in the main, the brains of the directors are the principal capital. I cannot think of an example at the moment, but there are many types of agencies, and so on, where it is the brain-work of the directors that counts, and not stock. That type of company will be cruelly hit by this part of the Bill. The capital they have may be only necessary to rent a couple of rooms, put in a few desks, purchase a typewriter, notepaper and so on, and such companies will be appallingly hit by this section. There are many such companies, and, as I said, the relation of the capital of the company to directors' fees is not as closely allied as the Minister seems to think in that section.

I have an example here of the tax that would be paid on £1,000 under the proposed new arrangement. Take the case of a company in which the directors have a controlling interest, and of which the issued and paid-up capital is £1,000, and the remuneration of the managing director £1,000. Assuming that £1,000, is allowed as a deduction for income-tax and corporation profits tax—profits, £2,500—after charging remuneration at the rate of £1,000, the amount of remuneration allowed as a deduction for excess corporation profits tax is equal to 3 per cent. on £1,000: that is £30. The balance of £970—that is, £1,000, less £30—bears the following taxes: excess corporation profits tax, £970 at 50 per cent., amounting to £485, and income-tax on the balance of £485, at 7/6 in the £, amounting to £181 17s. 6d.; making a total of £666 17s. 6d. The managing director himself—Schedule E—would pay income-tax on £970, at 7/6, amounting to £363 15s. 0d.— making a gross total of £1,030 12s. 6d. In this example the managing director is also liable to surtax, and thus the whole £970 is confiscated, and a capital levy is effected, of £60 12s. 6d., being £1,030 12s. 6d. less £970—the surtax thereon.

That is an example of what might very well happen under this particular section. I do not think that the Minister intended anything in the nature of a capital levy. I would say to the Minister that in most people's opinion the arrangement before this was introduced seemed quite adequate to catch the particular type of person whom the Minister wants to catch. Another question in connection with this paragraph —it simply bristles with points—is that a company is unfairly treated as compared with a partnership. If there is a company with a capital of £6,000 with three directors, they would be entitled to £180, but if they were a partnership they would be entitled to £2,500 each before they paid the corresponding surtax. That is rather unfair. It seems to be singling out a particular type of young, possibly progressive companies for an excessive amount of taxation. I know the type of person whom the Minister wants to catch, but I would point out to the Minister that he will catch a number of other people also and in that way he may kill the enterprise of small companies which we shall want in the coming years.

Mr. Costello

Amendment No. 7, as you, A Chinn Comhairle, have pointed out, is directed towards the same purpose as Deputy Dockrell's amendment. The object of amendment No. 7 is to provide for a larger allowance than is permitted by paragraph (c) of the section for ordinary directors. The amendment that I propose in this connection is, perhaps, not as important as some of the other amendments which are down in the names of Deputy Mulcahy and myself to this paragraph, but the real principle involved to which objection is taken in this amendment is the tying up or the relation of the remuneration of the directors to capital. The object of Section 13, as I understand it, is to make new provisions for the payment of directors in companies in which these directors have a controlling interest. This section, particularly paragraph (c) is very drastic in its provisions and may work out most unfairly to new companies, particularly to new companies which were formed to take over existing companies.

In relating the remuneration of directors to paid-up capital, there would not seem to be any underlying principle. The figure of £1,000 put down in my amendment is taken empirically, taken at random, to direct attention to the hardship and anomalies that exist. A thousand pounds might be a small amount for a big company, but it might be a large amount for a small private company; it is the principle in which we are interested. We wish to direct attention to the fact that the size of the capital in any company does not necessarily depend on, or has no relationship to the earnings of the company, nor to the time which the directors may have to give to the working of the company. We find it difficult to understand the principle underlying this paragraph, as to why there should be a relationship between directors' fees and paid-up capital. A company might be earning huge profits if it had a big turnover but a very small capital. I have myself in the course of my practice come across companies that had actually in profits almost double the amount of the paid-up capital. Of course, the amount of work put in by the directors was very considerable. Speaking from recollection of one particular case, I think the amount of capital was only £5,000. The directors would get only £150, whereas they were earning thousands of pounds for the shareholders. That seems difficult to understand from the point of view of principle.

Again, Deputy Dockrell has cited the case of companies requiring a large capital, while other companies might not require such a large amount. I could, for instance, quote the case of a jeweller's shop which would require a huge capital. The proprietors of such a business would be permitted under this paragraph to pay big fees to the directors, whereas if you take the cases of a commission agent, an auctioneer or an estate company, that business would require a very small capital. The enterprise would be run on the brains of the directors giving their full time to the work. The directors of that small company, run by their brains, their energy and their experience, and the profits depending on their intellects, energy and experience, would be very harshly and unfairly treated under the provisions of this section. It seems to us that if the limitation of directors' fees is to be related to anything in principle—it is very difficult to see how it can be related to anything in principle—it should be related to the earning capacity or turnover. Why the capital should be taken as the principle, purely empirically, we cannot see, and we should like to hear the Minister on that point.

Mr. O Ceallaigh

On the last point which Deputy Costello made, would it not seem reasonable to suggest that a company with a large capital requires from its directors much more attention, as there is much more at stake, and much more constant care than is necessary in the case of small companies? Therefore, the directors would be entitled to greater consideration than in the case of companies with a very low or negligible capital, of which there are many examples. Deputy Costello and, I think, Deputy Dockrell, too, overlook the minimum standard allowed to all these small companies, which enables a considerable sum to be put aside for the remuneration of directors. When this excess profits tax was first introduced I suggested £1,000 as the minimum standard. There was a good deal of argument in the House on that matter and eventually I agreed that the minimum should be £2,500. That leaves a big margin for the payment of directors' fees. The directors, even in the smallest companies, have that allowance of a minimum standard there to deal with as they wish, and they can use that amount for the payment of directors' fees up to £1,000 or more.

That fact ought to be taken into consideration by Deputies in arguing the desirability of amending the Bill in the way they suggest. In reply to Deputy Dockrell, I may say that I know that partnerships have a considerable advantage, that each partner in a concern can, under the law at present, get the benefit of the £2,500 minimum standard, but if there is to be any change—I have not yet decided that that advantage is to be taken away from partners and it may not be necessary, but the matter is being examined—it would be in the direction of reducing that advantage.

This section deals only with director-owned and controlled companies and it is deliberately put in here to stop the evasion which has taken place. In so far as this type of company is concerned, there has been pretty widespread evasion. It was legal, but I want to make it illegal. We have lost a considerable amount of money through these evasions. I do not think there is any injustice. In the numbers of cases shown to me of this type of company, I have not seen any case in which there was not ample provision for what, to my mind, seemed to be generous treatment of the directors. There is no case that I know of in which directors were able to get only the £150 or £180 to which Deputy Costello referred. We must take into account the minimum standard allowed. It is a generous standard. Some people have quoted what is done in England, but there the standard is very much lower than it is here.

Again, with regard to this whole series of sections relating to excess profits tax, I hope that, when peace is restored, excess profits tax can be done away with and forgotten. It is, to some extent, I admit, a bar to enterprise in some cases. People are not allowed to get away with all the profits they would like. There is a very considerable slice taken off their excess profits by the State. That may to that extent be, in some cases, a considerable bar to enterprise. It has not, I think, shown itself in practice up to the present to be a bar, and I have not come across any case of a small company of the type which Deputy Dockrell described for us where any individual has been hampered in his endeavour to expand his business by reason of the limitations on the payment of directors. Many cases have been brought to my notice in which, before this excess profits tax came in the directors' fees were small, but now these fees have gone up three, four, five and nearly tenfold, for the purpose of evading tax. The number of directors has been doubled and trebled and the wives and daughters of directors have been brought in to act on the board and what I regard as huge fees paid to them in relation to the size and capital of the company. It is to stop that kind of thing that the section is designed. It is to prevent evasion by the appointment of these wives and daughters and sons, where it could not be shown that they were taking an active part in directing these companies, that the section is introduced. I am certainly not desirous of stopping enterprise.

Mr. M.E. Dockrell

We perfectly understand that, and we hold no brief whatever for these people who bring in all their relations and stick them on the board, paying them large salaries by way of directors' fees, but surely there must be some way of catching these people without this repression of initiative? The Minister mentioned that he had not had complaints and that there had not been hardships, but this measure was not in operation. We do not yet know what hardships it will bring about, but we, in our amendments, are endeavouring to stop these hardships before they arise. It can be seen, however, from what is contained in the paragraph, that it can have no effect but that of causing a great deal of repression and hardship on small businesses.

Mr. H.M. Dockrell

The Minister seems to be trying to make our flesh creep. He says: "If I have to look into this at all, I shall have to go back to 1941, and if anything is done in relation to partnerships it will be along the line of reducing their allowances." Might I point out that he has already started in on what I might call established practice? This section does away with the privilege hitherto enjoyed by all companies of charging for corporation profits tax and excess corporation profits tax purposes a maximum remuneration of £1,000 in respect of each director. Undoubtedly, that privilege has been much abused and the Revenue has been deprived of some share of excess profits by the appointment of dummy directors or by the payment at the maximum rate of persons as directors who were not giving very many services in return, but this section, as drafted, goes to the other extreme.

Sub-sections 1 (a) and (b) limit the amount which may be deducted for directors' remuneration to the amount deducted in the trade year on which the profit standard is based, or to the maximum amount deducted in any one of the three trade years ended on or prior to 31st August, 1939. No allowance is made for quite legitimate things which may happen. As against the Minister's contention of the appointment of wives and daughters who possibly bring no extra brains into a company, I should like to cite the case of the appointment of an employee as a director, such a person's salary as an employee having been an expense which operated to reduce standard profits.

We know that the line between the people who are working as operatives and people who are on the board tends to become less and less clearly marked. There are people on the board now with tremendous craft knowledge, people who have started as workmen and who have been brought on to the board. I am sure the Minister does not want to repeat the case of a man who said, years ago, that he was cheated by being made a partner. In trying to catch the people who ought not to get away with it, the Minister ought to be very careful to see that he is not doing more damage in the other direction.

Mr. O Ceallaigh

I think the Deputy is dealing with amendment No. 9, which refers to an employee who is made a director.

Mr. Costello

I am afraid the Minister has not given a very convincing explanation as to the reason why the remuneration of directors is being related to capital. He said it should be clear that the amount of the capital had some definite reference to the amount of work that was to be done by directors. I am informed by experts, people who have been dealing with those matters, that there is in fact no real relation between the amount and value of the work that is put into a business and the capital that is expended on the business. Experts have taken that view, and apparently their experience has reinforced it. I have given some examples of cases where companies are run on the energies and the brains of a number of individuals, with very little capital. I have also given a concrete instance of a case I came across myself in which a small amount of capital was earning a large amount of money through the energy of a particular individual. The Minister has not really given any explanation of the provisions of this paragraph. Perhaps he will look into it again in the light of any further matters that may be brought before him. I am very definitely informed that there is no real relation between the amount and value of the work put into a business and the capital expended on it. You might have a company which would require a considerable amount of capital to buy toys or things of that description, where no particular knowledge or experience is required to sell the commodity but a vast amount of money is required to get it. The director of that company could get a big fee, whereas a director carrying on the business of a company in which knowledge is more necessary than money would get only a small fee. I do think the Minister ought to look into the matter very seriously.

The other point upon which I am instructed is that the real hardship of this paragraph falls upon people who are running a family business. Two or three members of the family are working the business, working it honestly, working it within the law, and this paragraph treats them very harshly. At the moment, I understand that the limit they are allowed to give is £1,000 in directors' fees, plus the usual £2,500 permitted deduction before tax is payable. I am told that this particular paragraph is likely to cause very serious hardship to family businesses of this kind which are being worked honestly, and where the members of the family cannot get an adequate allowance for the actual work that they themselves put into it.

Mr. O Ceallaigh

In the case of honest people who are working a family business or any other kind of business, I certainly do not want to penalise them to the extent of stopping enterprise as Deputy Dockrell suggested. I will go this far: if examples are brought to me showing that serious hardship is being inflicted by this section in the types of cases to which Deputy Costello has referred, I will look into the matter again, but here we are dealing with director-owned companies. In fact they can pay themselves what they like out of the profits of the company, but they are limited to a certain figure for directors' fees, in the amount that can be put down for directors' fees allowable before tax is computed. They own the company; all the profits of the company, except what is paid in tax, may go into their own pockets, but they are limited to a certain maximum figure for directors' fees for that company before the computation of tax. Possibly in the last year or two, they have been accustomed to get away with a great deal more, and they feel the loss of that in having to pay excess corporation profits tax. The only reason we introduced this section was that, amongst a certain type of company, I assure the House there was widespread evasion.

Mr. Costello

And I can assure the Minister that our only object is to make the working of this charge equitable. We are endeavouring to bring to the notice of the Minister cases in which the working of the charge may prove to be inequitable.

Mr. M.E. Dockrell

It would appear from the case of Copeman v. William Flood & Co. that the Revenue Commissioners have ample powers to surcharge excessive directors' fees.

Mr. O Ceallaigh

I do not know the case to which the Deputy refers.

Mr. M.E. Dockrell

I am merely quoting an opinion.

Amendment No. 5, by leave, withdrawn.

General Mulcahy

I move amendment No. 6:—

In sub-section (1) (c), page 8, line 5, after the word "allowed" to insert the words "over and above remuneration paid to directors who are required to devote substantially the whole of their time to the service of the company.

We are all concerned with post-war planning, the carrying on of industry, and the provision of services. I think that, in the difficulties of to day, anybody who can start a new industry or provide new services ought to be encouraged in every possible way. This affects new companies. Whatever may be said about restricting the fees paid to directors who merely attend board meetings, there is little to be said for damping down the energies of men who, as directors, give the whole of their time to the carrying on of the business, and particularly to the carrying on of a new business. This amendment of mine is intended to exempt from the restrictions remuneration paid to whole-time directors, even though they hold over 5 per cent. of the shares, who devote substantially the whole of their time to the carrying on of the business. At the present time, an old company with, say, £5,000 capital, could pay its directors anything they had paid them before the war, but a new company with £5,000 capital could pay its directors only £150. This amendment, then, dealing entirely with the directors who devote a substantial amount of their time to the service of the company, is intended as an encouragement to people with energy and ability to throw themselves into the situation at the present time and to help to create additional employment. I submit to the Minister that they are a class of people who ought to be encouraged in every way possible.

Mr. O Ceallaigh

I am afraid I cannot accept the amendment. This amendment suggests that if a company made a profit of £20,000 in a particular year, and that if there were four directors in the company, the four of them could take £5,000 each. There is no limit. If the company made a profit of £50,000, the four directors could divide it between themselves because, as I say, there is no limit suggested in the Deputy's amendment. I do not think that would be a proper position. The Deputy took the case of a man who had to give his whole time to the business of the company in which he was a shareholder, holding less than 5 per cent. of the shares. I do not think that paragraph (f) of sub-section (1) would apply there. If the Deputy reads that paragraph he will see that it does not apply to the remuneration paid to a director who is required to devote a substantial portion of his time to the business of the company and owns less than 5 per cent. of the capital.

General Mulcahy

There ought to be some means of distinguishing between the type of director that I speak of who gets only £150 as a director, and a man who grabs all the profits of a company. I think the Minister should be able to devise some other means for dealing with cases of that kind than the means he is proposing in the section.

Mr. O Ceallaigh

The Deputy is surely forgetting the minimum standard allowance of £2,500, which can be disposed of as directors' fees, if the directors so decide.

General Mulcahy

The Minister, I take it, is referring to the fact that the sum of £2,500 will be allowed before excess profits are claimed?

Mr. O Ceallaigh

Yes.

General Mulcahy

I am not forgetting that at all. That applies to the old company as well as to the new company.

Mr. O Ceallaigh

It does.

General Mulcahy

But I am pointing to the fact that, unless this amendment is accepted, a director will not be able to get more than £150 as a director in any new company started with a capital of £5,000. Take the case of two or three men who start a business and run it themselves. They naturally will own the shares, and, therefore, will own more than 5 per cent. of the capital that is involved. It seems to me to be inequitable, especially at the present time when we are looking for energy and initiative in dealing with the present situation and for the development of additional business, that people who start a new company under difficult circumstances, such as we find ourselves in to-day, should be less favoured in the matter of the remuneration paid in the form of directors' fees than if they were in an old company.

Mr. O Ceallaigh

I do not want that to happen, and, as far as I am advised, it will not happen under this section. There is this minimum standard allowance, and that certainly is available for distribution in the way of directors' fees, if the directors so desire.

Mr. Costello

On the case put by Deputy Mulcahy, am I to take it that the section works in this way: that if two or three persons start business and put their whole time and energy into it, they can only get, by way of remuneration, the amount allowed in this paragraph which has reference to the amount of the capital—that is the sum of £2,500? I take it that they can only get for their remuneration as directors the amount permitted by this paragraph. What we are submitting to the Minister is that they should be allowed to get, as directors' fees or otherwise, the remuneration that they would get if they were employees of the company. Surely, that should not be difficult to work out from the point of view of drafting.

As I understand Deputy Mulcahy's amendment, what it asks is that those directors who are giving their whole time in the service of the company should be permitted to get the same amount by way of directors' fees as they would get if they were employees: in other words, that those two or three men who formed this company to carry on a business, instead of working whole-time in it themselves, sat upon the board and employed other men to come in and do the work which they are doing, would be entitled to take the amount of salary or remuneration paid to those employees before assessment to tax was made. But, because they are directors of the company, because they started it and have a controlling interest in it, they are not entitled to get paid for their actual work. I do not think the Minister means to penalise people who do that. Perhaps it would be possible for him to accept the principle that if people are genuinely and bona fide giving their whole time and attention to work which would otherwise be done by employees, if they did not do it, ought to be entitled to charge the same amount that they would have got if they were mere employees on salary.

Mr. O Ceallaigh

If we take the case of a company with a capital of £5,000, as Deputy Mulcahy suggested, and also take into account that the minimum standard allowance is £2,500, the sum available for distribution among the three directors is £2,650, or over £850 each.

Mr. Costello

But they would get the same if they did not do a stroke of work but merely sat on the board. That is the principle that we are objecting to.

Mr. O Ceallaigh

If they own the company and make a profit, they have, at any rate, £850 each, after the profits of the company have been taxed. They have that sum for themselves as directors, and it does not pay tax. After the balance of the profits has paid tax, they can have the whole lot if it is a director-owned company.

Mr. H.M. Dockrell

I would like to join issue with the Minister on what he has just said, that the managing directors can have the whole lot. I would like to remind him that there are mouths, other than those envisaged by the Minister, to take a bite out of that £2,500 loaf.

Mr. O Ceallaigh

I was dealing with the case of the three directors referred to by Deputy Costello.

Mr. H.M. Dockrell

In the case of the three directors, the Minister says that there is the sum of £2,500 available, and that if the directors so decide it can be distributed amongst them. I would like to remind the Minister of some of the things he has forgotten in making that statement. First of all, the Minister has a right and a left. If he gives £2,500 with his left hand, his right comes along to take 7/6 in the £1 out of it. Another thing that the Minister does not take into account is the fact that profits, for the purposes of taxation, are computed usually much in excess of the profits which ordinary commercial prudence regards as the real profit. This arises largely from the provision for wasting assets which must be made, but there are others which are not allowed, or if so, only on a modest basis in arriving at the taxable profits. The obvious effect of the taxation computation is to do away with part of the benefits of the exemption limit of £2,500 for corporation profits tax and excess corporation profits tax. If I may go back to Deputy Costello's amendment, under it he wanted to delete the words in the section which give a discretion to the Revenue Commissioners. That means that the people who are running the company—the three directors that Deputy Costello has suggested—might have a whole lot of the wasting assets and may consider that a claim should be allowed to reduce them very substantially. The Minister is, apparently, afraid even to face the courts, for fear he might not get justice, and says that the Revenue Commissioners will have to decide that for the three directors. The directors might be faced with the position that a claim for £1,000 depreciation has been disallowed by the commissioners and that would have to come out of the £2,500.

I would like to point out to the Minister another aspect of that case. This refers to small companies, which usually have small assets. In their post-war trading, they will be limited by the amount of business that they can finance. If every penny that they make is to be taken away, more or less, in taxation and in the absolute necessaries of remuneration for the directors, it means that they cannot effect any build-up in competition with the older companies. It means that the Minister's suggestion that there is a £2,500 pool which can be used for almost all circumstances is largely illusory and, in fact, might vanish altogether, when you take the legitimate needs of the directors, which have been disallowed by the Minister, the 7/6 and the depreciation for machinery, and there will really be nothing left for post-war expansion. The directors might find a situation facing them in the post-war period in which they wanted largely increased facilities and then they might be like Old Mother Hubbard.

Mr. O Ceallaigh

I would not like to think that the gloomy picture drawn by Deputy Dockrell is a correct one and I suggest that, in the House and outside of it, there is a body of opinion that the Minister for Finance is not taking sufficient tax. We are not taking all the profits, all the excess profits; we have left, in the minimum standard and in the excess profits tax itself, what we think is a safe margin to build up for the post-war period. We know very well that it is not agreed on all sides amongst the directors of companies that we have left a sufficient margin; but we have allowed a higher margin than is being allowed in places where similar excess profits tax operates. We think we are justified in allowing that higher margin, in the condition of industry here. Fairly generous provision is allowed for wear and tear and even wasting assets, to some extent, are included in that. Provision is made for all these circumstances—a wise provision—to allow industries to be in a fairly good position to restart when peace is restored and develop our industrial resources. It is not at all with the intention of crippling any industry that we have proposed the excess profits tax or the other taxes or that we propose this amendment. This amendment is intended to stop the evasion of tax.

Deputy Dockrell refers to the 7/6. Well, of course, we all have to bear that in mind: we are very forcibly reminded of it a couple of times a year— and some of us more often. Everybody is subject to it, so that it cannot be forgotten. It is not omitted in any of the computations I have made or in dealing with any of the new sections that I have introduced. The question of the method of computation of tax profit is another matter, for another day. It would scarcely be relevant on this Bill.

Amendment put and negatived.

Amendment No. 7 not moved.

General Mulcahy

I move amendment No. 8:—

In sub-section (1) (c), page 8, line 11, at the end of the paragraph to add the words "The provisions of this paragraph shall not apply to a company which was formed to take over a business carried on by one or more individuals and which carries on substantially the same trade or business as was carried on by such individual or individuals".

This amendment is self-explanatory. The fact that the company was in existence and simply changed hands in that way, I submit, should not make a difference.

Mr. O Ceallaigh

I really do not understand why the Deputy should move an amendment of this kind. It would simply mean that any company succeeding to a business previously carried on by an individual or a partnership could escape excess profits tax and corporation profits tax altogether. The company could pay away all its profits in the form of directors' remuneration and there would be nothing left for the payment of corporation profits tax. There is no limit to the amount that might be paid as fees to directors—they could hand it all over. I do not think the Deputy would approve of that, but that would be the effect of it.

General Mulcahy

Surely the company, as it stood as an old company, would not be escaping the excess profits position? It is simply intended that, because a company was an old company and simply changed hands, it would not come deeper under the excess profits tax than it was previously by reason of the fact that it was taken over.

Mr. O Ceallaigh

But it would be free to hand over any profits. There is no limit on the amount which could be divided amongst the directors.

Mr. Costello

Could the Minister not meet that point by an appropriate amendment if he accepts the principle? There are cases of moribund companies, moribund by reason of bad management, which had inherent potentialities. They were taken over by new management and new companies, with proper energy and new blood, which have made them prosperous concerns. What is intended to be done by this amendment is to enable the directors who have achieved that to get proper payment—not at all to get payment of a kind that would enable the company to evade the payment of tax. There should be some provision to enable directors of that kind to get adequate payment, and that is the purpose of Deputy Mulcahy's amendment.

Mr. O Ceallaigh

I cannot see how this would operate the section as Deputy Costello and Deputy Mulcahy desire.

Mr. Costello

The amendment may not be the best from the drafting point of view, but perhaps the Minister would accept the principle of it.

Mr. O Ceallaigh

I may misconceive what the Deputies desire to achieve by the amendment, but as far as my reading goes, it certainly would have the effect I mentioned.

General Mulcahy

I do not know if the position is safeguarded in any way by the Finance Act, 1941, but the intention of the amendment was that by virtue of the fact that the ownership of a company changes hands, it will not go deeper into excess profits tax than if a change had not taken place.

Mr. O Ceallaigh

It succeeds to the standards of the old company.

General Mulcahy

Is it safeguarded to that extent by the Act of 1941?

Mr. O Ceallaigh

Section 13 of the Act of 1942 covers the case.

General Mulcahy

In view of what the Minister says, and of the sweeping effects of that Act, I do not press the amendment. I wish the Minister would look into the matter.

Mr. O Ceallaigh

If there is a case of that kind that Deputies have in mind, I would be glad to hear it.

Amendment, by leave, withdrawn.

Mr. Costello

I move amendment No. 9:—

In sub-section (1) (f), at the end of the paragraph, line 45, to add the words:—"Or to a director who was an employee but not a director of the company on 31st August, 1939, and was an employee of the company at the time he was appointed a director".

The clause to which it is proposed to add the words of this amendment is, generally speaking, a fair one, and could be accepted by us, but the case of a person who was an employee of a company before the war and who for one reason or another, has since the emergency become a director, ought to be covered. It is the practice, and in the view of many experienced business people a very good practice, to make employees who have given good service to a company over a considerable number of years, and who have put their savings into it, directors of the company. It was felt that it was a good practice to have employees of long standing and experience on the board. It is also desirable that employees in a company should be given an incentive in their work, having given good service and put their savings into a company by having the ultimate hope of joining the board. That is a good thing for business, a good thing for the community generally and, incidentally, a very good thing for the revenue. If an employee of that kind joins the board at present and has not part of his savings in it he is not caught by the section. If he has less than 5 per cent. of his capital in the company he is still outside, but if he happens to have 5.1 per cent. of his capital invested by way of savings then he is caught by this particular provision. We think that that is inequitable. The scope of the amendment is very restricted, and applies only to persons who were employees before 1939 and who, at the date of becoming directors, were still employees of the company. Perhaps the Minister would give the matter favourable consideration.

Mr. O Ceallaigh

I think there is something in the case Deputy Costello referred to, but if the Deputy does not mind my saying so the amendment as drafted——

Mr. Costello

The Minister can do anything he likes with the drafting.

Mr. O Ceallaigh

I am quite prepared to consider the matter and to deal with it by an amendment on the Report Stage.

Amendment, by leave, withdrawn.

Mr. H.M. Dockrell

I move amendment No. 10:—

Before sub-section (2), page 8, to insert a new sub-section as follows:—

Provided that nothing in this section shall operate to limit the deduction in respect of the total remuneration of all directors to a sum less than 25 per cent. of the profits as adjusted for income-tax purposes but before charging directors remuneration or deducting the amount of corporation profits tax (including excess corporation profits tax) payable for the particular accounting period.

This is designed to do away with anomalies that could arise in connection with some of the cases that were mentioned here. I suppose the Minister will say that they are all exceptional but they could arise. A position might arise under the amendment where matters could go to the other extreme. What I am trying to bring about is that the remuneration of directors should be, at least, allowed to bear some relation to the profits of the company.

Mr. O Ceallaigh

This amendment, if accepted, would undoubtedly defeat our excess profits tax and corporation profits tax. I could not dream of accepting it. Take the example of a company with a capital of say £15,000. That is not an exorbitant figure. If that company made a profit over the last accounting period for which figures are available, of £250,000, under the law as it stands the directors might be entitled to draw fees up to, say, £6,000. If I accepted the amendment, they would be entitled to draw £62,000. Taking that as an example of how the Deputy's amendment would work, our efforts to get excess profits tax would be defeated. I do not think the Deputy intends it to work out in that way, but that would be the effect.

Mr. H.M. Dockrell

That was not intended, but the Minister by going to the higher extreme has shown the absurdity of the position under the section. That does not do away with the justice of, at least, some portion of the company's profits being allowed to be distributed. Let the Minister limit the amount to £5,000 or something like that.

Mr. O Ceallaigh

With a capital of that kind there could be a profit division made of what I would regard as a reasonable payment to directors—not an excessive payment.

Mr. H.M. Dockrell

How will that come about?

Mr. O Ceallaigh

Take the minimum standard, whatever that would be. The standard of a company and a profit, say, of £250,000, arise out of a war period. If they had a minimum standard of profits of £10,000, or £20,000 for pre-war years, a reasonable standard of excess profits at 3 per cent. allowance on the capital would give not a generous but a reasonable allowance for directors' fees.

Amendment, by leave, withdrawn.

Section 13 agreed to.

SECTION 14.

General Mulcahy

I move amendment No. 11:—

In sub-section (5), page 9, line 20, after the word "company" to insert the words "and the main purpose for which the post-appointed day company was formed was the avoidance or reduction of liability to corporation profits tax or excess corporation profits tax".

As the Minister explained on the Second Reading, this section is intended to prevent companies evading taxation by forming subsidiary companies to carry on part of the business, and getting the subsidiary companies regarded as separate companies. The Minister indicated that in this matter he is dealing with people who deliberately set themselves out to evade taxation. I suggest that the sub-section be amended to read:

".... where a post-appointed day company is deemed by this section to be a subsidary of a pre-appointed day company and the main purpose for which the post-appointed day company was formed was the avoidance or reduction of liability to corporation profits tax or excess corporation profits tax, then, unless the Revenue Commissioners otherwise direct, the following provisions shall, for the purpose of a charge to corporations profits tax, apply...."

There the words suggest that the main purpose for which the company was formed was that of avoiding tax. That may not be the best possible amendment, but I want to safeguard the position in which, for the ordinary and necessary development of business and for the improvement of the industrial situation generally, a subsidiary company is set up. That company should be treated on its merits. If it were a new company, it would be treated in a certain way in regard to taxation. If it is a growth of an existing company, that should not operate against it if it is established for an economic purpose and not for the purpose of avoiding tax.

Mr. O Ceallaigh

I think the Deputy overlooks one of the provisions of the section. The Revenue Commissioners have powers to direct that the section shall not apply in cases where it was obviously never intended to apply.

General Mulcahy

Is that the purpose of the insertion of the words "unless the Revenue Commissioners otherwise direct"?

Mr. O Ceallaigh

Yes. It must be borne in mind that if an existing company extends its business either by manufacturing or marketing commodities which it did not previously handle, or by developing a trade or business which it did not previously carry on, the profits derived from such new business are liable in full to excess corporation profits tax, subject only to the appropriate allowance for any new capital issued for the purpose of the new business. The fundamental idea of the section under discussion is to provide that an advantage cannot be obtained by forming a subsidiary company to work the new business. The mere fact that the company was not formed with the object of avoiding liability to corporation profits tax is immaterial in the light of what I have said. The business of the subsidiary will be, in effect, merely that of a branch carrying on what are really the operations of the parent company, and should be dealt with accordingly.

General Mulcahy

That does not offer much promise under the words "unless the Revenue Commissioners otherwise direct".

Mr. O Ceallaigh

All the facts in the case will be subject to examination by the Revenue Commissioners.

Mr. M.E. Dockrell

I am interested in a case in which a company acquired an old-established business in a somewhat similar line. A company was manufacturing clothing, and a business came on the market which was engaged in selling clothing. A company was formed which acquired this business. The purchasing company is continuing in exactly the same way the business which it did. It would seem from this section as if the new company would have whatever profits it may make— and they will not be very great— lumped together with the profits of the parent company, notwithstanding that the company now formed is an entirely new company, though constituted mainly of persons connected with the manufacturing concern. Is the new company, which is engaged in the retail trade, to be penalised by having its profits lumped with those of the older company? If that be done, it will have to close down. I am instancing that as a concrete case.

Mr. O Ceallaigh

The full facts will be examined—and sympathetically examined—by the Revenue Commissioners, not necessarily with a view to getting the last half-penny out of a company of that kind and, certainly, not with a view to injuring the company or obstructing enterprise. That will not be the object. If, on sympathetic examination by the Revenue Commissioners, they are satisfied that this was an honest acquisition of a declining business as a new business, they will not go out of their way to minimise the amount of profit which will be allowed without tax to that company.

Mr. M.E. Dockrell

This is a case in which an old-established company acquires another one for the purpose of expanding in a new but somewhat similar line.

Mr. O Ceallaigh

If it is not a new company established to avoid payment of tax, it will not be penalised.

Amendment, by leave, withdrawn.

Mr. H.M. Dockrell

I move amendment No. 12:—

In sub-section (9) page 10, line 32, to delete the word "fifty" and substitute therefor the word "seventyfive."

Directors of a company who wished to split their business for the purpose of avoiding taxation would not allow up to 50 per cent. of the capital of the subsidiary company to be held by outsiders. The figure of 50 per cent. is, therefore, unnecessarily low and will only tend to bring within the scope of the proposals a number of companies which have no connection with one another. A 75 per cent. holding seems to be much nearer the mark. I ask the Minister to consider this amendment sympathetically.

Mr. O Ceallaigh

I cannot accept the Deputy's amendment. If it were accepted, the position would be that the principal company, holding more than 75 per cent. of the shares, could evade the section by divesting itself of a sufficient number of the shares to bring its holding down to whatever figure would be requisite. It would still retain, essentially, control of the company but it would effectively rid itself of a sufficient number of the shares to enable it to evade tax.

Mr. M.E. Dockrell

So far as I can interpret this section, I see the possibility that, if a person floated a small private company, and owned more than 50 per cent. of the shares, the profits of such a company could be legally incorporated in the profits of any other company in which that individual might be a shareholder. I am sure that the Minister and the Revenue Commissioners do not want to do such a thing.

Mr. O Ceallaigh

Our aim is to stop evasion. There would be no interference with the development of such a company.

Mr. M.E. Dockrell

Does it seem desirable that such powers of interpretation should be handed over to the Revenue Commissioners? Could more precise definitions not be given? I do not think that the Revenue Commissioners will go to extreme lengths in this matter but, when the legal power lies in them, anomalies are bound to occur. I do not suppose that anybody who owns more than 50 per cent. of the capital of a small company and who has a few dozen Guinness shares, will find the profits of his concern lumped with those of Messrs. Arthur Guinness & Company for income-tax purpose, but if that legal power to do so exists, surely it is rather undesirable.

Mr. O Ceallaigh

Every year on this Finance Bill we have amendments proposed by Deputies and, very frequently, by the Minister, to the existing tax law. In my term of office, I, as Minister, have proposed many amendments to meet cases of hardship that have arisen during the preceding year or few years where a tax would seem to be oppressive or to lie too heavily on some sections of the community. The staff of the Revenue Commissioners will bring such cases, and frequently do bring such cases to my notice. While taxes are for everybody very heavy—taxes on profits nowadays of companies or businesses in general are heavy, admittedly—we do not want them to lie too heavily, certainly not unjustly, on any section of the community. If cases of that kind are brought to my notice, we would like to remedy them. In some cases we are not able to do full justice but we would like to remedy them. In this type of case the section has to be drawn pretty widely and some latitude allowed to the Revenue Commissioners. Even this year amendments have been suggested to me by the Revenue Commissioners where they suggest they have not had sufficient power to enable them to give reliefs in certain types of businesses with regard to, let us say, plant and machinery—one case in point. We have that kind of thing brought in year after year in the House. In the case of the particular sections that we are introducing in this Finance Bill, if it is found, next year or the year after, if excess profits tax continues, that they are lying unjustly on any particular section of the community, I am quite prepared to come to the House and ask for the tax to be altered.

Amendment, by leave, withdrawn.

Mr. H.M. Dockrell

I move amendment No. 13:—

Before sub-section (10), page 10, to insert a new sub-section as follows:—

(10) This section shall apply only when a direction is made by the Revenue Commissioners, and any company aggrieved by such a direction may appeal to the Special Commissioners on any of the following grounds, that is to say:—

(a) the post-appointed day company was not formed with the object of avoiding liability to corporation profits tax;

(b) the post-appointed day company was formed to manufacture or market a commodity or commodities not manufactured or marketed by the pre-appointed day company;

(c) the post-appointed day company was formed to take over an existing business not carried on by the pre-appointed day company;

(d) the post-appointed day company was formed to develop a trade or business not carried on by the pre-appointed day company;

(e) it is not just or equitable that the section should be applied.

This amendment provides that the section shall become operative only when the Revenue Commissioners so direct, and it gives the company aggrieved by such a direction the right to appeal to the Special Commissioners.

Mr. O Ceallaigh

I cannot accept the amendment. I think sub-section 5—to which I have already referred—gives power to the Revenue Commissioners not to apply the section if they think it should not be applied.

Mr. H.M. Dockrell

Does the Minister not think that it is better to clarify the position by having them give this direction?

Mr. O Ceallaigh

I do not think it is necessary.

Amendment, by leave, withdrawn.

Amendment No. 14 not moved.

Mr. Costello

I move amendment No. 15:—

In sub-section (11), after paragraph (b), page 11, to add a new paragraph as follows:—

(c) Where the provisions set out in sub-section (5) of this section apply to a pre-appointed day and a post-appointed day company, and the said companies inform the Revenue Commissioners that they desire to have the provisions of this section to apply and have effect in relation to assessments of income-tax, corporation profits tax and excess corporation profits tax, the Revenue Commissioners may grant the request and the provisions of this section shall apply and have effect accordingly.

Under this section auxiliary companies are treated from a fixed date as being part of the parent company, but that is done, as I understand it, solely for the purpose of corporation profits tax and excess corporation profits tax.

Mr. O Ceallaigh

Not for income-tax.

Mr. Costello

Not for income-tax. The purpose of the amendment is to make the provision apply to income-tax, the amendment being designed to make it possible for these two companies—the auxiliary company and the parent company—to be treated as one for the purpose of income-tax if the companies so desire. It would work out in this way: supposing there was one company earning, say, £5,000 a year and that company was split into two companies, an auxiliary company within the meaning of this section, and the parent company, for the purpose of corporation profits tax and excess corporation profits tax, those two companies would be one. If one of the companies earned £3,000 in profits and the other company earned £2,000 in profits, the two new companies, although one company for the purpose of corporation profits tax and excess corporation profits tax, would be paying more for income-tax than they would be paying if they were still the one company. For the purpose of meeting that situation this amendment was put down. It was fair enough that they should have to pay increased income-tax if by the separation into two companies the companies were getting a substantial reduction in excess corporation profits tax or corporation profits tax, but when this section comes into operation they will be deprived of that benefit and, accordingly, if the companies so request the Revenue Commissioners, it is suggested in this amendment that they should be treated as one for income-tax purposes.

Mr. O Ceallaigh

I am afraid that could not work at all. There is a fundamental difference, as the Deputy, I think, knows, between income-tax and corporation profits tax. The basis of assessment is entirely different. While profits for corporation profits tax are computed broadly on certain income-tax principles, the two taxes differ in very many important respects. The basis of the corporation profits tax charge in a given accounting period is the actual profit in that accounting period, whereas the basis for the income-tax assessment for a given year is the profits of the previous year. In income-tax, too, there are provisions for allowances for loss forward and also for allowances for wear and tear, and they do not exist so far as corporation profits tax law is concerned. This section makes no change in the income-tax law as affecting principal and subsidiary companies. They will continue, as hitherto, to be treated as separate entities. This treatment perhaps may affect advantageously some companies and may affect disadvantageously others. The revenue may gain with regard to some of these and lose with regard to others.

However, the section again is designed to stop evasion of corporation profits tax. It is a corporation profits tax section pure and simple and it would not be possible to do what the Deputy suggests, namely, to bring into consideration in this particular connection the income-tax law. It would be entirely impracticable to have, as the amendment suggests, one basis for computing income-tax liability of principal and subsidiary companies which come within Section 14 of the Bill and another basis for computing the liability of principal and subsidiary companies which, for one reason or another, do not come within the ambit of that section. I do not think there is any hope of adopting the amendment that Deputy Costello suggests.

Amendment, by leave, withdrawn.

Question proposed: "That Section 14 stand part of the Bill."

Mr. Costello

On Section 14 there are two points on which I wish to have some guidance from the Minister. In sub-section (5), paragraph (b), page 9, line 26, the expression is used "the trade or business or undertaking of a similar character". I would like to know from the Minister what is the precise significance of the expression "undertaking of a similar character". The two words "trade or business" between them have a very wide significance. The word "trade", in fact, is defined in the Income-tax Act of 1918 in a very comprehensive fashion as including "every trade, manufacture, adventure or concern in the nature of a trade". That, I think, is fairly wide in its scope. The word "business" has, in a recent case, been held to have a wider content than the word "trade", so that we may take it that the words "trade or business" together have a very wide significance indeed. What I desire to know is what is intended to be captured or brought within the scope of this section by the words "undertaking of a similar character". It is extremely difficult to see what it is intended to get at that is not already comprised in the definition of "trade or business", and I would like some guidance from the Minister.

Mr. O Ceallaigh

I am afraid I cannot assist the Deputy with a definition. I agree with him and with what he has just quoted regarding the definition of "trade or business." I cannot imagine anything wider, but it would appear that in a draft of the original provision of the Finance Act of 1920 they thought something might escape and they used these words. It is because these words were used in the section of the 1920 Act that we thought there might be some significance if we were to drop them now, and the words are repeated in this section. There might be some significance attached in the courts or by lawyers to the dropping of the words "the trade or business or any undertaking of a similar character."

Mr. Costello

It seems a poor reason. There is another point on which I would like guidance from the Minister. It arises on sub-section (9) of the same section. This particular sub-section defines "auxiliary company," and it provides in paragraph (b):—

"For the purposes of this sub-section—(i) any shares of a company held by the nominees or the shareholders of another company shall be deemed to be held by that other company."

I am informed there is a possibility, where a small private company is floated, and a person owns more than 50 per cent. of the shares, that the profits of that company could be, theoretically, at all events, legally incorporated with the profits of another company which was formed before the private company but had no relation whatever to it. If, for instance, I owned one share in the Great Southern Railways Company—which I do not—and then I formed a private company and owned more than 50 per cent. of the shares, the private company I formed could be theoretically incorporated with the Great Southern Railways Company for the purposes of this sub-section. I do not think that is intended.

Mr. O Ceallaigh

It is certainly not intended.

Mr. Costello

On the construction, I am informed that is possible. Perhaps I put the case in a rather exaggerated way, but I am told that it is capable, not merely of that interpretation, but that it is the effect in practice.

Mr. O Ceallaigh

I do not know that even theoretically it could happen, maybe it could, but it is not the intention of the sub-section.

Section 14 agreed to.

SECTION 15.

Mr. M.E. Dockrell

I move amendment No. 16:—

In sub-section (1), line 12, after the word "effected" to insert the words "by a company".

This section relates to companies, but it does not state so there. The definition of a transaction is necessarily very vague and perhaps it would be wiser, in order to avoid future ambiguity and prevent misunderstanding, if the words "by a company" were put in there and if it was made perfectly clear that that section relates to a company.

Mr. O Ceallaigh

I cannot accept the Deputy's amendment. I have had cases brought to my notice which proved to my satisfaction that this section is necessary. In relation to any particular transaction it would not always be possible to decide whether the transaction was effected by the company itself, as a company, or by the directors or shareholders of the company as separate individuals. It is very difficult sometimes to trace which of these bodies was responsible and I think we will have to take the powers that are set out in the section, particularly in view of the way family-owned or director-owned concerns have been managed and the payment of tax evaded. I have seen cases where it was next to impossible to decide whether it was the company or the shareholders were responsible for certain transactions, or the individual directors. Individual directors have been able to do things, to arrange amongst themselves certain sales or purchases of goods, and there have been certain private arrangements amongst them that nobody outside could definitely decide whether they were done by the company or by individual directors. Certain cases I have in mind were brought to the attention of the Revenue Commissioners, and I do not think there is any doubt that these transactions were deliberately carried out with a view to avoiding tax. We want to secure that it must be clear that transactions need not necessarily be carried out by the company itself. We have power to decide in such a case. There have been attempts deliberately made at evasion which have lost us tax, and we want to avoid that.

Mr. M.E. Dockrell

Yes, but surely this is opening the whole question very widely. Under this an individual who is a director may buy or sell a house, may sell the house in which he lives, and the sale of that house may somehow or other be brought in as a transaction of the company and thereby come under excess corporation profits tax. There will be all sorts of difficulties and anomalies if it is not more closely defined. One can understand that the Minister wants to catch certain people who are evading tax, but in doing that he has left the door wide open for all sorts of innocent individuals to be charged tax for transactions which have nothing to do with a company.

Mr. O Ceallaigh

If the Deputy comes across any case of that type in the course of the next 12 months, I shall be glad if he will let me know.

Mr. M.E. Dockrell

I daresay the Minister might hear of them independently of me, but I will certainly do so. I think we ought to stop it now.

Mr. O Ceallaigh

We are doing our best to stop it.

Mr. M.E. Dockrell

We ought not to leave it quite as wide open as it is because there is bound to be difficulty and hardship for individuals.

Mr. O Ceallaigh

I do not think anything of the type the Deputy suggested with regard to the sale of his house by a director, and that being brought within the ambit of the company's work, is likely to happen.

Mr. M.E. Dockrell

I merely put that to the Minister to show the futility of it. But there are occasions in which a director, in a perfectly law-abiding and straightforward manner, may make some purchase that can be capable of the interpretation that it had been done for the avoidance of excess profits tax.

Mr. O Ceallaigh

I have not known of any case. On the contrary, a case has been brought to my notice—a typical case—where some material, which it was very difficult to obtain, had been purchased by a company, and then, because some director heard that there was a market for that particular material, that somebody required it, it was sold by the company to the director at a small cost, and the director, as a private individual, made a huge profit which did not come into the excess corporation tax of that company. That kind of thing has happened.

Mr. M.E. Dockrell

Of course I would not attempt to stand over a case like that. It is a question of the difficulty, and so on, that it will cause for individuals.

Amendment, by leave, withdrawn.

An Ceann Comhairle

Amendments Nos. 17 and 18 both deal with appeals, and might be discussed together.

Mr. Costello

I move amendment No. 17:—

In sub-section (3), line 31, to insert before the word "whether" the words "and from a decision of the Special Commissioners to the Circuit Court".

These two amendments really provide for an appeal from the Special Commissioners to the Circuit Court. Section 15 (3) provides for an appeal by an aggrieved taxpayer to the Special Commissioners.

Mr. O Ceallaigh

I am advised that this section does not interfere with the right of the persons concerned to appeal.

Mr. Costello

I want to make it quite clear. I was not sure whether the fact that there is an appeal to the Special Commissioners precluded a further appeal to the Circuit Court.

Mr. O Ceallaigh

It does not. There is no intention that it should.

Mr. Costello

I am satisfied with the Minister's assurance, but I want to be quite sure. If the provision is that there is an appeal to the Special Commissioners and there is no further express provision entitling a specific appeal in a new matter of this kind to be made to the Circuit Court, I am afraid that it might be interpreted by the courts as being an exclusive appeal to the Special Commissioners and not giving a general right of appeal from the Special Commissioners to the Circuit Court. It was for the purpose of seeing that that was made clear that I put down the amendment.

Mr. O Ceallaigh

I shall read a note I have here.

Mr. Costello

This being an entirely new matter and there being only an appeal given to the Special Commissioners, as a matter of interpretation it might be raised in court by the judge himself, not by the Revenue Commissioners, that the Circuit Court judge had no jurisdiction, as there is not an express provision in the section and it is a matter not covered by the general income-tax law, but something entirely new.

Mr. O Ceallaigh

I am advised that the same rights of appeal as those under the Income-Tax Acts apply in relation to a direction by the Revenue Commissioners under the section. This means that an aggrieved company is entitled to appeal to the Special Commissioners and, if it is not satisfied with the decision of the Special Commissioners, may have the appeal reheard by the Circuit Court judge. If the matter in issue is one of law and not of fact and if the company is dissatisfied with the decision of the Special Commissioner —or the Circuit Court judge, if the appeal has been reheard by him—it is entitled to have a case stated for the opinion of the High Court.

Mr. Costello

I accept that as the advice given to the Minister. Still, that does not get over my difficulty that this, dealing with a new and complete subject matter, with new powers put in that there is an appeal to the Special Commissioners, might exclude the right of appeal to the Circuit Court. I want that safeguarded.

Mr. O Ceallaigh

There is no intention of that.

Mr. Costello

I accept the Minister's statement, but I am afraid that some Circuit Court judge might rule to the contrary.

Mr. O Ceallaigh

If there is any possible doubt about it, and I do not think there is, I will look into it.

Mr. Costello

All I want is to have it made clear.

Mr. M.E. Dockrell

Deputy Costello has put the point very clearly to the Minister. Could the Minister not put that in the section?

Mr. O Ceallaigh

I will look into it and, if it is necessary, I will bring in an amendment on the Report Stage.

Amendment, by leave, withdrawn.

Amendment No. 18 not moved.

Section put and agreed to.

SECTION 16.

Question proposed: "That Section 16 stand part of the Bill."

Mr. O Ceallaigh

A case has been brought to my notice in which a company was carrying on a very prosperous business, the continuance of which on the old scale was rendered impossible by the outbreak of war. The business was accordingly discontinued, but the proprietors formed a new company to carry on a business of a similar character on a very much smaller scale, an appreciable proportion of the staff of the old business being re-engaged for the carrying on of the smaller business. There may possibly be other cases of the same type. It is felt that in such a case it would be reasonable to have some provision to enable the Revenue Commissioners to compute a profit standard for the new business by assigning as such standard a proportion of the profits earned by the old business in the year which would have been the standard year, if the old business had been continued, and I propose on the Report Stage to introduce a new section to confer the necessary powers on the Revenue Commissioners.

Question put and agreed to.

Remaining sections, Schedule, and Title put and agreed to.

Bill reported without amendment.

Report Stage fixed for Tuesday, 27th June.