Dáil Éireann debate -
Tuesday, 24 Jun 1958

Vol. 169 No. 4

Finance Bill, 1958—Committee Stage (Resumed).

Question again proposed: "That Section 21 stand part of the Bill".

Mr. Dillon

The net point here involved is that the Bill as submitted by the Minister, contemplates certain pretty complicated changes in respect of the existing law in regard to the expenses of directors, managers and employees of companies. The Minister himself indicated that he fully appreciated that the proposed amendment was complex and Deputy Haughey, in his contribution to the debate, said that he had studied the proposals and believed that he understood the context of the Bill. He expressed himself as being in agreement with my view that, even if one did fully understand the context of the Bill, it was extremely difficult to forecast how these provisions would react on people living in the conditions obtaining in rural Ireland.

We all know that these proposals have been taken over substantially from British Finance Acts, and some of us believe that in their present form they are suitable for conditions obtaining in places like London, Manchester, Liverpool and in the general industrial context of life in Great Britain, but that they may not be suitable for conditions obtaining here. I am prepared to confess quite frankly that I am not able to determine, in my own mind, how these provisions would impact on the bulk of our people who live in rural Ireland.

We are, in this House, sometimes inclined to overlook the fact that a surprising number of small businesses in rural Ireland have been incorporated into limited liability companies during the past 20 or 30 years. Therefore, without purporting to pass judgment on these proposals at all, the substance of my submission is that, inasmuch as we have sitting at present a commission to review the whole code of income-tax law, it would be more appropriate to leave this part of the Finance Bill to that commission, and ask them, if necessary, to give an interim report upon it, when this House could consider it with full information.

I put it to the Minister for Finance that if he considers it to be a matter of urgency, there could be no exception taken to his dropping this part of the Bill for the present, on the clear understanding that if the Commission on Income-Tax gives us an interim report on these proposals during the Recess, the Minister for Finance could declare himself to be free to bring in an additional Finance Bill in the autumn to give effect to this proposal in whatever form he was satisfied was best, having perused an informed report and having had before him such evidence as interested parties might bring to the Income-Tax Commission.

I could quite envisage a situation arising in which the Minister would not be prepared to accept the interim report of the Income-Tax Commission, but at least it would be available to him for consideration. But, in my opinion, what is much more important, he would have available to him the representations of those who apprehended that these proposals might impact upon them unfairly, or unreasonably, or to a degree which had not been contemplated by the Minister when he submitted this Bill to the House. That is a reasonable proposal and a proposal which the Minister can reasonably be asked to consider on its merits, but also in the light of the declaration which I am prepared to make that I do not know how these proposals will operate in the conditions with which I am familiar in rural Ireland.

I direct the Minister's attention to the fact that Deputy Haughey, who claims to have a very much clearer appreciation of the literal provisions of this part of the Bill, is also in my dilemma in so far as forecasting their impact upon the peculiar conditions obtaining in this country. I use the word "peculiar" not for the purpose of indicating something strange, but to indicate that there are conditions obtaining in Ireland which may not be reproduced in Great Britain or elsewhere.

Dr. Ryan

I think the only point stressed by Deputy Dillon was that we should wait until the Income-Tax Commission report is received. As I stated already, the undesirable practices we are attempting to deal with in Part IV are on the increase and I do not think we would be justified in allowing them to continue not to speak of allowing them to increase while waiting for the commission to report. I do not know how long it will take to report but it may be taken for granted that, by the time we have received such a report and dealt with it, it will be a matter of another couple of financial years. I do not think we would be justified in waiting for that to happen.

I was thinking over this debate on Part IV during the week-end. I think I am right in interpreting the Dáil as raising no strong objection to the proposals dealing with benefits in kind. As far as I can remember, I do not think any Deputy condemned them and in fact I think it was said there was no great objection to them.

I do not think there is any objection either to dealing with a person who is getting money under the guise of expenses for the purpose of evading income-tax. The company paying that money out is to blame. Deputy Sweetman said he did not see why a company would do that because naturally they would be watching not to pay out more money than was due to directors or employees. The trouble is that there are some companies—not many because the great majority of companies are very strict in their dealings with their employees and even with their directors—who are prepared to say to a man: "We will give you £500 a year and £800 expenses." It makes no difference to the company in that case whether they give the man £1,300 salary or £500 and £800 expenses. It makes no difference to them financially; it should make a difference to their conscience, if they have one. That is the type of case being dealt with here and I think Deputies have no great objection to it.

The big objection appears to be in relation to entertainment. There appears to be an anxiety or a fear that companies will not be permitted to entertain their business friends as they think necessary in the course of business. There should not be any anxiety as far as that is concerned. As far as the entertainment is concerned, the inspector will have a right to inquire. He has no right to inquire at the moment but he will have a right to inquire if he is suspicious.

Of course, Deputies must realise that in practice there are not enough inspectors to inquire into every entertainment. The most they can do is to inquire where they are suspicious of a particular company doing more in this way than is really genuine. They have the right to inquire, therefore, whether a particular sum of money paid for entertainment was necessary in the legal sense for the benefit of the company. If the inspector disallows it, then there is an appeal to the special commissioners. If the inspector allows it and if the special commissioners allow it, then there is no further inquiry.

It has never been the practice of the Revenue Commissioners—and they are not going to adopt any new practice under Part IV—to say that the entertainment was necessary but not on the scale on which it was given. They have never said: "You should not have given champagne and cigars." If the entertainment is necessary, it is for the company to decide what form the entertainment should take. That is the point I want to make very clear.

I admit I did not read it word by word but on looking through the debate, and also on recollecting certain letters and so on I got from business people outside, I believe the big fear they have is that the representative of the Revenue Commissioners will criticise the employer for the form of entertainment he gives. There will be no such thing. The ordinary entertainment given to business friends and to staffs will never be questioned. There may be a question in a particular case. Talking to some businessmen recently I said: "If a manager of a private company, let us say, wants to celebrate his wife's 21st birthday and if he asks 100 of his friends to the party, which has nothing to do with business at all, and it costs £500 and he puts it down to business, that will not be allowed." That is an extreme case.

On the other hand, if a company is doing well and if the manager says: "We are going to get publicity by giving the biggest spree ever given in this country; we are going to ask everybody who ever dealt with us to come up and we are going to give dinner, champagne, cigars and a dance for 1,000"—if he thought that was necessary for his business, that would be allowed and allowed in full. There would be no question about the champagne and the cigars. I think that is the point troubling some Deputies.

Mr. Dillon

If the Minister for Finance thinks I am troubled about the champagne and cigars distributed at dinners given by wealthy companies in this country, I want to assure him that there is nothing further from my mind. What I am thinking of is the shopkeeper in rural Ireland who lives in, and has lived in ever since he started his business, and is now the director of a company. Does he become liable for income-tax on the bit he eats and the drop he drinks? If he invites in a neighbour to have two half-ones on a Saturday night, must he charge up the half-one that he gives the neighbour to his expenses and must he hold himself liable for the half-one he drinks himself?

Quite honestly, my problem is that I cannot envisage how these proposals will impact on our kind of life in rural Ireland. I am not in any sense desiring to give the Minister for Finance a short answer. I think he entirely misunderstands my anxiety about this matter if he feels I am greatly concerned about the claiming back of legitimate business expenses by large corporations. I can very well see that a very strong case could be made on strictly economic grounds by large companies that it is part of their necessary business to give banquets, substantial entertainments and so forth. That is not an argument in which I am greatly interested. I believe that such persons are well able to make their own case.

What I am really concerned about is to ensure that a great deal of unnecessary inconvenience and apprehension will not be spread in country towns like Clones, Ballybay, Castleblayney, Carrickmacross and Monaghan. I can see that happening. Before we adopt these general proposals, which have been operating in England for some time, all I am pressing on the Minister is that we ought to have some opportunity of inviting bodies, such as R.G.D.A.T.A., and others representative of the kind of business that operates here, to state their views and explain their difficulties so that, even if we do not accept them at their face value, we can propose some means by which they can simplify their problem for themselves. But I do want to impress on the Minister that it is quite illusory to imagine that you can put the proposals incorporated in this Bill into operation to-morrow morning without running into all sorts of snags in which I do not believe the Minister wants to involve people. He will find that these provisions will catch all sorts of people and all sorts of practices in rural Ireland which are well established and to which no legitimate exception can be taken.

I have mentioned on a previous occasion, and elicited agreement from the present Minister for Finance, that the tendency of all financial legislation for some time has been to make the position of the small private company more and more difficult and that such legislation is pretty well forcing the small private company out of existence. There are certain world forces which it is very difficult to control or check. I remember when I raised this matter in a wider context here the Minister for Finance replied that he entirely sympathised with me in my anxiety and wanted to say most emphatically that anything he could do to help the small business to survive in the complex world in which we live to-day he would conceive it to be his duty to do.

When one contemplates a fiscal reform of this character, it is not the kind of contingency to which the Minister has just referred that worries me. People like that can look after themselves. It is the small business throughout the country which will get caught up in this new maze of controls and regulations. The trouble is that there is no use issuing reassurances that the Revenue Commissioners will not do this and will not do that. The Revenue Commissioners have to do their duty and it is we, in Dáil Éireann, who impose that duty on the Revenue Commissioners and they must do it in accordance with the letter of the law that we enact.

I apprehend that under this part of this Bill in its present form we shall impose a duty on the Revenue Commissioners to carry out all sorts of inquisitions in regard to small business and thereby make the existence of the small business almost impossible. What is worse, we are going to direct the Revenue Commissioners to do a number of things that we do not think they ought to do; and we are going to give them that direction because we do not know the meaning of the legislation proposed to us. Surely every canon of prudence demands that, when we have in existence the machinery to get the information, we ought to use it. There cannot be any urgency about this. No very big sum can be involved and, whether the levy is enacted to-day or in 12 months' time, I cannot imagine that it will shake the foundations of the State very materially. There can be no advantages to the Exchequer in this financial year at all because any assessment made under these provisions will not operate until next year.

Mr. Sweetman

The Minister is making this retrospective to 6th April, 1957.

Mr. Dillon

Surely not this part of the Bill?

Mr. Sweetman

Yes.

Mr. Dillon

I do not think that is so. I think I am right in saying—the Minister will correct me if I am wrong —that it is not proposed to make this part of the Bill retrospective to April 1957 and, therefore, I suggest to the Minister that nothing will be lost. But much can be gained by postponing this matter for further information and for second thoughts.

In principle, if the purpose of this part of the Bill were fully and adequately explained by the Minister's explanation of it, I could find no serious fault with it. If its purpose were to prevent the fraudulent granting of excessive expenses to directors and servants of public companies I do not believe any Deputy would take exception to it. In that good cause let us not enact legislation which will carry confusion and anxiety, and a very real and unnecessary distress, into the houses of a great many honest people.

In that connection let me remind the Minister, as was mentioned by Deputy Haughey earlier, that taxpayers are broadly divided into two categories. Like Charles Lamb's division into those who borrow and those who lend, taxpayers are divided broadly into two categories. One is the category which says to their accountants: "I want to pay whatever tax is due. Let the accounts be submitted to the Revenue Commissioners without embroidery. Fight them as hard as you can but be in a position to assure me when I write my cheque that I have paid them the last penny they can claim against me." The other category is the person who says: "Let us now apply our minds to how far we can put our finger in the Revenue Commissioners' eye".

I am thinking of the poor devils who want to pay what is due and who, in a very considerable number of cases in rural Ireland, will find themselves levied under this part of this Bill with charges that I do not believe the Minister for Finance wants to levy upon them but which it will become the duty of the Revenue Commissioners to levy because, long after we have passed this Bill, the interpretation of these sections will fall to be made. Anyone who has any experience of Government knows that theoretically, when a Bill is submitted to the Government, the Government is supposed to know, through its own advisers, what the Bill means, and it is on that basis they commend it to the House. Any Minister of experience will tell you that when a Bill comes to be interpreted and enforced it frequently emerges that it means a great deal more than anybody foresaw, and sometimes it means a great deal less.

There is a classic example of that before us at the present time. We brought the Solicitors Bill in here. We believed everybody knew what it meant. We submitted it to the whole legal profession of Ireland. They reviewed it at great length and, reinforced by the opinion of the law officers and the Government, we brought it to this House and passed it. However, the first time it was judicially examined by a court of competent jurisdiction a horse and cart was driven through it. We are now faced with the obligation of introducing amending legislation although the original Bill purported to have the approval of the entire legal profession plus the law officers plus the Government and the Oireachtas.

I am making this modest plea, that, before we clamp down Part IV of this Bill on the whole trading community of Ireland, we will at least ask the commission which is at present sitting to interrupt their proceedings for the purpose of considering the impact of Part IV on the people and inviting those who apprehend that it will affect them to come before them and let their voice be heard. That is a reasonable and modest request and I press it strongly on the Minister. All I have said is said on the assumption that there is no proposal for retrospection in this part of the Bill and I am confirmed in that view by the Minister's interruption.

Mr. Sweetman

Let us get the question of dates clear first of all. As I understand the matter, the effect of Section 21, if it is passed, is that the items included therein are by virtue of Section 25 to be included in the information given under Section 105 of the Income Tax Act, 1918, and we have already in Section 6 of this Bill been retrospective in our application of Section 105.

Section 6 refers to payments made after 5th April, 1957. Therefore, the combination of Sections 21, 25 and 6 of this Bill and Section 105 of the 1918 Act has the effect of making the provisions of Section 21 retrospective. If it has not, I should like the Minister to explain to us why there is nothing in Part IV of the Bill to suggest that, notwithstanding the combined operations of the sections I have mentioned, Part IV is to take effect on the 5th April next year? Could the Minister elucidate that conundrum for us before we proceed any further?

Mr. Haughey

Will the position not be that in the year 1958-59, the income of the kind of people we are talking about will be taxed on the basis of what they earned in the year commencing 5th April, 1957, and ending 5th April, 1958? Therefore, in so far as the expenses which we are talking about were incurred in the year ended 5th April, 1958, they will come within the ambit of this Bill and be assessed for 1958-59 on the basis of the previous year, so that in that respect the section is retrospective.

Dr. Ryan

I do not think so. If you would look at Section 63 (7), it says:—

"Parts IV and VI of this Act and the First Schedule thereto shall be deemed to come into force and shall take effect as on and from the 6th day of April, 1958."

Mr. Haughey

As regards one's income for the year 1958-59, is it not on the basis of what one received during the year 5th April, 1957, to 5th April, 1958, that one is taxed under the provisions of the Bill?

Dr. Ryan

I am not an expert on income-tax, but the Revenue Commissioners must have an indication or a measure of this year's income. It is required only for that purpose. You are assessed on last year's income but it is corrected in the following year. Your income for 1957 is only a measure of what you will pay in 1958. The actual 1958 figure will apply afterwards. Therefore, Section 63 (7) is correct; in that respect the provision does not come into operation until 6th April, 1958.

Mr. Sweetman

Is it not the effect of Section 21 to bring these expenses in under Rule 1 of Schedule E and is Schedule E not always assessed on the preceding year without any adjustment when the actual figure is available, except of course in the case where you are dealing with the concluding year of a job or something like that? I think the Minister has gone astray in that respect. I am rather inclined to think, however, that Section 63 does mean what he says in one respect but that it does not in another. It is quite clear that under Section 6 of this Bill a return must be made as from the 6th April, 1957, in respect of the matters included in Section 21, even if only the return has to be made.

Mr. Haughey

The only reason the return is looked for is because it is going to be taxed.

Mr. Sweetman

Surely it is wrong for the Minister to be looking for the returns if he is making the case that there is no tax liability in respect thereof? If his case is that there is no tax liability in respect thereof, the return should be looked for only in respect of the period for which there is tax liability and Section 6 gives the date as 6th April, 1957. The information should be available from the 6th April, 1958, for 1958-59. I think Section 6 is wrong.

Mr. Dillon

This is an argument as to whether retrospection exists or does not exist and into that argument I do not want to be drawn for the moment, because I made my argument to the Minister on the basis that I accepted his proposition that the element of retrospection did not enter in. I based my arguments on entirely different grounds designed to secure from the Minister the reference of this part of the Bill to the Commission on Income-Tax for examination so that he and we might be more fully informed of its public impact in the peculiar conditions obtaining in this country.

I want to reinforce that representation by reminding the House of this fact. The Revenue Commissioners' duty is the protection of the revenue and to that end they make their recommendations to the Minister for Finance. I submit to the House that the first check upon the commendable and admirable zeal of the Revenue Commissioners in the protection of the public Exchequer is the judgment of the Minister for Finance. The Minister for Finance, having some proposal by the Revenue Commissioners for the better protection of the revenue, brings that to the House to hear from Deputies on all sides their views as to how this measure, which all agree is designed to improve the prospects of the revenue, will affect the citizens of the State.

I think a very strong case has been made to the Minister, that this proposal calls for further and better inquiry as to how it will react upon the people. That is all I am asking. I am not asking the Minister to say now that he has been shaken in his original view, in regard to Part IV of the Bill, that the Revenue Commissioners' recommendation is right. All I am asking him to say is: "Listen; having heard the anxieties expressed in the House, I am prepared to suspend judgment until I have before me a record of the evidence of interested parties on whose behalf Deputies appear to speak, who will at least tell me what their apprehensions are, and the report of the Income-Tax Commission on their recommendations."

That could be said, on the clear understanding that the Minister may come back to the House and say: "I do not accept the view of the commissioners and I propose the following answers to the various anxieties expressed by interested parties in the minutes of evidence which have been submitted to me, and I suggest the following simplifications in procedure to those interests or individuals who have expressed anxiety in order to ensure that these legislative proposals in the Finance Bill, which are designed to put an end to abuses, will not inadvertently make life impossible for those who are concerned only to conform to the law." Surely that is a reasonable proposition to put to the Minister and surely it would mean no serious abridgement of his purpose if he indicated that he was prepared to accept it?

Mr. Sweetman

I want to make one short observation on what Deputy Dillon has said, before we go back to the other question of dates. Over the week-end, I had the opportunity of having a word with a few people who understand this type of taxation matter in a way that I could never hope to understand it. They have all been unanimously of the opinion that the man who wants to put through a fake, such a fake as the Minister mentioned of £500 or £800 expenses, has half a dozen ways by which, at sight, he can get away with it under this part of the Bill. There is not the slightest difficulty in an individual driving a coach and four through this Bill, if he wants to deal with matters on the lines the Minister indicated a few moments ago.

The only effect of this part of the Bill will be on the people who want to be straight and want to pay their share as they go. As it stands at present, they will be put to very considerable additional expense and trouble in making out the details that are to be required. Those I spoke to were quite unanimous in the view that there was nothing in this part of the Bill which would deter a man who wished to get around the existing powers and principles in the Income-Tax Acts; that all that would happen under this was that companies would have to keep considerable additions to their books and that auditors would have to do considerably more work in relation to their audits; that in 99 per cent. of the cases it would work out at exactly the same result as at present for the revenue, from the point of view of tax; and that in all cases it would be additional administrative cost for the companies concerned and an additional administrative cost for the auditors, and that, of course, would ultimately fall back on the manufacturer or trader, as the case may be.

As I say, I am not an expert in relation to this matter at all, but it seems to me, as far as I can read this Bill, that if a person has a small company— a publican, shall we say—and one of the directors of that company is standing behind the bar in a rural town in Ireland, anywhere you like, and in the ordinary course of events, it becomes necessary for him to stand a drink to somebody coming in to do business with him, he will have to put that down in a special way in his ledger account. That is a thing which happens quite regularly—it has got to be done—every publican will tell the Minister that it has to be done. I am sure the Minister has been on the other side of the counter and seen it happen, wholly and necessarily and exclusively for the purposes of the business. I cannot see the sense of returns of that sort having to be kept.

I am at one with the Minister in being anxious to ensure that a fake will not be perpetrated on the general body of taxpayers. We are all quite happy to ensure that that will not occur. However, this Bill will not provide against such an occurrence. All this Bill will do is give more trouble, cause more expense to the 99 per cent. of the taxpayers who are decent, honourable people and it will not prevent the other 1 per cent. from getting away with the matter as they wish.

It has not happened on the other side. We are in an entirely different position here. I really cannot see what the Minister hopes to gain by this section—except, perhaps, to drive a lot of people against him in business who would be otherwise inclined to take a reasonable view. It seems to me that there cannot be any other conclusion in relation to this. It will mean that those who wish to avoid paying their full share will be able to do so under this part of the Bill, those who do not will pay as they pay at present and, in addition, for the privilege of paying, they will have to pay more staff to keep additional accounts in their offices and in their trading returns and they will have to pay their accountants more fees for doing their audits. If that would be any benefit to the auditors, there might be some measure of approval from certain sections, but I suspect that it will cost the auditors far more in time and staff to do the audit of the additional amounts than any increase in fees they may be able to obtain.

I would seriously ask the Minister to take another look at this section. I do not think he quite correctly interpreted me when he was speaking before, but that does not matter in the slightest. It seems to me that the matter could be got round by some form of certificate being required from the secretary of a company for the purposes of the revenue, that no director or employee of the company had been paid any expenses other than such as were required for the proper and reasonable reimbursement of the expenses he had incurred in his job.

I am not tying myself to that phraseology, but something like that would save a lot of unnecessary accounting and the onus would then be on the secretary of the company to do what was reasonable. If there was a deliberate fake of the sort the Minister mentioned, the secretary of the company would be amenable for having certified what was not a genuine transaction, for certifying a fake transaction as genuine. The secretary, or chairman or some officer of the company would know that responsibility rested on him and if fake transactions were certified as genuine by an officer of the company, everybody in the House will agree that in such circumstances it would be right that the law should come down like a ton of bricks on the person who so certified.

I cannot see how the Minister can otherwise avoid encumbering the 99 per cent. of honest straightforward people for the sake of trying to catch the other 1 per cent., and I am told he will not succeed in doing that, in any event, under this section. One of the ways in which that could be done would be to adopt the suggestion made already by me and again by Deputy Dillon in relation to this section, that the whole of Part IV of the Bill should be referred to the commission for the purpose of a special interim report, if needs be.

Quite apart from all that, I should like the Minister to tell us clearly what is the object of going back in Section 6 to 5th April, 1957, linking Section 6 and Section 25 with Section 105 of the Income Tax Act of 1918, if the chargeability this year will not be based on the returns obtained for last year. Finally, may I ask the Minister to say, categorically, yes or no to this question? I think he is incorrect when he said some minutes ago that Section 21 would be variable year by year, that the expenses of the preceding year would be used as a measure and adjusted to actuality at a later stage. Is he correct or not in that? I am not trying to score any point, but I think he was incorrect. I think the position is that it is always the income and expenses of the preceding year that are taken and that it is only where a person is terminating his employment that there could be any question of coming back to actuality.

Mr. Haughey

In regard to the subject matter of my amendment as to the type of payment which might be excluded from the operation of Section 21, the Minister has indicated that in future the revenue authorities will be very pleased to negotiate with bodies acting on behalf of employees and directors. I am very grateful to him for that statement. I thought, when he was replying to the debate on Section 21, he might also have obliged me by dealing with a question I put to him about dispensations which are practised in England, and also with home savings and whether he is completely satisfied about the word "perquisite" as used in line 35. If he could deal with those matters, I should be very grateful.

Dr. Ryan

I suppose it would be very rash for a Minister for Finance to say that he would bring in a Bill through which no one would drive a coach and four. If that happened in this case I think I would be the first Minister for Finance ever to do it. In all probability, Deputy Sweetman is right in saying that the people we are trying to catch under this will find a way out of it to some extent, but the Revenue Commissioners and representatives will be in a stronger position. For the first time, they will be able to get at least whatever information may be in the accounts of the company.

They will be able to examine the accounts and find out how the expenses were distributed between the various directors and employees and that may help them to stop this irregularity we are trying to end.

Secondly, as the law stands, an employer may give, let us say, £700 to somebody for expenses. He need not give any return of that; if he did make a return of it under the law at the moment, I presume the inspector could deal with it, but in future the inspector will definitely be in a position to deal with it under the new legislation, and, in the case of that amount of £700, he will be able to tell the individual concerned what he believes would be a fair measure of his expenses and that he would be assessed therefore for income-tax on the remainder of the £700. Of course the man may appeal, and then it will go the same way as every other question of income-tax goes. I believe we would be in a stronger position with this legislation to deal with these people than we are at present.

Deputies who spoke against this part of the Bill have not been very helpful in suggesting other ways of dealing with it. Deputy Sweetman made one proposal, that we might ask the secretary of the company to certify that he was sure that the amounts set out were properly expended by the company in expenses. The trouble with that is that we would accept that —I am quite sure—from the great majority of companies, but these are the companies with which we have no trouble at present. There is a minority of companies who are giving trouble and I am afraid that the secretaries of some of these companies would sign anything in the way of a statutory declaration, unless we have some way of testing its veracity. If we are to have a way of testing it, that means examination.

My point is that we cannot accept a declaration from the secretary of a company because these companies that are evading income-tax at present by paying out far too much under the guise of expenses to directors and higher employees are the very people who will certify whatever suits them. We need some way of proving that the certificate is correct and I do not see how we could prove that, unless we have Section 6 in Part IV of this Bill to do it. For that reason, I do not know if the certificate is very much use, but I think the certificate would be very useful as a means of getting over what we might call the honest companies—we could probably accept that in their case and be quite satisfied to go no further. I think, however, that certificates in lieu of what is here would be absolutely useless.

With regard to this question of retrospection, Deputies have put a certain doubt in my mind. I do not mean to have retrospection and I shall have to consider the matter. I must look at it again before the Report Stage.

Mr. Sweetman

At least the Minister admits we are not the idiots we were thought to be in saying there was retrospection.

Dr. Ryan

I have to admit that the two Deputies who did most of the speaking—Deputy Sweetman and Deputy Haughey—know more about income-tax than I do.

Mr. Sweetman

I do not know about Deputy Haughey but I know very little about it.

Dr. Ryan

We may have different ideas about how it should be done. I must admit I was wrong in saying that, if a man were assessed under Schedule E, as he would be under Section 21, it would not be adjusted afterwards. That makes the question of retrospection more serious than I thought.

Deputy Haughey referred to the word "perquisite" in Rule 4 (3) of Schedule E. I am told that that was repealed in 1922 and does not therefore arise. The Deputy also referred to home savings. I do not think it arises through legislation but is a matter of administration. I suppose we should review the matter and see if it would be possible to have it considered in that way.

I am afraid I shall have to put aside the question of dispensations at the moment as I am not very clear on the point. I may come back to it again.

Mr. Booth

I am surprised to hear the Minister say that, up to now, the Revenue Commissioners have been powerless to investigate in the question of expenses. If they have been powerless, they have not been unduly scrupulous about keeping within the letter or the spirit of the law. As a businessman, I know they have inspected business accounts in the greatest detail and have demanded, and received, the most detailed explanations of almost every conceivable sort of expenditure on any company balance sheet.

I think the Minister is misinformed when he says the Revenue Commissioners had not already got that power. I cannot imagine that the Revenue Commissioners would have acted ultra vires for such a long time without being questioned. To my knowledge, they have gone through accounts to such an extent that, where two companies joined to form a new company and where a person who was associated with, shall we say, one of the old companies, company “A”, and did not wish to be associated with the new amalgamated company and was granted a pension by the amalgamated company, the Revenue Commissioners decided the new company was not entitled to pay a pension to a person who had not actually given service to it, even though service had been given to its immediate predecessor. I cannot imagine how the Revenue Commissioners ever got wind of that arrangement, unless we were compelled to, and did in fact, disclose it on our accounts.

The Revenue Commissioners already have a very adequate power to investigate expenses. I am not one of those who favour cigars and champagne: let the Minister be under no illusion about that. My worry is the additional administrative expense to which a company will be put by reason, now, of being forced to make individual returns for each employee and each director. It puts an almost impossible burden on them. Inevitably, these returns will become inaccurate, even in the case of an honest company, and, in the case of a dishonest company, it would be quite impossible for the Revenue Commissioners subsequently to decide whether it was an accurate or inaccurate return.

I would ask the Minister to investigate the powers of the Revenue Commissioners to make inquiries on expenses or any other item of accounts submitted to them. I am convinced their powers of inquiry are virtually unlimited. If it should be established by the Minister that the powers are as restricted as he said earlier this afternoon, I would hope he would conduct an immediate inquiry into the past history of the Revenue Commissioners and inspectors of taxes and inquire from them under what power they have been acting up to date.

Mr. Moloney

I should like to support Deputy Booth's point with regard to existing procedure which appears to have been adopted by the Revenue Commissioners all down the years. It is my experience as a businessman that, from time to time, they may question and ask for a break-down of the returns given of expenses of employees or directors, as the case may be. Any accountant will tell you that when he is submitting the returns of a firm's audit to the Revenue Commissioners, the report is usually accompanied by a break-down statement on a number of items, more particularly with regard to expenses deemed to be incurred by such employee in the discharge of his duties.

I feel the Revenue Commissioners already have machinery to satisfy themselves that any expenses claimed are proper and that, when they find irregularity in that connection, they can disallow the expenses. In practice, any person who has appealed has found it very difficult to sustain the appeal before the special commissioners.

If this section as it now stands is to go through I think all firms who, at the moment, generally speaking, are obliged to have their accounts audited, for purposes apart from the Revenue Commissioners at all, will find themselves put to expense. Accountants will have to undertake more work and go into greater detail. In that way, additional expense will be imposed on the business management of the company or concern, as the case may be. I would ask the Minister to reconsider the matter and try to be satisfied with the existing powers of which the Revenue Commissioners are possessed and which I consider to be quite sufficient.

Mr. Sweetman

I was amazed to hear the Minister suggest a minute ago that the Revenue Commissioners had no powers at present to examine expenses submitted by any company. I do not believe the Revenue Commissioners have been carrying out an examination such as they have been carrying out for the past 25 to 30 years without such a power. Apart from anything else it seems to me fairly clear that the powers exist as part of the general examination, and I feel sure that the Minister cannot have been advised that the Revenue Commissioners have no powers at present.

If there are additional powers included in this section, that the Revenue Commissioners have not got at present, then I would ask the Minister to tell us what are the exact additional powers that they have not got as it is. If we knew what the existing position was, and what the new position will be, then we would have a somewhat net issue about which to argue. To suggest that the Revenue Commissioners have no powers at present to examine the accounts of companies, of boards of directors or individuals, to see whether there was undue charging for expenses in their accounts is, I think, miles wide of the mark.

Dr. Ryan

I made a statement. The Revenue Commissioners are not able to find out, or to get, the information they require with regard to a person —he may be a director or he may be an employee—who is getting money under the guise of expenses but which is really far too much for that purpose. It is true that they have not got that power. When a company makes its return, when the auditor or solicitor, or whoever it may be deals with the Revenue Commissioners, the company must give information to an inspector to justify its expenses. The inspector may ask questions about how these expenses were incurred, and so on, but the company can evade or refuse to give the details with regard to what is paid out to each director.

Mr. Booth

No.

Dr. Ryan

They have done it.

Mr. Booth

I never heard of that.

Mr. Sweetman

If the Revenue Commissioners have no authority to ask for those details why have they been asking for them for years?

Dr. Ryan

I do not think they are prohibited from asking for them.

Mr. Sweetman

If the Revenue Commissioners have no powers in this matter in regard to details I would suggest the Minister should institute proceedings under Section 206 of the 1918 Act.

Dr. Ryan

There is a big difference between being permitted to do a thing and asking questions. The Revenue Commissioners have powers to ask questions but they are not in a position to insist on the details in this particular direction.

Mr. Sweetman

They have raised assessments on companies because they thought their expenses were not correct. There is no question about that.

Dr. Ryan

When the Revenue Commissioners came to me with this part of the Act, that is the first thing I said to them. I asked them had they no power and they replied they had not, that companies can refuse to answer questions on this matter. They said if they asked how much a director got for expenses the company could reply its returns were net total expenses for travelling, and it did not know how much each individual director or employee received.

Mr. Sweetman

No. They are bound to show they were wholly, necessarily and exclusively for the purpose of the business.

Dr. Ryan

Listen to me for a minute. I am repeating what the Revenue Commissioners told me. They instanced a case where an inspector dealt with a company's return of £5,000 for expenses. That inspector could say: "I am cutting that down to £1,000 because I am not satisfied," but later the special commissioners could hold that, even though the inspector was not satisfied, the £5,000 was a reasonable sum for expenses for the company concerned.

Mr. Booth

Why does the Minister want to ask more questions then?

Dr. Ryan

Because if a dishonest company wants to give £1,000 to a director, which he will not put down for income-tax, the company will put it down as expenses. Now the commissioners will have more powers.

Mr. Sweetman

It leaves the position as it was in which there were £5,000 expenses put in the accounts and the special commissioners said: "That £5,000 is reasonable for that sort of business." That is the case, as I understand it, made by the Minister. If the special commissioner says £5,000 expenses are reasonable for that case, what further information does anybody want about it?

Dr. Ryan

It is reasonable as the law stands.

Mr. Sweetman

Now we are coming to it.

Dr. Ryan

As the law stands the company need only give the global sum and it can stand on that.

Mr. Booth

The "reasonability" is not effected by the law.

Dr. Ryan

If the inspector says: "I am not satisfied with this because I suspect there are certain directors getting too much expenses," the special commissioners say: "Under the law that does not arise. We are only dealing here with what is reasonable for a company to pay and we think the amount is reasonable."

Mr. Haughey

If it is reasonable for the company that pays the expenses, is it not equally reasonable for the recipient who gets them?

Dr. Ryan

Yes, but the Deputy knows very well if I spend £400 a year on personal spending, and Deputy Dillon also spends £400 that way, he may spend his money reasonably but I may not, even though we both spend the same amount. There is no proof we are both spending our money reasonably because it is the same amount.

Mr. Sweetman

If the special commissioners say £5,000 is reasonable expenses, that £5,000 can be reasonable expenses only if it is spread over a particular type of work.

Dr. Ryan

Why does the Deputy not try to listen to what I have said?

Mr. Sweetman

I have tried.

Dr. Ryan

This is developing into an argument in which we are trying to get the better of each other and, in the meantime, you will allow these crooks to get the better of the taxpayers.

Mr. Sweetman

I do not think the Minister will succeed in doing that at all.

Dr. Ryan

If we do not succeed in doing it let the Bill go through and we shall not be any better off or any worse off.

Mr. Sweetman

I suspect what this section is for, and it is not what the Minister believes it is for. I suspect it is to get in something new. I suspect the Revenue Commissioners are not satisfied with the decisions of the courts as they are at present, and this is an endeavour to get around that. I do not think the Minister realises that.

Dr. Ryan

I do not think so. I myself have heard people boasting about getting expenses in a certain way which was not justified. I am sure there is not a Deputy here so innocent or so green that he does not know that is going on. It is certainly going on, and this is something we are endeavouring to stop. Some Deputies seem to think we are going too far in trying to stop it; some Deputies, like Deputy Dillon, think we are going too soon to stop it, and Deputy Sweetman says it is useless, that it will go on in any case. As between the whole lot, is it not as well to let the Bill through and see what will happen? One thing I want to try to impress on Deputies is, that the powers are not there. That is certain. The inspector can question a company about expenses from the point of view of the company. In that process of questioning, it is not his primary purpose to look for information against a director or an employee. It is the company he is dealing with.

Mr. Moloney

In practice, he will.

Dr. Ryan

He is unable to get it.

Mr. Moloney

He is getting it.

Dr. Ryan

I would want to be a fool to bring in a Bill for nothing. What is the use of saying he is getting it. He may get it from Deputy Moloney or Deputy Booth who do not know the tricks that can be played.

Mr. Dillon

That is the very point. It is the poor devil who does not know how to put his finger in the Revenue Commissioners' eyes who gets caught.

Dr. Ryan

Let us get after the tricksters. That is what we want.

Mr. Dillon

Exactly.

Mr. Sweetman

That is what we are all saying.

Dr. Ryan

I have been labouring here for the last few days trying to get after them.

Mr. Sweetman

No, you are not.

Dr. Ryan

What else am I doing?

Mr. Sweetman

You are doing the reverse. The Minister, in this Bill, will not be able to get after the tricksters at all and he is going to impose a wholly unnecessary load on the 99 per cent. of the people who are trying to bear their fair share of the burden. The plain fact of the matter is that the Minister is working himself up to a little heat because he knows he has got a very bad case. It is perfectly clear on the case the Minister made— I take the Minister's own case—that if a company has to incur £5,000 travelling expenses spread over one person or 20 persons, the special commissioners, when it comes up to them, will obviously consider how many travellers are needed for that business and so forth. The special commissioners decide that for the purpose of the business the £5,000 expenses are necessary. It does not seem to me to make a hoot of difference to whom it is paid, if it is necessary. There is nothing in that at all. The whole purpose of this section must be something more than the Minister has indicated.

Let us come back to the Minister's tirade for a moment. We have not been long on this section, but we have spent days on this Bill because the Bill does not do the job that should be done by a Finance Bill. This Bill puts a brake on industry, on trade, by unreasonable provisions and does not provide in any way for stopping the holes to which the Minister has made reference.

I made a suggestion earlier to-day in relation to the certification by the secretary of a company which could be dealt with quite easily and, notwithstanding what the Minister says, it could be dealt with in such a way as to ensure that the trickster could not get away with it. I am interested in relation to this section to ensure that people will not be expected to keep innumerable additional records that are wholly unnecessary. It would be perfectly simple to restrict the records to be kept to the type of case the Minister has mentioned on more than one occasion, the case where a person is paid £1,300 and the company says that £500 of that is salary and £800 expenses, even though the proper proportion should be, shall we say, £1,000 salary and £300 expenses.

It would be perfectly easy to restrict the effect of this section to cases where composite expenses were paid, where a director or an employee was paid a round composite sum to cover his expenses. There would not be much difficulty in returns being completed in that respect. What annoys me is that every honest taxpayer has to keep an account of trifling sums under the section as it is now framed. It would be perfectly easy to ensure that the secretary of a company could certify and that the certificate would be accepted, a certificate that the amounts included for expenses other than those in the return were only in respect of reimbursement of actual out-of-pocket expenses, that the composite expenses would then be in the return and that the Revenue Commissioners would have all the information they wanted in relation to the composite expenses figure. Then it would be quite easy for an inspector of taxes, on such a certificate, to satisfy himself beyond yea or nay whether the secretary's certificate is right or is not right.

The Minister himself has admitted that it is not the vast majority of companies—I said 1 per cent. and I do not think the Minister and I will fight about a percentage—but only a small percentage of companies whose secretaries' certificates he could not accept. All right. Everybody knows that accounts are examined at present, that notwithstanding what the Minister says, the Revenue Commissioners do examine accounts, do satisfy themselves as to what they are in respect of. The case made all along by the Minister in respect of this section is that he wants to get after the faked composite expenses accounts. O.K. Let him do so but let him not involve the ordinary businessman in keeping strings of unnecessary records for that purpose.

If this section were amended to ensure that there would be a return of composite expenses, that in respect of actual reimbursement of actual outlay paid, the secretary of a company would be bound, with the appropriate penalties as are included in the Income-Tax Acts, to certify that everything outside the return represented merely repayment of actual expenses, the Minister would save the 99 per cent. honest taxpayers—to use his own words—having to go to additional administrative expense and trouble and he would have all the powers that he wants to get after the trickster, of whom he spoke a minute ago.

Mr. Dillon

Are we not discussing amendment No. 21?

An Leas-Cheann Comhairle

Section 21.

Mr. Haughey

The amendment was, by leave, withdrawn.

Mr. Dillon

In any case, I still think the amendment is the correct solution of our problem.

Mr. Sweetman

So do I.

Mr. Dillon

The Minister said a moment ago that we appear to have reached the stage of trying to get the better of one another. He may believe that of Deputy Sweetman and myself. Does he believe that Deputy Haughey, Deputy Booth and Deputy Moloney are activated by the desire to get the better of their own Minister in public debate? I do not think they are. They are all too hardy practitioners to engage on so perilous an occupation in public. I could imagine that trying to get the better of the Minister, even in the secrecy of the Party room, would be a rather perilous undertaking. I cannot see Deputy Moloney riding forth like Don Quixote on an expedition of that kind. Probably Deputy Booth might qualify for that rôle.

Mr. Sweetman

It would not be on a horse, but on a tractor he would be riding.

Mr. Dillon

But Deputy Moloney's more mundane approach to public affairs, I think would suggest that wherever opportunity would offer, he would follow the admirable example of Deputy Faulkner and spend his time thanking the Minister for Finance.

An Leas-Cheann Comhairle

The Deputy is getting away from the section.

Mr. Dillon

No, no. I am trying to probe the intentions of Deputy Moloney when he intervened on the discussion on Section 21 and I want to repel the suggestion by the Minister that Deputies are trying to get the better of one another. I have not the slightest desire to get the best of them in regard to this section. All I want to do is to get, from some source, the information which I am convinced we ought to have before we enact this section.

I am quite prepared to accept, on the Minister's authority, that this section is in the interests of the Exchequer. I am quite prepared to accept, on the Minister's authority, that if we enact this section, the Revenue Commissioners will faithfully give effect to its letter. All that I am worried about is that I know that no Deputy knows what the consequences of this section will be for the people who will be caught by it.

The Minister finally finds himself in the position in which he says: "If I set off the argument of one Deputy against another, can I not put this section into effect and see what will happen?" That is what I think is wrong. I do not think you have the right to submit hundreds of relatively humble people in this State to the consequences of inquisition and taxation, the end result of which none of us knows. We want at least to be able to say that we know what it is that we are legislating to do and it is not right to say we will pass this section and see what is going to happen. I want to see what is going to happen before we pass the section.

I cannot imagine the Minister saying that it is an unreasonable request to make that we should set up a special ad hoc commission to go into this section. We have that commission already in being and it is at present examining this and cognate questions. It is quite open to us to ask this commission to suspend the normal progress of their work, and for the time being, turn their attention to these proposals and give us an interim report with the minutes of evidence which they receive, in response to any public request they get for evidence.

Armed with that, we may not come to the right decision in Dáil Éireann, but we would at least come to a decision with the information requisite to make a right decision, if we have the capacity to make it. That seems to me to be a reasonable request. Last Thursday, the Minister rebuked me by saying that I was of a very political turn of mind and that I wanted to draw politics into every discussion. So far, I have not found it very rewarding to deal with questions objectively, or by the indelicate instrument of reason, because the net result of that approach is to be told by the Minister that I am trying to get the best of him, and he offsets my argument by some other argument and reaches the conclusion that the best thing to do is to pass this section.

I am prepared to argue on the basis of reason and I am prepared to compromise and accept a very small concession to meet my initial demand, but if the Minister wants rational debate here and wants Deputies on all sides to give him the best opinion on matters of this character, it would be very material encouragement if from time to time he would come a reasonable distance to meet them. I am asking him to abandon no principle, to commit himself to no undertaking, but merely to postpone the implementation of this part of the Bill until such time as it has been examined by the Income-Tax Commission and that appears to be a most reasonable request to press upon him.

Dr. Ryan

With regard to the question of keeping records, I must say I cannot see much in that. I cannot imagine any company paying out money of which they do not keep a note. They must keep a record of it somewhere or another. If, say, they pay a director £5 to stand lunch to a couple of his friends surely they have a note that they gave him that sum. If they give him £10 on another occasion, that is noted also. All that we are asking is that they must let us know how much money they have given to so-and-so each year. That will not be a very great burden on any company because the big companies do not give out money to a lot of their employees. Clerks and so on do not get any allowances and the number who get money in that way is limited. There was a reference to the office boy posting letters. These are small matters, of course, and they will be left out. They will not arise.

When Deputy Dillon came in, I said that we were coming into small matters and trying to get the better of each other. We were losing time trying to find out who was right and who was wrong. I did not apply that to the bigger points which were raised. Deputy Dillon raised the point that we should not put this into operation, that we should not consider this matter, until we have received the report of the commission and I dealt with that point already. I said that it was an abuse that is on the increase and that we should not allow it to continue, let alone allow it to increase, pending a report from the commission, because I am afraid it may be some time before we get the report.

Mr. Dillon

I suggested an interim report.

Dr. Ryan

Well, I think we should go on with it now. However, I am only giving my opinion. I suppose I can take it that every Deputy would like to see fair play between all taxpayers. Every Deputy would like to see directors and higher employees paying a fair share of income-tax——

Mr. Dillon

Yes.

Dr. Ryan

——but what I complained of was that some Deputies said I was going too far and I have not got any great help in this matter. While Deputies deplore it and think it is a bad thing, I have not got any suggestion——

Mr. Dillon

What sort of suggestion?

Dr. Ryan

A suggestion how to stop it.

Mr. Dillon

This is my suggestion: "This part of the Act shall not come into operation until the passing of the Finance Act which shall be passed next after the publication of the report of the commission now considering the income-tax code."

Dr. Ryan

That is not going to stop it.

Mr. Dillon

It will give you a recommendation which will stop it but will not inflict difficulty on those who do not deserve it.

Dr. Ryan

I was coming to a suggestion by Deputy Sweetman regarding a certificate from a company. If I understood him aright, I think what he said was that sums of money paid out in cash to a director or an employee would have to be returned under the heading of expenses.

Mr. Sweetman

I suggested the reverse. If a company decided that director A's business is such that he would require a sum of £300 expenses for the year, that £300 would be returned, but if the company operated only on the basis of reimbursing the director every time he made an actual payment, then it should not be necessary.

Dr. Ryan

Did I understand the Deputy to say that where money was paid out that would be returned——

Mr. Sweetman

Would not.

Dr. Ryan

——but where expenses were paid that they would be taken globally and certified by the secretary of the company?

Mr. Sweetman

No, no. A company has two directors. Director A is paid £300 expenses. Director B is not paid any global expenses at all, but every time director B has to incur expenses, he draws the exact sum. He is paid the £9 18s. 0d. or whatever it is. I understand the Minister is not interested in the case where the exact sum is drawn. I suggest that the secretary of the company would certify—and put in the list in accordance with Section 105 as amended by this Bill—the £300 expenses to director A and that for this company, except in respect of that £300, no other sum is payable for global expenses except the actual reimbursements of amounts paid. That will save recording trouble and it will mean that the Minister will be able to get after the faked composite expenses, that he will get after the trickster and not hit the genuine person.

Dr. Ryan

That should be helpful, but the trouble as I see it is this. There is a minority of unscrupulous people—I suppose we cannot call them dishonest—who are without question paying out money to their directors and hired employees under the guise of expenses when such money should not be classed as expenses. Where you have such an unscrupulous person, the inspector will certify——

Mr. Sweetman

Not the inspector.

Mr. Haughey

Could you not leave it that this certificate could still be investigated? In 90 per cent. of the cases, the inspector would know the company and could say it is O.K.

Dr. Ryan

That could be helpful for the honest company, but we must have some way of testing the certificate, if there is a suspicion that it is not honestly given.

Mr. Dillon

We seem to have got away up, testing the impact of this on boards, secretaries' certificates and so on. Suppose somebody down the country has built a house to accommodate a manager who said he would not come to manage the place if there was not a house because there was no suitable house available. He gets this house as part of his remuneration. Has he to pay income-tax on that?

Dr. Ryan

He should.

Mr. Haughey

That is under Section 22.

Mr. Dillon

All this business of expenses comes into Part IV. Suppose there is a man for the last 40 years in employment in a country business, living over the shop. Part of his remuneration down through the years has been the run of his teeth. Has he to pay income-tax on that?

Dr. Ryan

Not if the manager runs the shop in the interests of the business.

Mr. Dillon

Suppose he is a director of the company at the same time? I entirely agree it is fantastic that the Minister can answer all these abstruse questions across the floor of the House without the aid of an accountant. I admit freely that it would be an abuse of the procedure of the House if I thought up all the trick questions I could under these various sections and shot them at the Minister and said to him: "Because you cannot answer them, you do not know what you are doing." I do sincerely say that with my knowledge of life in rural Ireland, I believe these sections in Part IV are going to produce a series of anomalies that will shock the Minister. I do not believe the Minister intends this for one moment.

The Minister's mind is turned on large companies who have boards of directors, secretaries, departments for accounts and all the attendant paraphernalia, whereas my care is orientated on the vast majority of small businesses in rural Ireland upon whom this part of the Act will impact. I believe there is no satisfactory way of settling that problem, other than by conducting a prior inquiry into what the effect of this Part of the Act would be on the rural community. I believe we have the means to get it, in so far as that is ever available.

If this part of the Bill is referred to a commission of inquiry and the bodies representative of the rural business community are not prepared to come in and give the commission the assistance of their evidence, then nobody has any right to complain. But I could well imagine a commission, if they are doing their job properly, calling on R.G.D.A.T.A., and possibly on two or three firms of experienced accountants who are habitually dealing with the accounts of relatively small businesses in rural Ireland, and asking their opinion. Quite frankly, without information of that kind I, for one, feel myself incompetent to pass judgment on the ultimate effect of Part IV, except that, quite honestly, I believe it will produce anomalies, confusion and embarrassment to hundreds of people in this country, which no one in this House desires and which I do not believe the Minister himself comprehends.

Question put.

The Committee divided: Tá, 58; Níl, 21.

Tá

• Aiken, Frank.
• Allen, Denis.
• Blaney, Neal T.
• Boland, Gerald.
• Boland, Kevin.
• Booth, Lionel.
• Brady, Seán.
• Brennan, Joseph.
• Brennan, Paudge.
• Breslin, Cormac.
• Briscoe, Robert.
• Browne, Seán.
• Burke, Patrick.
• Calleary, Phelim A.
• Carty, Michael.
• Childers, Erskine.
• Clohessy, Patrick.
• Collins, James J.
• Crowley, Honor M.
• Cunningham, Liam.
• Davern, Mick.
• de Valera, Eamon.
• Doherty, Seán.
• Donegan, Batt.
• Dooley, Patrick.
• Egan, Kieran P.
• Faulkner, Padraig.
• Flynn, Stephen.
• Geoghegan, John.
• Gibbons, James.
• Gilbride, Eugene.
• Gogan, Richard P.
• Griffin, James.
• Haughey, Charles.
• Hilliard, Michael.
• Humphreys, Francis.
• Kenneally, William.
• Kitt, Michael F.
• Lemass, Noel T.
• Lemass, Seán.
• Loughman, Frank.
• Lynch, Celia.
• Lynch, Jack.
• McEllistrim, Thomas.
• MacEntee, Seán.
• Medlar, Martin.
• Millar, Anthony.
• Moher, John W.
• Moloney, Daniel J.
• Mooney, Patrick.
• Ó Briain, Donnchadh.
• O'Malley, Donogh.
• O'Toole, James.
• Ryan, James.
• Ryan, Mary B.
• Sheridan, Michael.
• Smith, Patrick.
• Traynor, Oscar.

Níl

• Belton, Jack.
• Byrne, Tom.
• Carew, John.
• Coburn, George.
• Cosgrave, Liam.
• Desmond, Daniel.
• Dillon, James M.
• Giles, Patrick.
• Hogan, Bridget.
• Hughes, Joseph.
• Jones, Denis F.
• Kyne, Thomas A.
• Lynch, Thaddeus.
• McMenamin, Daniel.
• Manley, Timothy.
• Mulcahy, Richard.
• Norton, William.
• Reynolds, Mary.
• Russell, George E.
• Sweetman, Gerard.
• Tully, John.

Tellers:—Tá: Deputies Ó Briain and Loughman; Níl: Deputies T. Lynch and Carew.

Question declared carried.

SECTION 22.

Mr. Sweetman

I move amendment No. 24:—

In sub-section (2), page 14, line 12, before "of" to insert "or in any premises adjacent thereto".

I must confess quite candidly in relation to this amendment that I am not quite clear about the effect of Section 22 on Section 23. As I read Section 22, it means first of all that, if a company provides a house for a manager, such house is automatically taken into account in the assessment of the manager's income. Then I became doubtful of that because of the first sub-section of Section 23, and it is necessary for me to jump to that sub-section to discuss the relevance of the amendment I suggest.

If the purpose and the meaning of Section 22 are in relation to premises only, to mean that the premises must be included if they are put out of the company's name into the employee's name, then I have not got the same view at all. However, as sub-section (2) of Section 22 is framed at present, if you take the ordinary house and shop combined, if there is a separate valuation on the shop as compared with the house, then the mere fact of the separate valuation would mean that there would have to be an assessment made on the director or manager who lived in the house.

I am not thinking in terms of a house being bought for an employee. I am thinking of the ordinary small country shop and house combined where the parlour is at the back of the shop and where the family live upstairs. If that business is now incorporated into a private limited liability company, the directors being the husband and wife, if there is a separate valuation for the private part of the house and the shop part of the house, then as the sub-section is drawn there must be an assessment for the private part of the house on the director concerned.

I do not think that is what the Minister intends and that is why I propose the amendment "or in any premises adjacent thereto" to cover the point where the business premises is, so to speak, segregated by the rating authority. I take it that what the Minister intends there is that if a building has in it a shop and ordinary living accommodation over and behind that shop, that ordinary living accommodation does not become assessed, as it is not at the present time, but if you use the words "business premises" in the strict sense for the ordinary back room parlour, it might be assessed. As far as I can find there is no definition in this Act of the words "business premises" themselves. I may have missed it but I cannot find any such definition.

Mr. Haughey

In Section 27.

Mr. Sweetman

Yes, I am aware of that definition, but it is not a definition. What is meant "by business premises for the purpose of any trade carried on by it?" Is there a similar definition to what is, for example, in the Finance Act of 1932 in relation to rents payable out of business premises? I want to be quite clear that where there is a genuine case, as exists up and down the country, where the type of business is such that it is carried on by people living above or behind the premises or utilising a room behind the premises for the purpose of having their meals, that will not be assessable. I do not think the Minister intends that, but I am apprehensive that it can be so interpreted.

Dr. Ryan

I do not know exactly to what part of the section the Deputy is referring, but what is intended here is that if the director or employee has a house transferred to him altogether, the annual value of the house will be treated as remuneration. If the house is owned by the company and he has the right to live in it, the annual value of the house to him will also be classed as remuneration. There are, of course, certain exceptions under sub-sections (2) and (3) where occupancy of the house is permitted as part of the remuneration.

Mr. Sweetman

Are we to take it that this section means that every owner of a small business throughout the country, where it becomes a company, will be assessed on a rental basis? Let me say at once I entirely agree with the Minister that if a company buys a house and puts that house into the name of an employee or director, if the company relinquishes all ownership and control of it, that is another way of paying the employee and there should be an assessment in respect of it. There would not be any difference whatever between the Minister and myself in that respect, but where it is desirable—I shall not put it as far as necessary—that the director or employee should live adjacent to the trading premises, and the place where he lives belongs to the company, is it proposed now for the first time to assess the occupier of those premises on a rental basis? Under the section it seems to me it is so proposed, and I do not think it is at all necessary or suitable for the pattern of our life here up and down the country.

One has seen in recent years a substantial number of small business concerns, usually in the confectionery business, becoming incorporated. Abutting on the street, in the front, there is a shop. Sometimes you cannot get into the private part of the premises except through the shop. There is not a very big trade carried on. There are cases I know of in my constituency where there are such companies. It is not a big trade and the family have to live over the shop, as it would not be worth while operating it on a lock-up basis. Surely, to decide suddenly that all those people are to be assessed for the first time because they occupy the premises adjacent to the shop—over the shop or behind the shop—seems to me to be entirely unnecessary and wrong and quite out of keeping with what we should do, on the theme Deputy Dillon and the Minister agreed on during the Budget debate.

I am in entire agreement with the Minister that if a company purchases a house, say, 25 miles from Dublin, a country house and land, and keeps that in its own name, and permits a director to live in it, the occupancy of that type of house should be assessed for tax purposes. That is not the type of case I am interested in at all. The type of case I am interested in is where the house is near the business premises—next to it, above it or behind it—and where the house of the director or employee has to be near that business premises for the purpose of ensuring that the business is properly carried on. One cannot say "solely", because the person happens to be living there as well, but the house is there for the purpose of carrying on the business. I want to know whether such a case is to be assessed in the future or not. If it is not to be assessed, do not mind my amendment; if it is to be assessed, we will have to deal with it in a different way.

Dr. Ryan

First of all, the Deputy is aware that the income-tax payer will have to have more than £1,500?

Mr. Sweetman

Not as director; if an employee, yes.

Dr. Ryan

If an employee, yes.

Mr. Sweetman

But not as director. Perhaps I have misread the section.

Dr. Ryan

That would be a proprietor, would it?

Mr. Sweetman

A director.

Dr. Ryan

A one-man business?

Mr. Sweetman

A man and his wife, an ordinary private company.

Dr. Ryan

A director?

Mr. Sweetman

If he is an employee, I think he has to be paid more than £1,500, but I think if he is a director——

Dr. Ryan

In the case of the example given by the Deputy, say, a confectionery company, where he lives in, there possibly would be a case under sub-section (2) or sub-section (3) of Section 22; but, of course, I could not say. I could not say for certain whether there would or not.

Mr. Sweetman

Am I correct in thinking that the exception for annual income of £1,500 contained in sub-section (2) of Section 24, which must cover the whole part, applies only to an employee? Supposing a director gets only £1,499, is a director not included regardless or what he may be paid? An employee is included only if he gets more than £1,500; and I am quite clear about an employee; but a director, as I read it, is included, no matter what he gets.

Dr. Ryan

That is correct.

Mr. Sweetman

Other interpretations are that I am not correct, but I think this is one of the cases in which the Minister and I agree—few though they may be. If we are correct in this, then this will affect every trifling small business in the country where there is a private company concerned. It does not seem to me that that is right at all. This is entirely new taxation, the Minister will agree, if that is so, because the situation always has been, as far as I understand it up to this, that such occupancy, where it is for the purpose of the trade, not necessarily "solely" for the purpose of the trade, provided it has got to be so for the purpose of the trade, was not subject to taxation. Now, if I understand the Minister correctly, it is to be included. We should be clear on this.

Mr. Haughey

While we are on that point, I should like the Minister to straighten this out. It seems to me that if a director is employed by the company, if he is in the employment of the company in any capacity, then Section 24 (3) applies and he must have been in receipt of £1,500 or more before the whole of Part IV applies to him. I wonder if that interpretation is correct—if he is a director employed by the company, he must be in receipt of £1,500 or more?

Dr. Ryan

I do not think so. The director is included, for any remuneration.

Mr. Haughey

No matter what his remuneration is?

Dr. Ryan

Yes.

Mr. Haughey

Sub-section (2) of Section 24 says:—

"In this Part of this Act, ‘employment' means an employment such that any emoluments thereof would fall to be assessed under Schedule E, and references to persons employed by, or employees of, a body corporate include any person who takes part in the management of the affairs of the body corporate and is not a director thereof."

Mr. Sweetman

I am not quite clear about another type of case. I think this is where Deputy Haughey has got off the rails. A director can be two things—he can be a manager and he can be a director.

Dr. Ryan

He can, yes.

Mr. Sweetman

Now, in respect of the salary that he is paid as manager, if that were only there, he must have £1,500; but in respect of his directorship, even if he is paid only £1 a year director's fees, or in fact whether he is paid any or not, even if he is paid no director's fees, I think his being a director automatically brings him within the purview. The fact that he is a manager as well as a director seems to me to be entirely beside the point.

Mr. Haughey

That is clear.

Dr. Ryan

Section 21 says:—

"...an employment to which this part of this Act applies, shall, if not otherwise chargeable to income-tax as income of that director or employee, be treated for the purposes of Rule 1 of the Rules applicable to Schedule E as a perquisite of the office or employment..."

I think it is perfectly clear that a director is brought in, no matter what he is paid. If he is paid also as an employee, that is included afterwards.

Mr. Sweetman

If he is not an employee, if he is only a director, once he is a director, once he gets any fees at all, he is brought in?

Dr. Ryan

Yes.

Mr. Sweetman

If that is so, we have at least reached this measure of agreement on the meaning of this part, that a director is in, no matter what he gets; and, therefore, the proceeds of the business are not the important thing, the size of the business is not the important thing. We are now arriving at a situation in which, throughout the country, any small type of private business incorporated into a company is to be assessed for a new type of taxation, for the first time.

Progress reported; Committee to sit again.