Has the Minister nothing he can add to the wisdom he gave us before progress was reported?
Committee on Finance. - Finance Bill, 1958—Committee Stage (Resumed).
Debate resumed on the following amendment:—
In sub-section (1) to delete lines 47 to 54 inclusive—(Deputy Sweetman).
No. I have nothing to add.
Has the Minister considered the case I mentioned to him about "accustomed to act"? Does not that ride a coach and four straightway through the section?
I do not think it does. The Deputy raised an interesting point, I admit, but I do not think it will have any practical consequences.
We shall consider mutually what practical consequences it might have between now and Report Stage.
Amendment, by leave, withdrawn.
Amendments Nos. 36 and 37 might be taken together. One decision would cover both amendments.
I move amendment No. 36:—
In sub-section (3), page 16, line 9, to delete "fifteen hundred" and substitute "two thousand".
In deference to the Minister's wish that we get a move on, I shall be very brief. The purpose of amendments Nos. 36 and 37 is to raise the income limit of employments which are employments to which Part IV applies, from £1,500 to £2,000. The section as it is framed at the moment envisages that the income should be calculated on a gross basis, in other words, that every penny of income that a person gets and every payment that can be added to his income under the provisions of Part IV are all added up and, if the total is more than £1,500, the employment comes within the scope of Part IV of the Bill. I think that that is too low, that it would be desirable from the point of view of administration to raise the limit to £2,000, to exclude everything under £2,000, bearing in mind the manner in which the income is calculated.
I instanced already the case of a commercial traveller. Practically every commercial traveller will be brought within the scope of this Bill as it is framed at the moment, because a commercial traveller could not stay on the road at less than £1,000 a year expenses, taking the cost of his car, hotel, travelling, meals and everything into consideration, so that a commercial traveller who earns £500 net income will be brought within the scope of Part IV. There are other people in the same category. I can imagine engineers, accountants and various other people like that whose net incomes are not large, being brought within the scope of Part IV of the Bill.
I should like to add a second argulent, that the income limit in Britain is £2,000. I admit that their circumstances are completely different but, nevertheless, money values and incomes correspond roughly in both countries. So, from the point of view of facilitating the operation of Part IV and cutting down administration to the minimum and cutting out of the net, that Part IV will spread, various types of employment which I am sure it is not intended should be included, I would ask the Minister to accept these two amendments.
It is very difficult to strike a figure that would not be objected to. I must say that one of the things I said to the Revenue Commissioners when they came to me with this proposal was that I thought £1,500 was a bit high but they put it to me that they had plenty of work to do at the moment and did not want to be bothered with more and put it deliberately fairly high so that the number of cases arising would be comparatively small.
I have been attacked here more than once for taking provisions holus-bolus out of the British Act. Now the Deputy wants me to follow the British Act in this particular instance where we evidently did depart from what was in the British Act. However, I do not think the comparison as far as Britain is concerned has any bearing on us here. We have to make up our mind what we believe to be an income that, first of all, would be low enough to catch out the people we set out to deal with in this part of the Bill and, at the same time, I have to keep in mind the view put to me by the Revenue Commissioners that they did not want to have too many cases to deal with. On that basis, I think the £1,500 is a fair compromise although, as I said already, in my opinion, too high when I saw it first.
That would be the equivalent of about £600 pre-war, would it not—two-fifths—8/- to the £?
I do not know what the comparison is between now and pre-war.
Is not £1, as compared with pre-war, worth about 8/- at present?
I do not know. The Deputy may be right.
I think that is so. Two-fifths of £1,500 is £600. I could understand the argument if it were £1,500 net. Where I am rather shocked by it is that this is the gross figure, the figure before expenses that are allowable expenses under the rules of Schedule E, come into consideration. It is not a net figure. It is a gross figure, as I understand.
We will have to take a gross figure.
Yes. I think the Minister has convinced me that you have to take a gross figure, but the fact that you must take a gross figure means that one must consider a different limit figure than one would consider if one took a net figure. If you took a net figure then I think you would be just asking for people to pay £1 per annum less than that net figure on salary and pay the balance on expenses, to do exactly what none of us wants to do. But you must take a gross figure, and it seems to me that the method of doing so in this respect will be against the individual who is in a smaller way of business. Take the man who is a director of three or four different companies. A couple of examples occur to my mind at once. He is not affected by this at all because he has less than £1,500 in respect of each company. They are not connected in any way. While I am speaking I see the syllogism in my own argument because I am relating this as if it were a case of an employee and not that of a director.
The director is out of it.
The Minister has me on my own argument. The director is covered already because he has not got to gross up to anything before he comes in.
I put down this amendment merely by way of suggestion. I thought the section might be improved if the Minister adopted these limits. If he thinks they should not be adopted, then I shall withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment No. 37 not moved.
Section 24 agreed to.
SECTION 25.
I move amendment No. 38:—
In sub-section (2) (b), page 16, line 40, to delete "within the time limited by the notice" and substitute "within one month or such other time as having regard to the circumstances of the case shall be reasonable".
This is a notice which, in the framework of the Act, must be given by the inspector of taxes. Of course we all know it will not necessarily be the inspector himself who will give it. It will go out under his name, but it will in fact be done by somebody in his office. We must have some minimum time for such a notice. I take the view that 99 per cent. of revenue officials are reasonable people but one does occasionally get the 1 per cent. who are the reverse of reasonable. By the time they reach the higher posts they have usually learned sense, but one does get younger officials occasionally —not only in revenue but elsewhere as well—who do not appreciate the way in which their job should be done. There should be a minimum time here anyway. This is more or less equivalent to an assessment. One must appeal within 21 days of assessment and what is sauce for the taxpayer should be sauce for the Revenue Commissioners as well.
I do not think the Deputy realises that what is laid down here is that the company will make an apportionment and, having delivered that to the inspector, the inspector may ask for further particulars with regard to the amount apportioned, the manner in which it is apportioned and the grounds on which the apportionment has been made. As we are all aware in our private capacity, the Revenue Commissioners give 21 days and there are dire consequences if one fails to give the information required.
If the Minister says that it is a matter of administrative effect and that it will be 21 days, then I agree it need not be in the Bill.
Amendment, by leave, withdrawn.
Section 25 agreed to.
SECTION 26.
I move amendment No. 39:—
In page 17, line 3, to delete "or other property".
I am not clear as to the meaning of the words "or other property". If, for example, there is a company which owns a farm and has not other property at all it will be assessable under Schedule A in respect of buildings, assessable, at its own option, under Schedule B or C on the valuation or the profits. If it opts to be assessed under Schedule B on the original land purchase annuity rather than on the profits, is not the position that the people operating that farm as a company cannot be taxed for anything because the profits will already have borne full tax? If this is intended to catch the company which is assessable, and which has no other income except the land, the effect of the inclusion of these words would mean that certain profits were taxed twice!
In relation to Schedule B assessments, the Minister made the case very strongly that the effect was merely to take from one the income that was being taxed and allow it in another place. If this is the type of company the words "or other property" are to cover, it would be taking profits and taxing them though there would be no similar liability elsewhere. To explain the matter to the Minister, may I draw the analogy with the ordinary farmer who has no income of any kind, sort or description except what he makes out of his land?
He pays Schedule A tax in respect of his building. He decides to be assessed for Schedule B tax in respect of his valuation or the original land purchase annuity on his land, and whatever he makes from his farm he uses that for the purpose, amongst other things, of running a motor car. As I understand this Bill there is no possibility of taxing him in respect of the running of that motor car which he pays for out of the profits of his land which have been fully taxed under Schedule B. I hope I am right in that. If I am not we shall have to have another story at a later stage.
Assuming I am right in that, however, take the similar case in respect of a company which owns land. The company makes its profit out of the land. It is fully taxed in respect of its profits and it pays for a car for a director in the same way as the farmer pays for his own car. I think the words in that section will mean that that director has to pay additional tax to what he would have to pay if the farm were not held by an incorporated company. That arises because in this case there is no Schedule B profit against which the cost can be apportioned. In the case we were discussing yesterday the cost of the car is included in the company's accounts as an expense and therefore the company have not been paying tax in respect of it. In this case there is no such allowance to the company but there is additional taxation on the person concerned. This is all, of course, on the basis that I have correctly interpreted what the Minister means by "or other property".
The section provides that the Bill shall not apply—it is put in the negative way—in relation to any body corporate unless it carries on a trade or its functions consist wholly or mainly in the holding of investments or other property. The Deputy seeks to delete the words "or other property." The possible effect of that would be that, let us say, an estate company, a company that deals in houses, would not come under the Act. That type of company would be in a very nice position to do a good turn for its directors by giving them a free house.
Surely if it deals in estate property it carries on a trade. "Dealing" is carrying on a trade. I think the Minister will find I am right.
Perhaps the Deputy is right. Take the words "or its functions consist wholly or mainly in the holding of investments or other property.""Or other property" would apply to an estate company, a company dealing in house property. By the exclusion of these words companies of that kind would be put outside the Act. If such a company should give a house to its directors they would not be caught under the Act.
I do not think so because once a company deals, it is caught because it carries on a trade. Perhaps I can make the situation clearer in a different way. What is worrying me is this. If the functions of a body corporate consist wholly in the holding of property then the case I instanced a minute ago must arise. Take the case of a company whose sole purpose is to hold and run a farm— that is its sole asset which is taxable under Schedule A and under Schedule B. As it is taxable under the fixed provisions of Schedule B, the inclusion of such a company in this part of the Act brings in a farmer director in a far worse position for taxation than the farmer would be if he was not a director. I do not think the Minister intends that.
I think the Deputy is right in that, that if the farmer converts his property into a company he comes into this Bill. If he remains a proprietary farmer he does not.
Surely the position is that he should not if the company holds only the land, because if the company is assessable in respect of its profits, the cost of running a car—we will take a car for the moment—is deductible from the profits and the company does not pay tax on that expense of running the car.
That is right.
The Minister makes the case that the company has not paid tax on the running of that car, that because it is getting the cost of running the car as an expense, then it is proper to charge tax on the person who is getting the benefit on the same basis. That has been the argument the Minister has made all along. In relation to a company holding land alone, however, the company does not get the right to deduct the cost of running the car against its assessment and therefore if the individual is going to be assessed on the cost of running the car he will be assessed on it in addition to the full taxation the company has had to pay.
So far as I can follow the Deputy, the same argument could be used against cash expenses, I mean, the sort of cash expenses we had in mind. We mentioned already a company must have an account of the cash given by way of expenses. I think the same. would apply from the Deputy's reasoning.
I do not think it would for this reason. If you have a company which has no business at all except carrying on a farm of agricultural land, the dividends which it distributes have already been taxed under Schedule B and there is no further tax to be paid in respect of them. The Minister is now imposing an additional tax and he has not got the offset in the company's accounts he would have otherwise. If the Minister intended to do that then we can deal with it on another basis, but I should like to be quite clear, first of all, as to whether the Minister intended to tax something that was not being allowed as an expense to the company under Schedule D. The company is not paying the tax on it and the Minister's case therefore is that because the company is not paying the tax it is reasonable to tax the individual. That does not arise in respect of a company which holds land only and I am using "land" in the agricultural sense as apart from the general statutory definition.
I shall examine the point but I must say I cannot see that there is much in it.
I think, to be quite honest, the method suggested in my amendment of trying to arrive at what I wanted to achieve is faulty. I think I shall have to frame my amendment differently also.
Amendment, by leave, withdrawn.
Question proposed: "That Section 26 stand part of the Bill."
Could the Minister explain what the section envisages by the word "property"? May we take it that it only means lands, tenements and hereditaments, or does it mean "anything at all"?
I do not think the word "property" is statutorily defined anywhere.
It could include other things but I do not think it is necessary. In fact, I think it applies only to property, although the definition would seem to include——
Any asset.
Yes.
I think it would even include the chair the company secretary has to sit on.
That being so, what is the point in the section?
None.
I think the answer to it is that the section means every company.
No.
What company is excluded?
It excludes, among the examples I have been given, Irish Lights for instance, and it excludes Córas Tráchtála, because it is not a trading company.
It holds assets of some kind.
Another example I got was——
Can the Minister give me a private enterprise example?
No. I do not think any private enterprise——
Does it cover everything then except something that the State sponsors, taking Irish Lights to be virtually State sponsored?
It does not cover all State sponsored bodies. For instance, if the E.S.B. were practising tax avoidance—I am not afraid of it in their case—they would naturally come under it.
It covers everything then but a freak like Irish Lights, a very useful one, but still a freak.
Why does Irish Lights get off?
Because is is non-profit-making.
It is not trading.
No, but it holds property, boats and lighthouses.
Yes.
Do the Commissioners of Irish Lights not fulfil a very necessary function which suddenly comes to my mind? Once every year the commissioners do something necessary to carry out their business and, personally, it is a job I would not do for all the money in China. They go round the coast in one of the Irish Lights ships on inspection. They do that for the purpose of their business, and nothing in the world would put me on the sea for so long a period as that.
You would want to be fond of the sea.
The fish would be the beneficiaries, if I were there as long as that. But during the course of that trip they must get accommodation. They own property, lighthouses and boats. The carrying on of a trade is not their function and I would hate to think that the commissioners who performed such good work might be caught.
Question put and agreed to.
SECTION 27.
I move amendment No. 40:—
In sub-section (1), page 17, to delete lines 8 to 13, inclusive.
We have pretty fully discussed points on amendment No. 40 on early sections of the Bill and, as I understand the position now, the wider part of the proviso comes in where living accommodation is not provided. I am not clear on what exactly the wider part is intended to cover by "other than private office accommodation" if it is intended to cover any accommodation.
I gather from the Minister it is intended to cover private office accommodation only as apart from living accommodation. This is really more on the section than on the amendment, but the two are cognate, and I would like to be quite clear that there is no difference—the Minister hinted at this already—between premises occupied by a body corporate for the purpose of any trade, and premises owned by a body corporate for the purposes of its trade. I am perturbed about the term "occupied". It seems to me that where a company owns premises and puts an employee into its premises it is the employee who occupies and the body corporate who owns. I want to be clear that there is not any gap left on that account. Occupancy, as I understand it, means the physical occupancy in this case; it is not the type of occupancy visualised in respect of Schedule B; if it was, then I would be quite happy because it would be equivalent to a grazing tenant not being an occupier but a lessee being an occupier, but I cannot see that it comes in at all on that basis.
If it is clear that the effect of this section is virtually the same as if the body corporate owns the premises for the purposes of its trade as apart from the purposes of giving an estate in the country to somebody then I think we could probably make some progress.
Is it not clear that the only other place in Part IV where "business premises" is used is in sub-section (2) of Section 22? Therefore the description of "business premises" relates to that section only, and I think the meaning is quite clear that for the purposes of that section, sub-section (2) of Section 22, the Bill wants to restrict accommodation, supplies and services to actual business premises.
When you come to the next sub-section (3), the reference is to business premises which include living accommodation and they get this meaning because of the exceptions in the proviso. I cannot see Deputy Sweetman's difficulty at all.
Go back to the bank manager's case. He is the occupier of premises above the bank. The bank owns the premises for the purpose of its trade but the manager occupies it.
There is an exception in the proviso where the premises includes living accommodation from the narrow meaning of occupancy.
No. Take the case of the bank manager again.
The bank manager can only come in under sub-section (3). Do you agree with that? Sub-section (3) is clearly dealing with business premises, including living accommodation.
That is quite right. The effect of the exception in the proviso is that the whole of lines 8 to 13 are out.
Therefore you are back to the first paragraph of sub-section (1) of section 27.
I take it that it means where it is owned by the body corporate and occupied by someone else.
Surely you can take it that the word "building" or "premises" includes the whole lot? It means the whole building.
Not if separately valued.
I do not think that the separate valuation will make any difference. The words used include all premises. When we come to the proviso we are referring back to Section 22. The definition of business premises includes all premises occupied for the purposes of the trade carried on by it and would include living accommodation for its servants.
The first paragraph includes all premises. It does not refer to any part.
It seems to me that the kernel of the whole thing is whether it is owned by the body corporate and occupied by the servants. If that is so then I am happy. If it is not so, I am not happy.
The interpretation I have is that business premises includes whatever living accommodation there is for servants.
Then it is all right. I wonder could the Minister tell me where the definition of occupancy is in the 1918 Act? I have been trying to find it and I cannot. Perhaps it is in the Rules of Schedule B.
In the Rules of Schedule A there is a reference to excluding the valuation of premises occupied but it does not define occupancy.
I do not think occupancy will matter here.
I presume that if there is a definition in the Income-Tax Acts it will be construed with this Act. If I could find it I would have all my problems solved for me.
I should like to tell the Deputy that the practice of the Revenue Commissioners, apart from this section, would be to treat premises owned by a company and used by its servants as premises in the occupancy of the company. This is not making any change in practice.
Amendment, by leave, withdrawn.
I move amendment No. 41:—
In sub-section (2), page 17, line 19, before "and" to insert "and who are not themselves directors or employees".
The Deputy is afraid that the director's wife might be taxed twice.
That is so, as far as I can see in the reading of this, otherwise there would he a double assessment in it.
A wife of a director who is a director herself gets a car presented to her by the company. She is not doing much work on behalf of the company, and should be taxed for that benefit in kind which should be treated as expenses. Under the law as it stands there is a provision with regard to the avoidance of double assessment, and this section is to make sure that that is covered. However, to make certain I am prepared to have the matter examined again.
It is not intended to have double assessment?
Oh no.
Amendment, by leave, withdrawn.
Question proposed: "That Section 27 stand part of the Bill."
On Section 27 there is the question of definition of "control". Does this mean that there is power to control by the holder of a majority of the shares of the particular class that govern the company? I think it does, either through a subsidiary or not.
That would certainly be included. If the person had power to control the company and, if he had a majority of the shares, he would be in that position. Another example I have given is where a company has a subsidiary company and the holding company has power over the subsidiary company.
Yes, but there cannot be any question of deeming two brothers automatically agree who always work together. Deputy Haughey and I have agreed on a lot of points but we have disagreed on others. Two brothers may agree on a lot of points and they also may disagree on others.
If they had power to disagree it does not mean control.
Question put and agreed to.
SECTION 28.
I move amendment No. 42:—
In sub-section (2) (a), page 17, line 45, before "and" to insert "unless the partnership deed shall otherwise determine".
This is an obvious amendment. There may be a partnership deed involved. I know of one partnership deed I saw some years ago in the course of my professional duties where the man who got more than half the profits had not got the control. There was a provision that the sleeping partner had control but he drew only one-third of the profits. The working partner drew two-thirds of the profits but in any question of voting between them the man with one-third of the profits had the control. I want to provide if there is a special arrangement in the partnership deed like that, that it will override the section. I think it is essential that there should be some form of words such as I have put in here—the contrary is not provided otherwise than by deed. This section takes the line of saying control is the person who has the profits. That is the normal way but there are cases where it need not be so.
Of course, we are actually dealing with control here. In the case the Deputy mentions the person would not actually have control, and therefore, the section does not apply.
In the case I mentioned the person with two-thirds of the profits would be deemed, under this section, to have control though in fact by the terms of the partnership deed he would not have control.
I may have put my figures the wrong way around but what happened in the case was that A had one-third of the profits, and the partnership deed provided that even though A had one-third of the profits he had not control. Under this section—there were only two partners—B would be deemed by the Act to have control though in fact the partnership deeds showed it was A had the control. It is an unusual case but these circumstances do exist quite regularly in sleeping partnerships.
There is some point in what the Deputy says but we are dealing only with control here, and if control is not there it does not arise. If the Deputy looks at the first line of clause (a), I wonder would that cover the point?
Unless the partnership deed otherwise provides or shall otherwise determine. As I understand clause (a) it is to provide that there will be somebody whom the Revenue Commissioners can say has control.
That is right—people who have more than half of the shares. However, if there is such a case as the Deputy instanced, if the person proves he has not control that is all right.
A person is deemed to have control under this section whether he has it or not.
Amendment, by leave, withdrawn.
I move amendment No. 43:—
In sub-section (3), page 18, to delete lines 3 to 5 inclusive.
The purpose of this amendment is to delete the words: "but nothing in this sub-section shall be construed as requiring an individual to be treated in any circumstances as under the control of another person." Surely there must be cases in which, in the analogy the Minister is taking in relation to companies, an individual is under the control of another person? Without going into the humorous cases of certain people being under the control of their wives, might there not be cases where individuals, as part of a partnership, are under the control of someone else? Line 2 does not say individuals who are not in partnership, but it is an individual, whether he is in partnership or acting as an individual, who is caught by this section.
My partner and I remain individuals even though we are in partnership together. Deputy Haughey and his partners remain individuals even though they are in partnership together, and an individual who is part of a partnership must be under the control of somebody else. I think what this means is that an individual who is not in partnership shall not be treated as under the control of anybody else, but it does not say so.
Yes, it does. Strange to say Deputy Sweetman says that taking the human view——
I said the humorous view.
I thought the Deputy said "human", and the Revenue Commissioners do take the human view. They do not imply by legislation that one person could control another.
Amendment, by leave, withdrawn.
Section 28 agreed to.
SECTION 29.
I move amendment No. 44:—
In sub-section (1), page 18, to delete all words from and including "Provided" in line 39 down to and including "director" in line 42.
I would like to say something about Part V of the Bill. In recent years companies have, on a fairly extensive scale, set up retirement benefit schemes for their directors and highly paid employees. The company is entitled to charge its expenditure under this head against its profits and so reduce its tax liability, and the director or employee for whose benefit the scheme is provided is not taxed on the contribution made on his behalf, though it is equivalent to extra remuneration.
Usually the scheme is one under which an endowment assurance, maturing on death or retiring age, is effected on the life of the director or employee concerned. The amount of assurance is sufficient to provide a pension of, say, two-thirds of his salary. If the person had no option but to accept a pension, income-tax would be payable on the pension. But it is arranged that the pension may be converted into a lump sum payment which is not subject to income-tax. When this happens no income-tax is collected at all—the contributions are deducted from the tax liability of the company, the beneficiary is not taxed on the extra remuneration represented by these payments on his behalf, and, when the benefits are received, it is arranged that they come in a non-taxable form. That is by way of a lump sum. The pension is commuted to a lump sum. Part V of the Bill is designed to correct and regulate this position. It does so from 6th April of next year—I want to make it plain that there is no retrospection in this. The way in which the matter will be controlled is, very briefly, as follows:—
Section 30 is a general blockade set up in order to regulate the traffic. It makes the cost to the company of providing the retirement benefits taxable income of the director or employee for whose benefit the contributions are being paid. We commence by saying: "These are your benefits and they are taxable as far as you are concerned."
Do I understand the Minister to use the word "blockade"?
Yes—a general blockade to start with.
A very apt word in regard to another section.
I continue the metaphor—
The trapping of the initial payments in this way will not, however, apply to various forms of legitimate provision for directors and employees. What lies behind all the technical provisions of this part of the Bill is the intention that retirement benefits will not get a double relief from tax—a relief when the contributions are made and a second relief when the benefits are paid out. It is sought to tax this form of income only once; that is, not to tax it twice but, on the other hand, not to let it off scot-free.
Thus, where the company pays a premium on a life assurance policy, the director or employee will get the relief to which he would have been entitled if he had himself paid the premium.
The director or employee will not have the company's payments counted as part of his taxable income where the retirement benefit provisions conform to certain conditions. These conditions are intended to secure that more than a normal proportion of the benefits does not become payable in the non-taxable form of a lump-sum and that the benefits themselves are not excessive. What we are aiming at here is, roughly what public servants are entitled to, that is, a retiring pension of about two-thirds of his salary and a lump-sum of not more than one-fourth of the total benefits. If the scheme which is adopted by any company for its directors and highly paid men conforms to these requirements then, generally speaking, the contributions will be free and, of course, the pension when it becomes payable afterwards will be subject to income-tax as earned income.
I do not understand why, having regard to the averaging position that is contained in the earlier part of this definition of final remuneration, directors' fees should be excluded, particularly when the word "similar" remuneration is added. As I understand the position, the section as it stands means that the average annual amount of the remuneration of the director over the three years prior to his retirement is taken and that is the figure upon which the pension can be based. That is on the lines, as the Minister has just said, of the analogy with Civil Service pensions, that you take the average over the previous three years. Then, having taken the average over the past three years, you come down in lines 39 to 42 and you say that part of the figure that you have taken in for averaging what the man has received is not to be accounted in the annual average computation. I cannot understand that at all.
We all know that executive directors are paid partly by executive remuneration, partly by directors' fees and that the £100 that they receive as part of their executive directors' employment remuneration is just the same £100 in the man's pocket as the £100 he may receive as director's fees. Therefore, I cannot understand why directors' fees are to be excluded in arriving at the annual average computation. As I understand the Minister, he wants to ensure that the pension that will be payable will have a relationship to the average that a man has been paid in the last three years of his working life, so to speak. That is the Civil Service basis, as I understand it. If that is so, why exclude part of what he has been receiving?
The idea here is that this section should apply to the employees, the reason being that a pension scheme is hardly applicable unless you have constant employment, first of all, of course, and a fairly well-defined range of salary.
Agreed.
You have that in the case of the employee and so much is paid according to his salary each year. Usually, a percentage of his earnings is paid into a fund. A director, first of all, is only there for a term. He may in fact be there for life but he is only voted in for a term. He is not, as a rule at any rate. depending on that company. He may be a director of another company. He may have other business of his own or something like that. On the whole, I think it would be difficult to allow directors to be taken into a scheme of this kind. The director may, of course, look after himself under Part VI and it would be the proper place for him to make provision for his own superannuation.
There is another point that I think I can make, that directors who hold a fairly substantial interest in a company are usually there for life. They very often go beyond the normal age for pension, 65, and even beyond the age of 70 and in many ways it would be difficult to deal with a director in this particular part. When we come to Part VI it is a different matter because the director makes his own arrangements and it does not matter in Part VI whether he retires or not before he draws his pension. It is not a retiring allowance exactly but he can draw it at a certain age even if he goes on working. For many reasons. Part VI is more appropriate for a director than Part V.
I agree that Part VI is more appropriate for a director who is not an executive director. I agree with the Minister's argument in relation to a person who is a director only but the type of person I am considering is a person who is both an employee and a director. Where a person is what I term an executive director, that is to say, a person who is an employee and, perhaps, coming to the end of his period, is promoted to be a director—the case we were discussing earlier to-day—when he is an employee, why should not the total of his pay from the company be taken into account?
I agree with the Minister that if he is a director only he should go on to Part VI, but I am not interested in that case. I am interested in the case of an individual who is primarily, if you like, an employee and, secondly, a director. Why should he not be able to have the same advantage as, say, the civil servant who is promoted in the last three years before he retires? That civil servant brings into his average his increased pay on promotion. Why cannot the employee, who is paid a salary and is promoted to be a director, take into his average the additional money paid to him by the company in the same way as the civil servant can take in his promotional increase in pay?
This applies only to the calculation of final remuneration.
Surely Deputy Sweetman does not anticipate any difficulty there?
Not for the future, but the average next year will include the two years that have gone.
There is that.
In future, anybody who asks Deputy Haughey or myself will be told how to deal with the situation, but the average will work backwards unfairly for the first year.
Is it the Deputy's point that in future an employee, let us say, of a company is also a director and is in receipt of £1,200 per year—£900 representing salary and £300 director's fees? His co-directors will have £300. They will not be employees. It will be taken that he has £900 as an employee and £300 as a director.
That is what I am afraid of.
Is it the Deputy's point that, after this year, it will be arranged that he will have £1,200 salary and no director's fees?
That is what will be done in future.
Possibly. But that is not the type of case we have in mind. The ordinary director is paid a fee which is supposed to cover him for his services. He has no superannuation. The employee in most big firms comes under a superannuation scheme and that superannuation is deemed to be part of his remuneration. The director, in theory, is paid for his services and he must not expect anything more.
With all due respect, that theory is a little bit out of date. Directors do not operate on that basis now. Take the precedents that we have had in this House. I seem to remember that when directors were having their offices terminated by Act of this House compensation was voted to them for that termination.
But not a life pension.
The Great Southern Railways Act gave compensation. There was other statutory recognition, too, in other cases. This only matters until we reach the average for the period next after the Bill has gone through because anybody who is an executive director, as soon as the Bill goes through, will make damn sure that he will get not X salary and Y fees but X plus Y in salary in future.
I do hot see any great objection to that.
We might as well cover the poor devil who will go out next year.
Will Deputy Sweetman's point not be met by the fact that the superannuation scheme is probably in existence in the case of the man who is going out next year?
That is quite right. Take the example of the man with £1,200— £300 of which is deemed to be director's fees. Suppose he is put off the board obviously he will lose his £300. That may be made up to him in another way by the other directors who may conclude that it was hard luck he should be put off. Presumably he would lose that £300. That would upset the scheme. When the individual keeps going up, the scheme works. When he goes down, it does not work. There would be some question, I think, of giving him a refund of his contributions to some extent.
An individual might be demoted.
I admit it is a point worth considering.
Amendment, by leave, withdrawn.
I move amendment No. 45:—
In sub-section (1), page 18, line 52, to delete "ten" and substitute "fifty."
Why did the Minister choose 10 per cent.? Surely a person with 90 per cent. against him cannot be deemed to be in control. The phraseology of the Bill making a proprietary director a person with only 10 per cent., thereby implying that he is a controller of the company, is so fantastic that I feel I must have missed something. I can understand the Minister not saying 51 per cent. because the chairman would have a casting vote as chairman and that would give him control. How it could be suggested that a person with only 10 per cent. of the shares would be a person in control beats me.
The concept of proprietary here is not a good one. I would prefer the section to be drafted along the lines of the control we had in Part IV. A holding of 10 per cent. in a public company is nothing. In fact, such a holding has no bearing on a man's status particularly when one remembers that portion of that 10 per cent. might be in trust for his children. He might not hold the 10 per cent. at all.
What the Deputy says is correct. A director holding 10 per cent. does not necessarily control. In a company with a rather scattered shareholding, 10 per cent. is a very big holding. I am told that in some of these companies you seldom have more than 20 per cent. of the shareholders voting at a meeting, so a 10 per cent. shareholder might have a very substantial control.
But this does not refer solely to a public company with a scattered shareholding of the kind suggested by the Minister. As far as I understand it, this section refers to a private company as well.
It does.
Where 10 per cent. means a real minority interest.
Ten per cent. is just the sort of holding the executive director we are talking about would have.
In relation to a public company perhaps there might be some case for having a smaller percentage than 50 per cent. because 50 per cent. in a public company would never be held, but in relation to a private company does he not agree there is a very strong case for increasing the percentage to something more realistic? We might have a difference perhaps for private and public companies.
Except that I feel you want to be more particular about private rather than public companies.
Why?
I am trying to find a good word, say, "manipulation". Manipulation is easier in a private company than in a public company.
Would it be that there might be a danger that a proprietary director would be one of a family, say, whose brother would also be a proprietary director who would also be a holder of a very large proportion of the shares? Perhaps the point might be met if you had inserted in that section another definition altogether of a proprietary company. I am suggesting that if you had a definition saying: "A proprietary director being the director of a proprietary company", and a subsequent definition of a proprietary company as one "in which proprietary directors and proprietary employees have a controlling interest." That might meet the Minister's point or the point of view of the Revenue Commissioners in that the company might be controlled by proprietary directors and/or employees. I do agree with the speakers who have said already that to define as a proprietary director one with only 10 per cent. of the ordinary share capital seems unreasonable especially when it does not refer even to the voting rights. The ordinary share capital might be divided into A and B, A with votes and B without votes. You could have a person with 10 per cent. of the ordinary share capital and only 1 per cent. or maybe 5 per cent. of the voting rights.
Or you might have all B capital with no voting rights at all.
Is it visualised that there may be more than one proprietary director in the company? I am speaking of a small private company. Supposing there are three directors in a company, one with the minimum 10 per cent., one with 40 per cent. and another with 50 per cent., are they all proprietary directors?
You can have ten proprietary directors.
There is no limit?
Surely that is not what is intended?
It seems a bit odd.
We are not inflicting any great hardship on these people but I think it would be better for them to come in under Part, VI, where they will get equally good terms in respect of any pension scheme they may apply for, if there is a scheme there already.
This may be a 64 dollar question but, for the purpose of understanding this, could the Minister give us his conception of the disadvantages that a proprietary director will suffer in relation to Part VI as against the person who is included in Part V; in other words, has the Minister worked out any examples—or have they been worked out for him—as to the worse terms that are available to people in Part VI as against those in Part V?
There is one thing I had forgotten. In Part VI they are all pensions of a lump sum. Under Part V a quarter of the pension might be a lump sum. Apart from that, there is no advantage. If the person goes under Part VI he is paid, let us say, £200 more and he pays towards that £200 himself but it is free of tax. Under Part V it is put in by the company and it is also free of tax. Therefore, there is no difference so far as that is concerned at the paying end. At the receiving end, there is that advantage that under Part V he could have a lump sum amounting to what would be calculated as a quarter of the benefit.
I believe the Minister is perfectly right to restrict the part-time director to Part VI, but a full-time director, what I called all along the executive director, who is really a director in addition to his employment, a full-time executive director who is primarily an employee and a director secondly, should get the benefit of Part V, the part-time man, who is director only, to be kept to Part VI. Would that not be a reasonable compromise?
When we speak of an employee here we mean a permanent employee. A director cannot be a permanent employee. I have never heard of a director being appointed by a private or a public company for life.
Yes. I can give you any number of articles of association the Minister wants.
Perhaps that is true. It is not usual.
In private companies it is. I could produce examples by the dozen.
The managing directors are usually exempt from retiral by rotation.
The managing director would be eligible unless he had 10 per cent. of the shares.
But only in respect of the salary.
He is paid a composite salary.
He can be paid a salary and fees. I know a case of one managing director in a company who is paid a salary and gets director's fees in addition.
I do not know of any case like that.
I know one case like that and it seems to me he is caught. What is the desire to make a special rule for proprietary directors?
I should repeat perhaps that under Parts IV and V we have been rather more severe on directors than employees, the reason being that directors can manage things better for themselves than the employees. We think it necessary in the Bill to be more watchful with regard to the directors than the employees.
Why are you also so hard on proprietary employees? You count them in all along with proprietary directors.
He would have a proportion of shares.
He does not have the control the Minister is worrying about in relation to the director.
But he has a good share-holding.
This all affects the question of percentage. "By any other indirect means." What does that mean? I could understand it if it means a chain of subsidiary companies. I accept it in so far as it means that. But, does it mean, for example——
A wife?
Yes indeed. Does it mean, for example, that if Deputy Haughey has shares, the indirect means of control would be the whip that the Fianna Fáil Party has on him?
I thought you were going to say his wife.
Deputy Russell has already suggested the wife.
A Deputy
That is more direct than indirect.
What "indirect means" is it intended to cover here? If it is intended to cover only a chain of subsidiary companies it is all right but we shall have to examine it if it is intended to do anything more.
I think it is to cover anything beyond what is here, to cover anything else.
It does not matter what he does so long as he has control?
Would that mean a bank nominee?
I presume it would. "By any other indirect means" would seem to imply that I can go up to a person who may be a complete stranger to me and ask him: "Would you mind supporting me on a resolution I am going to propose at the next annual meeting to put off one person as a director and put on another?" If a group of shareholders support that resolution it has gone through by indirect means. We must have something more lucid than that in the first place and, in the second, is there any appeal against what is "indirect means" from the determination of the Revenue Commissioners to the special commissioners and then to the Circuit Court?
The Revenue Commissioners must initiate this; they must prove it.
I do not think they must prove it. They must raise the assessment.
Yes, but then—
Is it quite clear that the determination of whether the person has control by indirect means or not rests ultimately with the Circuit Court judge? That makes a very big difference.
The onus is on the Revenue Commissioners to prove that he has control—
Oh, no.
If he says: "No, I have not control," I presume the Revenue Commissioners will have to put it to the Special Commissioners.
With all due respect to the Minister I do not see how he gets that out of the section. Where does it appear that the Revenue Commissioners have to prove control? I never knew the Revenue Commissioners to have to prove anything. They always "assume," and it is always taken prima facie they are right and the other person has to disprove it.
This is a new trend and a welcome one.
If the Revenue Commissioners have changed or if the Minister has changed the attitude of the Revenue Commissioners so that the taxpayer is right and the commissioners have to prove him wrong before they can bring this in, it is a big change—
No, but the Deputy will see they must assess under Section 30 and if they do that, the onus is on them to prove they are assessing properly.
Surely the assessment is made and it is up to the taxpayer to disprove it. The assessment is made on the excess, so to speak.
If he wants to get out under Section 31 (b) he has to do the proving.
I do not think the Revenue Commissioners would give up their prima facie proof as easily as that.
It seems if the Revenue Commissioners assess him under Section 30 because they say he is a proprietary director the onus is on the Revenue Commissioners to substantiate that. If he says: "I am not," the Revenue Commissioners will have to say: "We will bring you before the Special Commissioners to decide the point."
But when it goes before the Special Commissioners an assessment has been made by the Revenue Commissioners and the assessment is there until it is upset. It is for the taxpayer to upset the assessment and to prove to the satisfaction of the Special Commissioners that the assessment is wrong. The burden of proof is therefore on the individual taxpayer unless I am all wrong. Does the Minister agree I am right in saying the burden of proof is on the taxpayer to disprove an assessment?
At a certain stage, yes.
Once it has gone to the stage of being before the Special Commissioners I do not know how one would set about proving he had no control "by any other indirect means." It is like attempting to prove a negative. It cannot be done. How can I prove that I do not beat my wife except by producing somebody who was present every moment of the day with me for the past 24 hours? You cannot do it. You cannot prove you do not control by indirect means. It is not possible to prove a negative. The burden of proof in that respect should be on the Revenue Commissioners if we are to leave the phraseology as it is because it is the Revenue Commissioners who allege that by "indirect means" the company is controlled. Otherwise it is a physical impossibility for anybody to disprove "indirect means."
Surely this would ultimately come before the Special Commissioners where it would be a question of fact and if the Revenue Commissioners cannot bring forward sufficient facts to prove their case, out goes the assessment. If they can bring forward the necessary facts the assessment will be charged.
That should be sufficient but I do not think that will be the position on the section.
Does the Deputy not think that is what would happen in practice?
I think the Revenue Commissioners will be entitled to stand on that assessment and say: "You disprove it."
How does one prove indirect control? It would seem to be a very simple matter to evade this part of the section. First of all, if a person wants to obtain control he will give himself sufficient voting rights with a percentage of shares. He can put anything he holds over 10 per cent. in the name of nominees.
Ownership of nominees does not count. It is only beneficial owners.
The Revenue Commissioners tell a man that he is a proprietor-director and he says he is not. The Revenue Commissioners then say that they will go before the Special Commissioners. They do so and both sides state their case. The Revenue Commissioners say that this man is a proprietor-director and the Special Commissioners ask him if he has any defence and he then produces his evidence against that. I do not think that, in that case, you can say on whom the onus of proof lies. If the Revenue Commissioners just say: "We believe this man is a controlling director", without saying any more, the Special Commissioners will throw out the case.
It is impossible to prove a negative. Will the Minister not come any way over the 10 per cent.? It seems to me to be far too low. We have dealt with seven sections of this Bill since eight o'clock.
We have been good boys.
We have got cooperation. There is an old saying that a person has missed his market and I am offering a market at a price under 50 per cent.
Fifty is too high.
What is the half between ten and 50? I will settle for 30 now or argue the matter at greater length later on.
We will divide again.
Oh, no.
I will put something in on Report Stage.
Amendment, by leave, withdrawn.
I move amendment No. 46:—
In sub-section (2), page 19, lines 25 to 27, to delete "any such person or of such director or employee, shall be deemed to be owned or controlled by such director or employee", and substitute "a person or persons being or including any such person or such director or employee, shall be deemed to be owned or controlled by such director or employee and not by any other person".
This is an important matter and it is a little intricate. Attention has been drawn to the fact that under paragraph (a), sub-section (2) Section 29, a particular holding of shares could be treated as being owned or controlled by two directors. If director A was a trustee for the children of director B, the shares so held would be controlled by director B. Sub-section 2 (a) would cause the same shares to be owned or controlled by director B and it is felt that the position in regard to shares and trust for the wife or children should be made clear. The intention of the Bill is to regard such a trust as for the benefit of the wife and children. It is a very technical point and I cannot do better than read this short description of it.
The only part of this that worries my mind is where the Minister seems to bring another person into it. Suppose there is a trust of shares for a more distant relative than a spouse or children—a spinster—and there is a provision of a trust of shares for her absolutely for her life and if she dies without marriage and without issue, the trust falls back to the spouse and/or the children. That is a case in which the spouse or children have got no present interest and should not, therefore, be taken into account. They only have a contingent interest on reversion expectant on the death of someone without issue.
That is not the type of case—the fraudulent trust type of case—which the Minister has in mind. The Minister wants to make sure that a person, while giving shares to his wife or children, cannot divest himself of the percentage. If the beneficiary is another person, the fact that the spouse and children merely come in on reversion, if some event happens, does not invalidate the whole trust for such a relative.
We will examine that point.
Would there be a chance that the Minister would consider making a reference to the share capital...
My next amendment covers that.
Amendment agreed to.
I move amendment No. 47:—
In sub-section (2), page 19, line 28, after "capital" where it secondly occurs, to insert "which carries voting rights".
The whole point in this is the point which has been raised already by Deputy Booth. It seems to me that for this purpose what you want to consider is not the ownership of the company, but the control of the company. I do not think I am misunderstanding the Minister when he said that his reason for part of this is that directors are able to arrange things suitably for themselves. Arrangements are made, not on the basis of ownership of capital, but on the basis of the voting power of the capital. If you are charging the ownership of capital, apart from the voting power of it, you ought to use the phrase "fixed assets" and not merely "share capital" as such. What the Minister wants to cover is the case of the person controlling the company by means of his voting power at the annual meeting. That is what he wants to do and, in the light of that, why not say so in the Bill?
Under (b), "ordinary share capital" means all the issued capital of the company other than capital the owners of which have a right to a fixed rate of dividend. That means preference capital. Debentures would be out. We are only following the definitions given in Section 34 of the Finance Act of 1941, that is, capital for the purpose of corporation profits tax. It would, I think, include participating preference shares. That would be one definition at least and I think it would be no harm to make it a bit wider than the ordinary capital. I do not think it is a terribly important point, but I would prefer that we should include participating preference shares along with ordinary stock in this connection.
If participating preference shares are there, do they not usually carry voting rights?
No, unless there are dividends in arrears. It is not usual.
They can carry voting rights.
The Minister is more concerned with the reward the capital gets than with the power it has, and he wants to include people owing 10 per cent. of the share capital, if that share capital carries any form of reward except the first preference dividend. That is the difference between the Minister and Deputy Sweetman and I am not sure the Minister is not right in that.
We are dealing with proprietary interest here.
I do not think it means an awful lot, but I think the voting rights is the right type of capital.
I think voting rights is a bit narrow because we are concerned here with the proprietary interest of a person. There are A and B shares in some companies which get full dividend but only one of them has voting rights. I think it would be restricting it too much to restrict it to voting rights.
Here we are concerned with a type of person for superannuation purposes and the qualifications in that regard. The qualifications should be somewhat directed to the income he is getting out of the 10 per cent. rather than to the amount of control that 10 per cent. is giving him.
Amendment, by leave, withdrawn.
I move amendment No. 48:—
In sub-section (3), page 19, line 35, to delete "16th" and substitute "23rd".
When this Bill was being drafted, I was optimistic in telling the Revenue Commissioners I would have the Budget introduced on 16th April. I actually had it on 23rd April and, therefore, this amendment substituting the 23rd for the 16th is necessary.
Amendment agreed to.
I move amendment No. 49:—
In sub-section (4), page 19, line 43, to delete "dependants".
Can the Minister tell me what "dependants" means in sub-section (4)? An employee of a business owned by a proprietary director can be a dependant for the purposes of this section. I think it must be quite clear that, if we are to have dependants, it is restricted to dependants as defined in the Income-Tax Acts. We may have that same construction of this Act with the Income-Tax Acts, but what degree of relationship is contemplated and is effective by the word "dependants" as it stands in the Bill as it is?
I am not exactly sure what the Deputy has in mind. The effect of the amendment would be to put outside the scope of the anti-avoidance an expenditure incurred by a company in providing benefits for a dependent.
Who is a dependant?
It could be anybody. It could be an employee, as the Deputy says, or it might be a niece or a nephew, but, if we are going to include the spouse and children then there is all the more reason we should include dependants. I think it would be a wrong thing to take it out.
Does the inclusion of dependants widen the circle immensely? A deed of covenant for the benefit of children is inoperative, but a deed of covenant for a dependant is operative. Surely the same thing should apply here? It is the same analogy.
It can be approved of later on in Section 32, but we will come to the approvals afterwards. This section is directed against the tax-free provision of retirement schemes, and then we come along afterwards and sort of legalise them, where we think fit. Under Section 32, dependants could be brought in, but we are excluding everybody for the time being, and, as we are excluding wives and children, surely we should also exclude dependants?
I do not think the Minister is excluding wives and children because that could be the same sort of fiction as deeds of covenants for children are.
Amendment, by leave, withdrawn.
Question proposed: "That Section 29, as amended, stand part of the Bill."
I want to ask the Minister about the provisions for retirement or other benefit. As defined in page 19, it reads: "means any pension, annuity, lump sum, gratuity or other benefit to be given on retirement, or in anticipation of retirement, or, in connection with past services, after retirement." Does this definition include a benefit which is given after retirement and which is not in connection with past services? The type of benefit I mean is fairly well known. A man retires and subsequent to his retirement, is given an ex gratia payment which is not connected in any way with past services.
I am not quite sure of the point the Deputy is making. There is a very wide definition of retirement benefit and the endeavour is to include practically any type of retirement benefit in this section. The Deputy asked if a person gets a lump sum at a later stage, how it would stand in connection with this part of the Bill. All I can say is that in this part of the Bill we provide that a lump sum must not exceed a fourth of the total benefit. There is a way of calculating that. It is the total benefit calculated actuarially on what the pension is worth at the time he is retiring. If it is worth so much, he can get one-fourth by way of lump sum and the remainder must be by way of pension annuity. I do not know whether that covers the Deputy's question.
Not quite. This phrase keeps recurring. It is a very operative phrase for the whole of this Part of the Bill. I want to get it clearly understood whether or not the type of benefit I have in mind comes under it. It is just a question of the reading of the phraseology. Must a benefit that is given after retirement be in connection with past services in order to come under the definition of retirement or other benefit in this sub-section?
Could the Deputy mention what he has in mind that would not be in connection with past services?
I have known of payments which were made completely ex gratia after the retirement of the employee. There was no connection between them and the employment. They were not tied in in any way with the salary or the conditions of service, or anything like that. They were completely ex gratia and they were not mentioned before retirement. After retirement the director or employee was given a gratuitous lump sum. I think we could definitely argue that such a lump sum was not in connection with past service.
It must be included in the scheme, anyway. Therefore, what I have said already would cover the matter, that not more than one-fourth of the total benefit can be in the form of a lump sum.
Where is it provided that retirement or other benefit must be under some approved scheme?
It is because the Minister has blockaded everything under Section 30 and then lets certain things through. I am not happy about part of this blockade.
There is one other question I should like to raise with the Minister. It is on the question of service. The definition of "service" in line 15, page 19, sets out that it means "service as an employee or director of the body corporate in question". It is very often the case that where there is amalgamation of companies, or where there is a number of associated companies, an employee or director may be transferred from one company or group to another or, on acquisition of one business by another, that those in the service of the previous company are taken over into the service of the new company. It does seem rather unreasonable that service in such a case has ceased absolutely on the amalgamation or take-over and that, even where the new company may wish to continue the benefits that would have been payable by the old company, the employee or director will have lost all his rights by reason of the termination of his previous employment which was, in fact, a theoretical rather than a real termination.
I would ask the Minister whether he would consider including in the definition of "service" something along the lines that service means service as an employee or director of the body corporate in question and shall include service with a predecessor or predecessors in business and associated companies. If that could be agreed, it would mean that there would be a possibility of switching employees or directors from one company to another associated company without damage to the individual concerned and I do not think the revenue would suffer in any way.
We will be coming to a section later—I think it is Section 32— which refers to discretionary powers of the Revenue Commissioners. The type of case mentioned by Deputy Booth would properly come to be discussed there and could be dealt with there.
Did the Minister say a section dealing with discretionary powers of the Minister?
No—of the Revenue Commissioners. There is a long list of discretionary powers of the Revenue Commissioners.
I can quite see that, in certain cases where the drafting has become impossible in a detailed fashion, some discretion may have to be given, but when a question of taxation is involved, I am against anyone having too much discretion one way or the other. Taxation should be definite. One should know precisely where one stands and not be in the hands of the Revenue Commissioners whose discretion, I am afraid, is very often exercised by minor officials. If in every case the decision rested with the Revenue Commissioners, I should feel happier, but I know from my own experience that, in 99 cases out of 100, the decision is not taken by the Revenue Commissioners at all; it is taken by some very much more junior official. I would hope that we would not deal with this as a discretionary matter but as a matter of right, that in the case of anyone who has been employed in a company that is taken over by another, his service should be regarded as continuous service, even though it was first with one company and subsequently with the company that took over the first company and that, similarly, in a group of companies, there should be freedom to move from one company in the group to another without having incurred a final break in service. I wonder would the Minister even give me a hint that he might consider the matter so as to get it out of the discretionary clauses altogether?
That may be very difficult. The Deputy will realise when he comes to deal with Sections 31 and 32 that we may have the ideal scheme in Section 31—I think it is—where everything is fulfilled and the scheme must be sanctioned, but then it is realised that in many cases the company concerned cannot fulfil all these conditions and then we give discretion which may exempt them from this heading and that heading and so on down along. I do not see how otherwise it could be done.
I can see that point. Would it not be possible simply to say under that definition that service includes service with predecessors in business or associated companies, not to limit it to service as directors or employees of the body corporate in question, but simply to say "of the body corporate in question or their predecessor or predecessors in business or any company associated with the body corporate"? Would that be difficult?
I think I would have to appeal to the Deputy to wait. We can afterwards go back and decide if it is necessary to bring in an amendment. When we come to discuss Section 31, we might say that it would be better to put the amendment in where the Deputy said rather than at that particular stage. I think we will have to discuss it first.
I am perfectly happy.
Would the Minister clarify one point? Where there is a statutory discretion provided to be exercised by the Revenue Commissioners specifially in a Finance Act, could that discretion in fact be exercised by a minor officer of the Revenue Commissioners or is it not in fact exercised by the commissioners themselves?
It is exercised by the board of course.
It must be.
The Deputy had experience as a Minister. He had discretion in certain cases. A Minister in his own Department can make a ruling at his discretion and get his officials to administer under that ruling, keeping strictly to the ruling of course. I presume the Revenue Commissioners will do the same thing. They will tell their inspectors that their ruling is such and such.
The Minister will recollect that there are a whole raft of matters which are ordinarily delegated under general rules to principal officers or assistant secretaries. There are then certain reserved matters which must carry the Minister's signature. Although the decision might be propounded to him by responsible officers of his Department, there are certain categories in which he himself must sign. Would I be wrong in assuming that where there is a statutory discretion vested in the Revenue Commissioners, in the ordinary course decisions on matters arising under this statutory discretion would go to the commissioners themselves for determination though with a recommendation perhaps from an official lower down?
In law, of course, it is the Revenue Commissioners who exercise the discretion. In practice, I am quite sure they do the same as a Minister does. In this particular instance they will say: "You will do such and such and you must not go further than that. If you have to go further you must refer it to us." I am sure that is the way they operate.
The Minister outlined the proportions which the lump sum can bear to the total benefit. Am I right in thinking that these proportions are roughly the same as those which obtain in the Civil Service?
Much the same.
Question put and agreed to.
SECTION 30.
I move amendment No. 50:—
To delete sub-section (2).
This is the general blockade section, as the Minister described it. Sub-section (2) of this section brings in certain types of artificial blockade. Benefits are in certain circumstances deemed to be the income of the director. I candidly find it very, very difficult to understand what this sub-section proposes to blockade. I cannot see why benefits are to be deemed to be income. If they are not income, they are only to come in if they are under contract to a third person. This is another example of an even more indirect means than that which we were discussing a short time ago.
In relation to both Parts V and VI of this Bill, I am travelling in seas which are quite uncharted as far as I am concerned. I thought I knew a little about the matters we were discussing in the earlier parts of the Bill, but this is an unfamiliar line of country with which I am quite unfamiliar. I have read the Bill and tried to understand it and it is as a result of that reading of the Bill that I know even the little I have learned. So far as this part of the Bill is concerned, I would wish to have the benefit of either the Special Committee or the commission at present sitting to inquire into income-tax.
In relation to this part of the Bill— I am sorry to have to admit it—the Minister could put anything over on me and I would not appreciate what it was he was getting me to enact. Faced with that dilemma, the only thing I could do was to put down amendments to delete certain sections and subsections and thereby force the Minister, by a different type of blockade, to come out into the open. That is why I have put down these amendments.
Sub-section (1) of this section relates to cases where the employer during the employee's service makes payments to a third party—the third party being usually an insurance company—to secure the advantage of retirement benefits. The section treats that premium as income to the person concerned unless there is an approved scheme; if there is an approved scheme, then everything is all right. In the absence of an approved scheme, the amount paid on behalf of the employee is treated as remuneration and he will, therefore, have to pay income-tax on that amount.
In the one year?
On the premium. They are paying a yearly sum.
I thought it was the payment of a lump sum.
Not in this particular case.
The lump sum only comes in at the end.
Sub-section (2) deals with the position where there is an unfunded scheme. In other words, the employer says to the employee: "I will give you a pension when you reach 65 years. I will give you two-thirds of your salary." He does not make any provision with another person, an insurance company or anybody else. When the time comes the company itself will pay the pension and sub-section (2) is designed to put the employer and employee in the same position as if they had acted on their own; there is a notional premium taken and that is treated as being income received by the employee.
It says "agreement is in force"—does that mean an agreement in writing?
Not necessarily in writing.
Sub-section (1) says "the body corporate in any year of assessment pays a sum with a view to the provision of any such benefits". The Minister took it that the sum would be paid to a third person. I take it that is so. There is no possible way in which it could be paid to the individual concerned. No matter to whom it is paid, the employee can still treat it as an insurance premium for that year.
That is correct.
Is this section aimed at some existing practice which the Minister desires to control? It seems to me that the section is so complex and envisages so elaborate a procedure that there must be some practice in operation in commercial circles which the Minister is determined to bring under tax control. Would I be unreasonable in suggesting that where that is the Minister's purpose—he has had an opportunity of discussing the pros and cons with the Revenue Commissioners who give him all the information as to the practices which it is thought desirable to abate—a Bill of this kind be accompanied by a White Paper setting out the type of practices which are in existence and which a section of this character is designed to abate? The Minister sets out to explain this question and says that where a firm employs a person and says to that person: "As from a certain date we will pay you a pension", the actuarial value of that pension will be determined and will be added to the person's taxable salary.
And the premium necessary.
Will be added to his wages. It occurred to me, when I heard the Minister say that that if I wanted to avoid the Minister's taxation plan, I would say to my employee: "Your salary is £500 a year till you are 65. I shall not give you any pension but I shall employ you in perpetuity. Instead of being dismissed on your 65th birthday, you will simply continue as chief clerk emeritus. In your first quinquennium after 65, you will get £450; in your second quinquennium, you will get £400; and we shall bring it down gradually until you are 110, when you will get nothing at all, and in the meantime we shall assume one of us will die."
I do not think you would escape that way.
The Revenue Commissioners may say: "We shall not allow you to employ a centenarian," but my answer is, "I elect to do so." I could drive a horse and coach through that section, though it may, in fact, operate to stop the practice to which the Minister's legislation is directed.
We are considering here only the collection of income-tax. If the Deputy says to his employee: "I shall employ you in perpetuity," we shall collect income-tax in perpetuity and we are satisfied.
That is right then? It does not make any difference?
No.
Apparently if the employer wants to do as I have suggested he might do, the Revenue Commissioners will be quite content. They will collect either through the premium or the other way?
One way or the other. I do not think the Deputy was present when I was explaining this. Really, what we are trying to stop is this. It very often happens in a private company that two or three wealthy directors do not want to take more salary at the present time because surtax would be too high. They might like to put some of their money into a retirement scheme, but when it comes to retirement, they do not want to pay income-tax on the pension. They convert it into a lump sum and we get no income-tax. That is the practice we want to stop.
I apologise to the Minister, if he has already explained that.
Amendment, by leave, withdrawn.
Section 30 agreed to.
SECTION 31.
I move amendment No. 51:—
In sub-section (1), page 21, line 5, to delete "16th" and substitute "23rd".
This is cognate with amendment No. 48. It is the same thing again.
Except that it is wrong.
It should be the 23rd.
No, the 24th, because in the earlier section, it was "on and after" and it should be "on and after Budget day" and when it is before, it should be "before the day after Budget day".
Perhaps you are right.
It is a point for the Report Stage.
In the earlier section, it should be "after Budget day", and if we are putting it before, it should be "before the day after Budget day".
Amendment No. 51 agreed?
No. No. 51 is wrong. No. 52 is the one that is right.
Shake the foundations of the nation by accepting No. 52, and if you do not like it between now and the Report Stage, go back to No. 51.
Amendment No. 51, by leave, withdrawn.
I move amendment No. 52:—
In sub-section (1) (b), page 21, line 5, to delete "16th" and substitute "24th".
Amendment agreed to.
I move amendment No. 53:—
In sub-section (2) (b), page 21, to delete all words from and including "none" in line 25 down to and including "employee" where it secondly occurs in line 27.
Amendments Nos. 53 and 61 may be discussed together.
I am always willing to do anything reasonable, but I must confess I cannot see the cognate relationship between Nos. 53 and 61.
Very well. Amendment No. 53.
Perhaps there is, but if so, the amendments mean something I had not intended when I was drafting them.
Progress reported; Committee to sit again.