Amendments Nos. 53 and 61 may be discussed together.
Finance Bill, 1958—Committee Stage (Resumed).
Debate resumed on amendment No. 63 as follows:—
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.—(Deputy Sweetman).
That was suggested to me before. I do not think they mean the same thing at all but it is possible that my main draft is bad.
The two amendments may be discussed together. The Bill gives exemption from tax in respect of payments into certain retirement benefits schemes—excepted schemes and approved schemes.
The purpose of amendment No. 53 is to provide that a general scheme will not be invalidated if one of these people come into it. The purpose of the second amendment does not come into it at all.
I am not saying that "excepted scheme" and "approved scheme" mean the same thing but they have the same effect. The two may be taken together.
I do not think it matters an awful lot.
I do not want a repetitious debate.
Nothing would be further from my mind.
I am not charging the Deputy with that at all.
If we could get to amendment No. 53, first of all I want to provide that where you have a retirement benefit scheme relating to all the personnel of the body corporate concerned, the mere fact that one of the persons in that scheme is a proprietary director or part-time director or part-time employee will not invalidate the whole scheme. I could understand the Minister making the case, as he has made the point, with relation to proprietary directors and part-time directors, that they have a greater freedom to make arrangements for themselves and, accordingly, there should be different provisions for them. That is not the point at issue here.
As I understand the situation this means that a scheme, which is otherwise a good scheme and which would come in as an excepted scheme, falls altogether to the ground because a director or proprietary employee comes in. I admit frankly I am not as clear on this part of the Bill as I was in relation to some of the other parts and there will be plenty of opportunities for the Minister to teach me what the sections mean but as I read the ordinary meanings of the words that is the meaning of sub-section (2), clause (b) as it is. I would be happy to hear from the Minister what it means.
The scheme would not fall entirely. The scheme could be excepted leaving the directors out. As we have agreed already to exclude directors from the main scheme, then under this part it would be logical to allow them under an excepted scheme which is of far much less magnitude.
As I read it, an excepted scheme cannot be an excepted scheme if they are in it. If it is an excepted scheme it is automatically included willy nilly but if it is an approved scheme there is a discretion given. I do not see why they should be taken out of the scheme as of right and put into the discretionary basis merely because one or two persons in the scheme are so included. We shall have to come back on the Report Stage on the basis of an assessment of what one might term executive directors but, leaving that aside, the position should be that if the scheme— even on the Minister's set up—would be an excepted scheme, were it not for the presence of these people, then it must be an excepted scheme as of right for the remaining persons in it. I do not know if I have achieved that by my drafting. That is another question.
I do not see the exact point of the Deputy at the moment but I do know it is provided somewhere that the Revenue Commissioners have power to approve part of a scheme.
At their discretion.
Yes.
But an excepted scheme is an excepted scheme as of right.
There may be a number of people including the director and they can say: "Leave out the director and we can approve of the scheme."
Why should a person lose his right for the benefit of getting a mere discretion? That is what all the remaining employees are doing.
I thought that was the point the Deputy was on—that the whole scheme would go.
I thought it would, but the Minister says it would not. I accept his word, but I think it does. I think the whole scheme goes as an excepted scheme. Might I explain my view a little more clearly? Sub-section (2) (b) deals with excepted schemes. If any of these people are included in it, then the scheme is not an excepted scheme any more. If it is an excepted scheme, it is included in the provision as of right. If any of these are in, it ceases to be an excepted scheme and therefore the right is gone. A new procedure has to be initiated to have the scheme formally approved at the discretion of the Revenue Commissioners. We will come on to discretion in other amendments. A new procedure has to be initiated for it and I think it is correct to say that if a scheme is there with any of these people in it, the scheme wholly falls to the ground because it is no longer an excepted scheme and a new procedure must then start to make it an approved scheme.
I must say I disagree completely with Deputy Sweetman——
Good.
——in this amendment. Section 31 provides certain ways out of, if you like, the general blockade of Section 30. Section 30 says that every such payment shall be treated in a certain manner. Then, in Section 31, there are set out certain schemes which will not come within that general embargo. The whole basis of Section 31 and, in fact, the whole basis of Part V, is that proprietary directors, part-time directors, proprietary employees and part-time employees shall be excluded. There would be no point in letting them in under sub-section (2) (b), unless you let them in all over the place. Why not also let them in under sub-section (1) (b)? To accept the amendment would be to run contrary to the whole tenor of the section. The section is to provide that certain limited schemes which comply with certain specific terms shall be exempted from the operation of Section 30 and I think the Minister, in following his general trend, is right in excluding this type of people from an excepted scheme.
But that is not what he has done. He has killed the whole excepted scheme.
No, he has not.
If Deputy Sweetman is in trouble, the House can well imagine the trouble I am in. I just do not understand it but, as far as I do, I am inclined to agree with Deputy Sweetman. As far as I can see, his argument is not that the scheme in Section 31 is necessarily wrong but that by making this odd provision, in the words of clause (b) of sub-section (2), the Minister appears to be going wider than he intends. In other words, if you have a retirement benefit scheme, say, in a smallish business, if one proprietary director, part-time director, proprietary employee or part-time employee gets into it, the whole scheme has gone and the others suffer as well.
The Minister is taking a specific type of scheme, the benefits of which cannot exceed £3,000, and saying that that type of scheme is out of the provision.
Why should we kill that scheme for a man who is being paid only £1,000 a year? Is it not a good scheme for him?
It is the whole principle of Part V.
No. The whole principle of Part V is to treat directors and employees over a certain figure in a different way from that in which other employees are treated. The Minister agrees that that is the whole principle of Part V.
That is right.
Section 30 provides that no scheme is a good scheme. As the Minister himself put it, Section 30 is the universal blockade. Section 31 says that certain schemes can get through. One is an excepted scheme. The schemes which can get through under Section 30 and Section 31, to which Deputy Haughey referred, get through as of right. There is no question of any discretion. They get through as of right. Sub-section (2) provides that excepted schemes shall get through as of right, but if there are, say, 100 employees in a firm and one proprietary employee as well as the 100 employees who do not come in under this, the whole scheme is killed by reason of the wording of sub-section (2). I do not agree with the Minister's general line, but, to be logical on his own general line, what he should do is to say that the scheme will be an excepted scheme for everybody in it who is not a proprietary director, a part-time director, a proprietary employee or a part-time employee, then I would be quite happy. They can go on under the approval section.
Surely Deputy Sweetman is anticipating difficulties which will never arise? Here is a special type of scheme, with benefits not exceeding £3,000. If the situation which Deputy Sweetman envisages arises, all that is necessary is that the proprietary director, part-time director, proprietary employee or part-time employee should drop out of the scheme. Then the scheme immediately becomes an excepted scheme.
No, I do not think it could, on the construction of the section.
Assuming he does, where will he get cover then?
Under Part VI.
Deputy Haughey has put it very well. What we are doing here, as the Deputy has put it already, is first putting down a blockade. Now we come along with the exceptions. One exception, we say, is an excepted scheme which we define as a scheme, the total benefits of which cannot exceed £3,000 for each person, provided there is no director in it. In fact, I believe that the directors are not in any schemes that the revenue has been dealing with. Directors do not join these schemes. Deputy Sweeman says he does not agree with it, but the idea is that, in order to have it an excepted scheme, the directors and proprietary employees should be excluded, the reason being that a director or proprietary employee has what may be regarded as the equivalent of a lump sum at the time of retirement. He has an interest in the company. He may be a director. He has at least what might be regarded as the equivalent of the lump sum of the employee. We regard it as appropriate that the employee should get a lump sum at that time and the director or proprietary employee is provided for otherwise.
A second point is—it may not occur very often—that if we were to allow a director into this and to get a lump sum of £3,000 at a certain time, 65 years of age or 70 years of age, or whatever it may be, he might repeat that, if he were in more than one company. From every point of view, the provision in this part generally of excluding directors and proprietary employees from the benefits that we are providing here is desirable.
The Minister is missing the point I am making. I do not agree with a lot of what he has said, but that is entirely beside the point. Perhaps I am wrong in this, but, as I read it, a scheme does not get as favourable consideration under Section 32 as it gets under Section 31. A scheme under Section 32 must comply with far more things than a scheme under Section 31.
That is right.
Then the effect of including "none of whom..." is that certain schemes will have to get out of Section 31 and get into Section 32.
You can get the directors out.
No. There are schemes already in existence with directors in them. The whole scheme falls because of the way this is drafted. It need not necessarily be a director. It may be an employee. Supposing a proprietary employee or a proprietary director takes the line that he has a contractual right already under that scheme—and he can have—why should he give up his rights? That man can block 99 others from getting benefits under this section. I do not agree with the Minister's general line but, to be logical on his own general line, sub-section (2) (b) should provide that an excepted scheme means a retirement scheme which does not apply to proprietary directors and so forth, and if the scheme already applies to proprietary directors, then it will be taken to be an excepted scheme; then the other 99 per cent. are not penalised.
If the Deputy is troubled about the drafting, we can look at it.
I was trying to go a little further than the Minister, but if the Minister will not go so far, the other should be done. Does the Minister not agree that it is wrong to penalise the other 99 per cent. for the one man who is in it who should not be in it?
It would be absolutely wrong; on the other hand, what we are actually saying here is an excepted scheme, which is defined as under £3,000 for each person, is eligible without any further ado, but you must not be a director.
Supposing there is another scheme already in existence?
Section 1 (b) covers the scheme already in existence.
One thing that shows clearly is that my drafting is not as good as it should be.
Amendment No. 53, by leave, withdrawn.
I move amendment No. 54:—
In sub-section (3) (b), page 21, lines 41 and 42, to delete "to the satisfaction of the Revenue Commissioners".
There are a great many cognate amendments.
Yes, Nos. 63, 66 and 67.
There are even more than that, but we shall come to them. I cannot see why, on the face of it, the procedure should be as it is stated. I want to provide that if the Revenue Commissioners refuse to register a scheme, a person will have the right to appeal to the Special Commissioners. As the sub-section is phrased, I do not think a person has that right. I do not see why one should be bound to go to court with the devil in hell. Without drawing any analogy between his satanic majesty and the Revenue Commissioners, the present position is that the Revenue Commissioners are the sole people who can decide this. That is wrong. There should be a power of appeal somewhere and if the Revenue Commissioners turn an application down, the disappointed director or employee should be able to appeal to the Special Commissioners of Income-Tax in the ordinary way as he can appeal against his assessment. I can see no difference whatever in the principle of approval for these schemes being subject to appeal from the ordinary question of whether my income-tax assessment is correct or not. I would urge the Minister very strongly to accept this amendment and to provide for some method of appeal.
There would not be very much sense in the paragraph, if it said: "...the director or employee proves that no payment in respect of... has been made." He would have to prove it to somebody. I do not think there can be any great objection to referring to the Revenue Commissioners at that stage, but what the Deputy has in mind is that there should be an appeal.
Yes.
Wherever the Revenue Commissioners have discretion, as they would have to have here, I do not think you can have an appeal. We must give discretion to somebody to deal with these exceptional cases and the Revenue Commissioners have been dealing with this line of business for over 30 years.
What?
Since 1921, they have been approving schemes generally for superannuation.
I thought this was all new law.
It is being added on, if you like, but they have been dealing with superannuation schemes for a long time and there has never been any complaint. Anyway, a Minister has discretion to deal with certain cases and if he uses his discretion, I do not think there can be any appeal. Nobody can question that discretion, once he uses it, and if we give the Revenue Commissioners discretion in a case like this, I do not see how you can have an appeal. If, let us say, the Special Commissioners or the Circuit Court say: "You cannot use your discretion in that way," then you take that discretion from him. If you have an appeal, the matter will have to be looked at in an entirely different way because we will have taken discretion from the Revenue Commissioners.
There is not one word anywhere in this about discretion.
It is implied.
It is a question of fact, not a question of discretion.
Can the Minister tell me any case in which the Revenue Commissioners have discretion as to whether a person should be taxed in a sum or not? They are judges of fact; that is all.
I did not say they have discretion in all matters.
No, I am not trying to misquote the Minister. As regards the question as to whether "no payment in respect of, or in substitution for, the benefits has been made", where is the discretion there, or, as regards "that some event has occurred by reason whereof no such payment will be made", where is the discretion there? It is entirely factual, entirely a matter on which there should be a determination of fact, and I cannot see any reason whatever for vesting in the Revenue Commissioners the determination of such a matter. I would have thought that on the actual drafting-but I am not prepared to argue this on a drafting point—if the section read: "subsequently the director or employee proves that no payment in respect of," it would automatically mean he had to prove it, first of all, to the inspector of taxes and if he was not able to get agreement there, it would automatically mean the matter would go to the Special Commissioners, and under the Income-Tax Act, there would automatically be an appeal to the Circuit Court.
I still think that is the correct interpretation of the drafting but I shall not argue on that because whether or not my drafting is right does not matter. The point here is that in this sub-paragraph (b) there is absolutely nothing to be determined by the Revenue Commissioners except a question of fact and, so far as I am aware, nowhere in the Income-Tax Acts, on a question of fact, is a discretion given to the Revenue Commissioners. So far as I can see, it is entirely a question of fact and, as such, there should be an appeal from that determination of fact.
I may not have made myself very clear. I was going on to argue in connection with the five or six amendments referred to, when I talked about discretion. On this amendment, the fact is right.
Look at the end of the sub-section. Look at sub-section (3), the end of which reads: "...they may give such relief as may seem to them just and reasonable." Surely that is discretion?
Look at amendment No. 55. The Deputy will see how I propose to deal with that. It is to take that out of their discretion also.
The Minister is right when he says that, at the moment, sub-section (3) (b) gives discretion.
That is not what we are arguing about. Sub-section (3) (b) is entirely a matter of fact.
I think that perhaps Deputy Haughey is not right. "...the Revenue Commissioners shall give relief in respect of tax on the charged sum by repayment or otherwise as may be appropriate;..." That would not be by fact.
I hope the Minister will read to the end of the sub-section.
"...and, if the director or employee satisfies the Revenue Commissioners as aforesaid in relation to some particular part of the benefits but not the whole thereof, they may give such relief as may seem to them just and reasonable." There may be a bit of discretion there in trying to apportion a repayment. I think Deputy Sweetman's first amendment is certainly a question of fact.
Deputy Sweetman is not correct when he says the Revenue Commissioners do not exercise discretion. The present basis for dealing with superannuation funds, Section 32 of the Finance Act, 1921, gives them very considerable discretion. It is the section which at the moment governs the matter, before this Act comes into operation.
I hope the Minister will agree with me, since he has come to admit that this is a question of fact.
Even if it is fact, somebody must say it is a fact.
Is it not a fact that the appropriate judges of fact in relation to taxation are the Special Commissioners of Income-Tax and not the Revenue Commissioners?
There may be an appeal to them. I do not know about that.
I am not worried so long as there is an appeal, but I do not think there is an appeal. If the Minister says there is such an appeal generally to this under the Income-Tax Act, then I have been wasting his time.
Do not take me as saying there is an appeal. I say there may be. I do not know. On this first point, somebody will say: "Yes, that is a fact and therefore we agree to return the tax, or whatever it may be."
Is it not the use of the word "satisfaction" that makes it look as if there is discretion?
It appears to me that the point is that you go in and claim that certain facts are facts. Under the section as at present drafted, the Revenue Commissioners are entitled to say: "We are not satisfied." Then you are put on proof, which may be difficult. On the other hand, in the other way, if the Minister accepted Deputy Sweetman's contention, it would be up to the Revenue Commissioners to prove the contrary, if they could, and, failing agreement on the point, it would then go before the Special Commissioners.
One other point that concerns me in any such sub-section as this, where reference is made to matters to be proved to the satisfaction of the Revenue Commissioners, is whether the Revenue Commissioners, as such, ever hear of the matter which is in dispute. My experience has always been that only very important matters get near the Revenue Commissioners. In many cases, the decision is taken by some other official. I have confidence in the Revenue Commissioners, as such, but I do not like the giving of discretion to Revenue Commissioners which is then exercised by someone else.
The Deputy is right in saying that everything does not go to them. I believe that, in this particular case, it would be the Revenue Commissioners who would decide it.
Have I been barking up the wrong tree? Is there, in fact, an appeal against——
No.
I was right?
Yes.
Does the Minister not agree that there should be an appeal to the Special Commissioners on a question of fact?
I do not know.
I think Deputy Sheldon is right. I think what I should do would be to let the section read: "... prove to the Revenue Commissioners". With the permission of the House, I shall withdraw the amendment now. I trust that, before the Report Stage, the Minister will think over this matter again because, on a question of fact, there should definitely be an appeal.
Amendment, by leave, withdrawn.
Amendment No. 55 is part of the same story. I shall have to put it down in a different form for the Report Stage to cover alterations similar to those in amendment No. 53.
Amendment No. 55 not moved.
Amendment No. 56 is cognate to amendment No. 54.
It is the same. It should be "to them" not "to their satisfaction".
Question proposed: "That Section 31, as amended, stand part of the Bill."
On the section. This section, and Section 30, refers to a proprietary director, a part-time director, a proprietary employee and a part-time employee. Is there an allowance for income-tax purposes to those who contribute, say, to the superannuation fund in a local authority or to civil servants who contribute to a superannuation fund? Would they be covered by this section or are they already covered?
Look at paragraph (i) of sub-section (2). They are exempt from this section altogether. A statutory superannuation scheme is exempt from this. They are already covered.
The purposes of Section 31 (1) (b) are fairly clear. The idea is that where a scheme is in existence before the specified date the provisions of Section 30 will not apply to payments made by way of premium pursuant to such a scheme. But the sub-section, paragraph (b), goes on to exclude payments which are related to directors and employees admitted to membership of the scheme after this part of the Act comes into operation, and proprietary directors, part-time directors, proprietary employees or part-time employees.
I want the Minister to make it quite clear that in so far as proprietary directors, part-time directors, proprietary employees, or part-time employees are concerned, in the future, where a payment relates to them the scheme will operate, and that payment will come within the provisions of Section 30 only and not invalidate the scheme as a whole. In other words, a scheme that was in existence will continue in existence and Section 30 will not apply except in so far as the payments relate to these types of people. I should like the Minister to assure us on that point.
I should also like him to give some further thought to that idea, because it seems to me to be a bit harsh that these types of people, proprietary directors, part-time directors, proprietary employees and part-time employees, who have been members of a scheme up to now, and have enjoyed certain benefits, are to have their conditions changed. Would it be sufficient if the Minister merely confined the operation of paragraph (b) to any additional benefits which would be given to these people from now on, but in so far as the payments are only the same as they have been up to now that they be exempted from the operation of Section 30, that is, treated as income-tax in their hands.
As regards sub-section (4), I must admit I do not understand what the sub-section means at the moment and I should like the Minister to elaborate on it. I have read it many times and still it is not any clearer to me.
I am afraid there are a great many sub-sections which I do not understand, and if I were to ask the Minister to explain them all, it would be Christmas before we were finished with the Bill.
Sub-section (4) deals with the case of an employee in an Irish company which is exercised outside the State; that is the person who works for an Irish company but who is not domiciled here. The other is the person who is here but who is employed by a foreign company. These are the cases covered by sub-section (4).
I do not read that from the sub-section as it reads at the moment: "either not assessable to income-tax in respect of the emoluments of his employment or is so assessable in respect thereof on the basis of the amount received in the State." Surely all of us are assessable in respect of the amount received in the State ?
I am afraid I cannot give any further explanation. I cannot parse the words and that is the explanation I got for it. In the Deputy's other point, I think he referred to an excepted scheme.
A scheme in existence at the moment.
The Deputy's point is that we should say that we are not going to interfere with anybody there already. What we are doing here is saying that what is done in the past is all right, where the scheme is approved from this on. The big point of this is approval and the amount that will be paid by way of pension, as compared with the amount paid by way of lump sum. I feel it will not be difficult to make things all right, that is, so far as the other people in the scheme are concerned. A proprietary director, or proprietary employee, would have to take himself out of the scheme. I have given reasons for this several times before, but perhaps it is no harm to repeat them.
The first point I gave was that the proprietary director or proprietary employee was able to wield a great deal of influence in the type of scheme that would be drawn up, and possibly drawn up to his benefit. That was No. 1. No. 2, as I mentioned already this evening, is that we are providing for a pension scheme by permitting one-fourth of the pension to go by way of lump sum. The ordinary employee who retires, say, at 65, usually has not got any money. He has had to rear a family, perhaps, and has not had any money to spare. He now has to carry on on his pension. The lump sum is very useful to him and perhaps allows him to retire to some place where he can buy a new house, or something like that.
For that reason, the lump sum can be defended, but the proprietary employee or proprietary director is not in that position. He has shares in the company. If he is a director, he may be remaining on in the company and therefore he is at least as well off as the other man getting the lump sum. For that reason, we say that man can come to Part VI of the Bill where he can get equal treatment, as far as income-tax is concerned, on his premium. But, on the other hand, he gets a pension and no lump sum. I think the two cases can be equated in that way, the ordinary employee as against the proprietary employee or proprietary director. It was for that reason, having these considerations in mind, that the difference was made between the ordinary employee and the proprietary employee and the proprietary director.
There is just one further point in that connection which I should like to put to the Minister. The House has accepted the principle of Part V, that proprietary directors and employees are in a different category. I want to deal with this narrow aspect, the case of schemes which are in existence, which are dealt with under sub-section (1) (b). Is it clear that the only effect of sub-section (1) (b) is that a scheme which is in existence will not be affected at all? All that will happen will be that in so far as payments are made to these types of people under existing schemes, they will be just treated as income-tax in their hands, but otherwise the scheme would not be affected and other payments made in respect of other employees will be perfectly all right.
If that is so, and I think it is, will the Minister look at it from this aspect? If he is satisfied that there is no great abuse under existing schemes, and unless certain schemes that he knows of do provide excessively for proprietary directors or proprietary employees, will he agree to help this type of person who is in a scheme? From now on he will either withdraw from the scheme, and possibly lose a certain amount of what he has paid in already, or he will have to pay income-tax on the amount paid on his behalf. I should like the Minister to look into it.
If there are no great abuses known to him at the moment in this type of scheme, he might consider that it would not be exactly fair to this type of person who is a member of an existing scheme from now on for the Minister to put the gun to his head and say: "You must either get out of the scheme"—thereby ensuring he will suffer some disadvantage—"or else we will tax the payments made on your behalf as income." I am asking the Minister, in considering that one aspect, to ignore his general principle of treating the proprietary director, part-time director and so on separately.
The Minister might be tempted to bring in a retrospective measure next year.
He cannot.
If he found some objectionable practice growing up, he might be tempted.
The whole basis of my argument is that these schemes are already in existence.
I would not like it to be taken that I do not know of objectionable practices. There are objectionable practices at the moment.
I am rather surprised to hear the Minister say that because what we are referring to here are schemes which have been already approved by the Revenue Commissioners.
No.
If they have been approved by the Revenue Commissioners, does sub-section (1) (b) not have any effect?
If they are already approved by the Revenue Commissioners, they come under Section 21 of the Finance Act of 1921.
I still cannot quite follow that.
Does (1) (a) cover everything?
Under the Finance Act, the Revenue Commissioners are empowered to approve certain superannuation funds. In so far as they do that and do approve them, they go out under (1) (a).
The commission would be the proper place to sort this out, not across the House. Does Section 31 not apply to more schemes than those already approved under Section 32 of the Finance Act of 1921?
(1) (a) deals with approved schemes; (1) (b) with schemes not approved.
In considering this section we are not restricted only to schemes that have been approved under Section 32 of the Finance Act, 1921?
No.
Therefore, I think Deputy Booth is right, although Deputy Haughey told him very firmly he was not.
I do not follow.
The relationship between (a) and (b) does not appear.
Deputy Booth began by referring to schemes approved under (1) (b); (1) (b) does not deal with schemes that are approved.
No, but may it deal with schemes that are approved? If not, what is to stop it?
I do not know what point Deputy Booth is making.
It appeared to me that there was a danger that schemes already approved might be held to come under Section 31, sub-section (1) (b). Even if they do not, does it not mean that a contract existing between a proprietary director or part-time director and a proprietary employee or a part-time employee and an insurance company or pension company is now being invalidated? Unless there is something improper and unless it could be substantiated that the Revenue Commissioners would not have approved, I feel there is an element of retrospection there that a proper contract for retirement benefit made between two individuals is now being invalidated by the Revenue Commissioners or by the Act. If there is any danger of that, I would be very much concerned.
I should like an absolute assurance from someone—and I do not wish to cast any aspersions on my colleague, Deputy Haughey—that every scheme now in existence which has been approved will not and cannot be amended in any way by any subsequent legislation either as regards taxation or the benefits which can be received under the scheme by way of capital sum or otherwise.
If anybody belonging to a scheme becomes a proprietary employee or proprietary director, under the provisions of the Bill the whole scheme goes up in smoke.
Even under Section 32 of the Finance Act, 1921, the Revenue Commissioners still have power to withdraw approval they give. There is nothing new in that.
I want to make it clear to Deputy Booth that approval of a scheme under the 1921 Act is one thing, but the fact that the Revenue Commissioners have not been able to collect income-tax on contributions made in a company scheme does not mean that they could not collect the income-tax. The fact that it is strongly disapproved is the reason we are bringing in the Bill.
I am as clear as mud on that.
Question put and agreed to.
SECTION 32
Amendment No. 56 not moved.
I move amendment No. 57:—
In sub-section (1) to delete paragraph (h).
There are three points I want to raise in moving this amendment. First of all, is it clear that "benefits" in line 44 means annual benefits? Certainly, it is intended to mean annual benefits, but I do not think it is necessary because, as the section is arranged, the one-fourth lump sum is a benefit. It is taken into account in the second sub-section. If it is paid, then the first sub-section is out and that is all an inclusive clause and the scheme must comply with every single item. I think that is what is intended but it is not drafted properly.
Secondly, I am not quite clear in regard to this particular paragraph dealing with the case of a pension to a widow or dependent. I am not clear whether including "any person on his retirement" also covers the pension that might be payable to the widow. I use the word "widow" as covering "dependents" as well.
These are only objections of form, because I am quite sure there is no real difference between the Minister and myself. What I object to in this section really is that there is no method in it by which a highly specialised person can be taken into a company and given special retirement treatment. We all know that a company may have one person doing a very particularly specialised job. There may be only one such job in the company and they have to take somebody in at a late age to fill that job when it becomes vacant, when the previous man dies. As far as I can see, that man cannot carry over, so to speak, the years of his working that he has had otherwise.
It seems to me that there should be something other than complete discretion. We should recognise the principle that we may have to take people in. If we must have this clause—and I do not imagine for an instant that the Minister will agree to its deletion, as that would seem to upset completely his whole scheme, rotten though his scheme is—then it should be "whichever is the greater" rather than "whichever is the lesser." In that way, one can bring in specialised personnel and a company can engage them. Without something like that, one just would not be able to get the specialised personnel one may want to deal with many of the more modern facets of the knowhow of industry.
The "aggregate value" referred to here means the value of pension and lump sum combined, that is, the total value must not be more than is set out—one-sixtieth of the final remuneration multiplied by the number of years of service, or two-thirds of his final remuneration, whichever is the lesser. There is a method of calculating the lump sum and calculating the benefit of the pension, and so on, to arrive at that test.
Perhaps I have completely failed to understand the meaning of the section. Take a person who is employed in the Civil Service. These are the Civil Service plus E.S.B. terms?
Yes.
He gets one-sixtieth for each year. He has been employed for, shall we say, 20 years. His salary is, say £600—that is easy to calculate —that means his total would be 20 multiplied by 10, which is £200.
Yes, one-third.
The maximum he can get as a lump sum, therefore, is £50.
He would get no lump sum in that case.
The value of the pension available——
The Minister said that "benefit" includes the lump sum.
If he gets his £200, that would be the maximum; he would get no lump sum. It is only if the lump sum is provided, that the pension would be lower, somewhat lower. As the Deputy knows, in the Civil Service the rule was one-sixtieth multiplied by the number of years' service, not more than 40. That was changed, then, to one-eightieth plus a lump sum. It would have to be somewhat like that here, one or the other. The reason why it has to be like this, as the aggregate value, is to give some latitude to allow a lump sum, but not more than a quarter of the total benefit must be in the form of a lump sum.
The Deputy also asked how a widow or dependent could be provided for. That is provided for later on, in regard to the widow or dependent. Of course, that would come into the aggregate value of the retirement allowance, whatever the widow or the dependent can get.
With regard to the highly specialised persons, what the Deputy has in mind is that an expert or a very highly qualified technical person coming into employment would probably be above the average age of entering employment. There is provision for that under clause (v) of sub-section (2). An exception can be made in a case of that kind.
Then that clause is intended to cover the type of case I mentioned?
Yes, the person coming in at an advanced age, or at least at a higher age than usual.
Would the Minister confirm my opinion of what clause (h) means? I should like the Minister to tell me whether I am right or wrong —that when a person benefits under retirement it works out in this way. Take the one-sixtieth multiplied by the number of years' service. That would give a certain sum. You take the value of that sum as a pension for life. It is that value which is meant by "aggregate value" in paragraph (i)?
That is right.
In other words, taking the figure Deputy Sweetman took a moment ago, £200, you say that this person is entitled to a pension of £200 for the remainder of his life. The value of that is the "aggregate value" for the purpose of deciding this?
I think that is what is meant, but that is not what is drafted. That is the Civil Service position.
Does the section not mean that you take that sum and say to that person: "You can take a quarter of that in a lump sum and the remaining three-quarters of that must be non-commutable annuity?"
As I understand it, where you have a person being paid £600 a year in the year of retirement and where he has been there for 20 years he is entitled to 20 sixtieths of £600, which is £200, as a pension for his life. Supposing that, under the tables, the expectation of his life when he retires is ten years, the "aggregate value" is intended to mean £2,000.
Something in that neighbourhood.
That is what I think it is intended to mean.
That is it.
But the drafting of it does not go within a mile of that. As the drafting is there, there is nothing to suggest that "benefit" is the capitalised value of the pension.
It says "the value, at the date of such retirement."
"Of a pension for his life."
Perhaps I am wrong. I still think I am right. I still think that is not the way to draft it. Someone referred to the "Control of Manufactures alias the External Investment Bill” as a lawyer's dream. This is going to be a most wonderful dream, except that it will be a bad dream, I am afraid.
There is no meat in this for the lawyers.
Let us be quite clear, so that we can consider this ourselves between now and the Report Stage. What it is intended to mean is that you take the number of years' service multiplied by the salary and divided by 60 and you calculate the value of that according to the expectation of life.
That is right.
As to expectation of life, there are several tables. Which table are we to take? Can we take the table most favourable to us? Some insurance companies act on one table, some act on another and the Revenue Commissioners, for the purposes of death duties, act on a different one. I take it we may take whichever one suits us best.
Or suits the Revenue Commissioners best.
It will be a 64-dollar question for somebody when these come around, to argue about the border-line case.
Amendment, by leave, withdrawn.
I move amendment No. 58:—
In sub-section (1), page 22, line 55, to delete "for his life."
As the section stands, with the words "for his life" included, it would mean that the one-quarter benefit would be only on the pension payable to the man himself. That might be lower than the total value because he may have provided, as he can do under this Act, for a pension for his widow after himself. In fact, we are being more fair to him by leaving out these words.
Amendment agreed to.
I move amendment No.59:—
In sub-section (1), sub-paragraph (i) (iv), page 23, line 19, before "interest" to insert "compound."
This is pretty obvious. If a person is to be limited to the amount he has paid in, with interest, it should be compound interest because it is accumulating over a time.
What we are really doing here is, as it were, laying down rules which are to be followed as desirable. Later on, we can make exceptions to these rules, but we will make all the desirable rules first. We speak here of the amount that must be given as a benefit on death in employment. We give four possibilities; one, the sum of £1,000; two, an amount equal to the person's final remuneration if it is higher than £1,000; three, an amount equal to one-thirtieth of the person's final remuneration multiplied by the number of his years of service or by 45, whichever is the lesser. I think that is the Civil Service rule. The fourth is that we give back an amount equal to the aggregate of the sums contributed, in other words the premiums, with interest. All these choices are given and I think we should not tie them any further than that. The Deputy's amendment would compel people drawing up a scheme to include compound interest. Such people have to keep everything in view, such as what pension they could provide on a certain contribution, and they do not want to be too liberal, as it were, in regard to any particular contingency, whether it is a girl going out to get married—she may get premiums back—or a person dying in employment, or a person reaching retirement age, and the determination of what pension or benefit he should get.
Are these not matters for the promoters of the scheme?
I think we should leave it to the promoters of the scheme as far as possible.
We should leave it to the promoters to do as they suggest.
That is why I do not want to tie the promoters.
If you do not put in the amendment, the promoters of the schemes cannot do it. I think you will be limiting it to simple interest. However, I agree with the Minister that we should leave it to the promoters.
If we leave it at a "reasonable interest", they can give something higher than we might think.
Then the Revenue Commissioners would come along and say that it was not "reasonable interest".
I should like to suggest to the Minister to consider deleting the £1,000 because the way I see it operating is that it would be harder on the lower income people than the higher income people. A man's final remuneration, in the case of a better paid employee, could be £2,000 and I should like to know why the Minister is restricting the lower paid employee to £1,000. The whole purpose of this is to cut out abuses in existing superannuation schemes, but surely there can be no question of abuses in the case of people with £500 or £600 a year, people whose final remuneration would go up to, say, £1,000 a year. I am not pressing the point but I should like to put it to the Minister that he should consider deleting the £1,000 and leave it as a sum equal to the person's final remuneration.
Does the Deputy suggest taking out the £1,000?
I am sorry; I mean increasing the £1,000, because in the case of a man whose final remuneration would be only £500, I would suggest increasing it to £2,000 or £3,000 to cover the type of person I have in mind.
It might be rather hard on the scheme if the person were only one year in the service and drew £3,000. I must say I have not examined the schemes-although I have seen them-from this standpoint. One scheme I know provides for one and a half year's salary and nothing else, no matter what the length of service may be.
It is not a matter of saying that the employee shall get £1,000 but that he may not get more. The promoters of the scheme are perfectly well able to look after themselves, but once you put in the provision that it shall not exceed £1,000 or the amount of final remuneration, no matter how benevolent the promoters wish to be, they are not permitted to be benevolent. I agree with Deputy Haughey that the lower paid employee, or his dependents, are considerably prejudiced. A higher paid employee, presumably, will not be unduly pushed for money when he retires; neither will his dependents, but one in the lower income group might well need a capital sum to set up in business or buy a house. I cannot see why there should be a strict maximum of £1,000, or the final remuneration. I agree with Deputy Haughey that the maximum should not be less than £3,000 and that it might even be higher, because a higher paid employee might be able to draw £5,000 or even £10,000, although that is not very likely in this country. I can see no reason, from the point of view of the Revenue Commissioners, for not increasing it to £5,000. I can think of many cases, especially of those in the lower income group, where £5,000 in a lump sum would be worth a good deal more than a small or a moderate pension.
Is not the point of the section to set limits beyond which an approved scheme may not go? Is it not the Minister's intention to provide that a scheme cannot become a "diddle" in some way or another by giving a benefit greater than the remuneration of the employee would appear to warrant? It would defeat part of the objects which the Revenue Commissioners are seeking to achieve in this Bill, if the higher figure is fixed. I understood from the Minister earlier that the Revenue authorities disapproved of schemes where the benefits were unduly high; that that was part of the "fiddle" that was involved and that was what they were trying to guard against.
Deputy Booth and I are concerned with the relation between the £1,000 and the person's final remuneration. This paragraph deals with the death benefits payable and the person mainly concerned will be the man's widow. A person in the higher income bracket on final remuneration could get conceivably £3,000 for the purposes of this Act. Why should the lower paid employee not be entitled to provide that for his widow if the scheme is able to provide it?
Would it not be the person with higher income who would be paying higher contributions into the fund?
Agreed, but that does not affect the principle. If the lower paid employee wants to pay higher contributions, why should he not be entitled to do so and get another £1,000?
Surely this concerns payment of a lump sum. What we are concerned with here is purely a question of payment of lump sums.
A lump sum on death.
In effect, the sum of £1,000 does not represent a very high pension benefit. If the alternative were a pension, the amount of that pension would be comparatively small, and there might be a large number of employees whose dependents would be entitled to a pension on death but who would much prefer a lump sum in order to put the family on a reasonable financial footing. A thousand pounds is not a tremendous amount for anyone to have his life insured for, and I feel the dependents of a deceased employee, particularly in the comparatively lower income groups, might very well be entitled to a moderate pension or an equivalent cash payment considerably in excess of £1,000. If that is the case I just cannot see why his dependents are precluded from getting it particularly as people in that income group would be more sorely in need of a cash sum on death of breadwinners.
But to finance all that you might have to go beyond the bounds of what the Revenue Commissioners would consider approved sums for making the scheme.
I do not see why they should. The provision of a cash benefit of £1,000 does not mean a very high premium in normal circumstances.
Amendment, by leave, withdrawn.
I move amendment No. 60:—
In sub-section (1) to delete paragraph (1).
It seems to me all this discussion is more relevant under amendment No. 60 and I am obliged to Deputy Booth for making part of my case for me. I can understand the Minister finding it necessary to restrict the benefits because otherwise they could be used as a method of milking a private company for the purpose of taking out moneys without liability for tax, but I cannot understand why there should be the restriction on commuting the sum of those benefits. This thing has been taken entirely from the Civil Service superannuation code, and it is an entirely different case, on the Civil Service basis, that operates behind the restriction on commutation. There the State is the person that pays the pension, and the State might have to come to the aid of the pensioner if the pensioner had not got his pension to sustain himself. It is because the State has to come to the aid of the pensioner there is the provision against commutation in the Civil Service code. I do not see why there should be any mitigation in the case of a private employee.
I can foresee the case of a private person who retires, wanting to settle down on a small farm in the country, and preferring to commute his pension within the limits the Minister has fixed for the purpose of getting the money to buy a farm. Why should he not be allowed to do that?
Free of tax?
It is not a question of being free of tax. It is a question of commutation. I do not see why lump sum insurances are not taxed anyway.
But is that not the whole point?
The whole point is the contributions that have gone in. The whole point is to limit the contributions that would be allowed as tax deductions because, if you do not limit the contributions that would be allowed as tax deductions, then you could use that for any sort of wangle.
Perhaps the Deputy would excuse me. Is the point of restricting the lump sum which can be taken to one-fourth of the aggregate benefit, not because that lump sum is free of tax?
The point is that they want to get equality with the Civil Service superannuation code and it is nice and tidy that way. There is no taxing at the back of that. It is tidier that way.
It is a good job that this is tidy in something.
The same principle applies in relation to an insurance policy, an endowment policy. You might just say the same thing. It is paid free of tax. Of course it is.
But the premium is not totally free of tax.
It is not but there is a very substantial tax remission on the face of it. The position could very well be that the burden of the relative lump sum, the relative tax remission, that could be obtained, could be considerably less in this scheme than in the life insurance. I can understand the Minister's anxiety to restrict the amount of the benefits that can be obtained, but I do not see why a benefit should not be commuted. I do not think it affects the tax problem to any worthwhile degree, but I certainly think that in so far as the individual is concerned it is trying to mollycoddle him too much to suggest that he must under statute provide for himself.
As the Deputy is quite well aware, the whole purpose of this part of the Bill is to stop the practice that has been growing of employees and directors having contributions made for retirement benefit free of income-tax. The company did not pay income-tax because it was an expense of the company. The person concerned did not pay income-tax because it was not returned. When it came to the time when he received the benefit, it was a lump sum and therefore he paid no tax on it. This part of the Bill is to get at that. We say that the contribution made is taxable, unless he does certain things. One of the certain things is to make sure that he will pay tax at the other end, that is, that he will get a pension and pay tax on that.
We could have stopped there and said that we had done our job, but I felt that the person might say that he was not being treated as well as civil servants are treated. Civil servants get one-fourth of the benefit by way of lump sum. I said: "All right; we will give him one-fourth as a lump sum, but no more." I felt that we would be treating him too generously, if we allowed any more. Therefore, we cannot allow the pension to be commuted, assigned or surrendered, because in that case it becomes free of tax. That is what it amounts to. If a man wants to provide a lump sum for himself at 65 years of age, he has to insure his life separately for that purpose. We are dealing with a scheme of superannuation and have to stick to that.
Does Deputy Sweetman agree?
No; I do not agree at all.
In answer to Deputy Sweetman, I said that the reason why the Minister will not permit somebody to commute more than one-fourth of the aggregate value of his benefit is that, in so far as it is commuted and becomes payable as a lump sum, it is free of tax, whereas in so far as it is a pension or annuity, it is taxable. It is taxed when he subsequently receives it.
Amendment, by leave, withdrawn.
Amendment No. 61 appears to be governed by the decision on amendment No. 53.
I move amendment No. 61:—
In sub-section (1) to delete paragraph (m).
We had some discussion when the Ceann Comhairle was here and I reserved my right to move amendment No. 61. I think the interpretation is slightly different. I can get what I want on the section. What I want to know is in relation to clause (m) and I put down the amendment so as to draw attention to clause (m). In the case of a person who has been an ordinary employee, not a proprietary employee, not a part-time employee, as is provided here, but an ordinary employee for, say, 15 years, of a company, must the scheme provide that that man can never buy shares in the company? As I see it, if the scheme does not provide that he must never buy up to 10 per cent. of the shares in the company, he is liable to be caught under this clause. I can understand the Minister's point of view in relation to a person who comes in ab initio as a director, proprietary director or even proprietary employee, that he should obviously go on to the next part, but now, as I see it, by reason of this section, if a person who has been in the company for years as an ordinary employee gets promotion or buys stock in the company, ipso facto, he has to lose whatever he would get under this scheme for the remaining years' service. I do not think it is right. To be fair to the Minister, I do not think it is what he intended.
As I explained already on a similar point that was raised, the benefits accruing up to that point are to his credit, but when he becomes a director, he is no longer eligible under this scheme.
Is that not unfair in the case of a person who has been working his way up all along?
In support of Deputy Sweetman, it does seem to me that the Minister is taking power under paragraph (VII) of sub-section (2) to approve a scheme, even though the provisions in relation to part-time directors and part-time employees are not fulfilled. Would he not consider extending the scope of paragraph (VII) in order to meet Deputy Sweetman's point, to proprietary directors and proprietary employees? It would seem to me that the Revenue Commissioners might be given that discretionary power in the case of these people.
I was hoping that we would get some explanation from the Minister. It seems to me that the point of view put is reasonable. I thought the Minister would meet any reasonable point of view.
Amendment No. 61, by leave, withdrawn?
No, Sir. I am waiting for the Minister. I am just waiting as a matter of courtesy.
I understand that the Chair ruled that amendments Nos. 53 and 61 were cognate.
No, Sir; it did not so rule. The Chair suggested that they were cognate and I said that we could take the first one first and could see when we came to the other. The point I raised on amendment No. 61 is entirely different from the point raised on amendment No. 53. The Leas-Cheann Comhairle is perfectly entitled, if he so wishes, to rule out amendment No. 61. It has not been ruled out before.
I understand there has been discussion on this particular point.
No, Sir; no discussion on this point. The point raised on amendment No. 61 is entirely different from the point in amendment No. 53.
Amendment No. 61, by leave, withdrawn?
Yes.
Amendment, by leave, withdrawn.
Amendment No. 62 not moved.
Question proposed: "That Section 32, as amended, stand part of the Bill."
I should like now an explanation from the Minister on the point about clause (m), where a person spent 15 years as an ordinary employee. Surely it is reasonable to provide that where a person has been working for a long period like that, he will not have to choose between his promotion and his scheme. That is what it amounts to. He will have to choose between promotion and the scheme. It is not beyond the Minister's power to devise an amendment here which would mean that a person who has been an employee for a long period could have his remaining time continued, but that a person coming in fresh could not, by so doing, defraud the Minister of his tax. I think the Minister will be able to find some form of words to cover that between now and Report Stage. I shall try to assist a little also.
I should like to draw the Minister's attention, however, to 32 (1) (b) (i), lines 18 and 19: "or on becoming permanently incapacitated at an earlier age,". Is it essential to have "permanently incapacitated" there? I am thinking of a person who becomes incapacitated for such a period that he would prefer to leave the company and, when his incapacity finishes, try to find some other type of occupation. He might, for example, contract tuberculosis and decide that, when he recovers after a period in a sanatorium, that type of work was not to his liking and that he would prefer to try something else. In those circumstances if he wishes to withdraw from the scheme and to withdraw his contribution, it would break the whole scheme. He is not permanently incapacitated and there should be some method of providing that a person can withdraw from a scheme and get back his payments without breaking up the whole scheme.
It depends on how you interpret "permanently".
Exactly.
If it means permanent incapacity for that particular job——
The question of one's incapacity for a particular job must in many cases depend on the employee alone, whether in view of his illness he would like to take up such a job in the future. "Serious illness" or something like that might cover it.
Could the Minister explain what is the reason for the inclusion of the words "not exceeding 70 years" which is in the sub-section to which Deputy Sweetman has been referring? Paragraph (i) provides: "directors or employees of the body corporate on retirement, either on reaching a specified age (not exceeding 70 years)..." I cannot see any good reason for including that specific age limit but I can see quite a number of good reasons for omitting it altogether. We are dealing with this rather on Civil Service lines as if everybody would be starting round about the same age whereas in ordinary businesses a scheme like this may come into operation and include fairly senior employees, say, of the age of 60 or 65, and it would be impossible to arrange any proper retirement benefit if they could not continue in employment after the age of 70. With the present expectation of life, 70 years is not an excessive age by any means. Perhaps the Minister would let me know what is the official reason for putting it in. Would it prejudice anyone if we just took out those words in brackets altogether?
What we are dealing with here is income-tax and the only way we could get the income-tax paid is by way of a pension scheme. If we did not put in this age limit of 70, you might have a small private company with three or four people in it providing very big sums to give them a retiring allowance, say, at 95 and then, providing death comes in the meantime, the whole lump sum is paid. There are large considerations like that. The age of 60 or 70 is usually laid down for such schemes but in this case, under sub-section (2) there is power to vary that if there is any good reason why it should be done.
I should like the Minister to say a word about what happens when approval is withdrawn under sub-section (3) which says that the Revenue Commissioners may give notice in writing withdrawing approval, and the sub-section goes on to say: "Such assessments as, having regard to Section 30 of this Act, may be appropriate consequent upon the withdrawal shall thereupon be made." It seems to me that there can be retrospective assessment but I would like to be quite clear on that.
Approval would only be withdrawn on information reaching the Revenue Commissioners that wrong information had been given in getting the scheme sanctioned or that something had been done since the scheme was sanctioned that was not within the scheme.
What I am concerned with is a case where some bona fide mistake has been made and approval is withdrawn, or something happened which changed the nature of the scheme and that as and from that date approval is withdrawn. In those cases, can the Revenue Commissioners go back and raise assessments for a period during which the scheme was approved? In other words can they raise an assessment for the period before the approval is withdrawn?
I bet they have provided they can.
If the fraud had been there before, they can go back over the period in which it existed.
On the wording, it provides only for fraud?
Yes.
I think the effect of Section 30 is that they could go back to the date from which the fraud occurred.
They can go right back.
But I am not so much concerned with cases of false information being given or where some fraud has been perpetrated but with cases where a bona fide error is made.
I do not think there is any fear in the case of a bona fide error. That surely can be made right.
Then assessments will not be raised?
Is there any appeal against this decision?
There would be if amendment No. 62 were accepted.
On what grounds would you justify these frauds?
If there is fraud we would all agree the fraud should be rectified but if there is not fraud, if there is a genuine mistake, it would be most unfair.
Even in cases where one director in a scheme was guilty of fraud, would the Revenue Commissioners then go back and raise additional assessments on people who thought they were all right?
Yes, on everybody. That is all wrong.
The Minister is not going to provide the power of going back on innocent parties?
No, but if the people working the scheme knew of that fraud, they would be dealt with.
Will the Minister undertake to restrict the operation of sub-section (3) to cover that?
It is very difficult to put everything into the Bill.
Difficult to draft.
Surely there should be some provision as to the grounds on which the Revenue Commissioners can withdraw approval? It seems an incredible power to give to anyone that, in relation to a scheme which may be put into operation or a contract which may be drawn up between an employee and an insurance company, when submitted to the Revenue Commissioners for approval, they may either agree to it or, on any grounds at all, withdraw approval. That is giving a tremendous power. It would make it very difficult for anyone to enter into a contract when it is known that the Revenue Commissioners, the people with final approval, might not approve of it and need not say why the approval is withdrawn.
Would the Minister not consider re-drafting the sub-section? The Minister and the Revenue Commissioners never can see that their intentions, which are apparently quite honourable, later on become the intentions of other people. When this House is passing legislation, it has to look beyond the people who are in office when the legislation is being passed. It should be so framed that nothing but the intention of this House can, in fact, be put into operation. I am quite sure the Minister will agree that the intention of this House is that it should not be possible that withdrawal of approval can be made without the right of appeal to anyone else, except in cases of fraud.
Who will determine whether or not it is fraud? The position would be coped with if the Minister would accept amendment No. 62, which I am not allowed to move.
If sub-section (3) of Section 33 of the Bill gives the Revenue Commissioners this power or if they have power even to approve of any part of a benefit scheme, would it not be well if they were given power, if they thought fit, to withdraw approval only in relation to part of the scheme? It seems to me that, in sub-section (3) of Section 32, they must just withdraw approval and that that is that. Would it not be desirable to give them authority to withdraw approval for part of a scheme, just as they have power to approve of part of a scheme?
Would the Minister not say he will reconsider the matter? Would the Minister not deal with it completely by accepting amendment No. 62? I do not know if this is the ordinary phraseology for income-tax appeals: I did not look it up. However, if an appeal is given from the withdrawal of approval or from the refusal of approval, that seems to cover all the points we have discussed. The appeal would then be thrown out if there was fraud and, if the withdrawal of approval was unnecessary, the appeal would succeed.
Under Section 32, (1), the Revenue Commissioners shall approve a retirement benefits scheme if it fulfils all the conditions mentioned in the sub-section. It says "... the Revenue Commissioners shall approve a retirement benefits scheme...." They have no option. They must approve. However, under sub-section (2) they have discretion to approve a retirement benefits scheme notwithstanding, for example, that the conditions set out in paragraph (a) of sub-section (1) of Section 32 are not satisfied, and so on. We come, therefore, to a case that either the Revenue Commissioners have granted approval because they had to do so or have refused, under their discretion. I think this is a case where there could be no appeal. If we give the Revenue Commissioners discretion in this case, say, to vary the terms of sub-paragraphs (a) or (b) or (c), as the case may be, down along, and if they decide in a certain case they will not agree to vary, say, sub-paragraphs (a) or (b), we have given them the discretion and must put up with it and there could be no appeal. Therefore, the Deputy's amendment could not be accepted because it is giving discretion and an appeal from that is impossible. No appeal tribunal can say they did not use the discretion properly. If we did not give them the discretion we would have to do it in some other way, if we wanted to question it. We cannot do it by an amendment like this.
I do not follow the Minister's argument. There are plenty of cases known to the law, for example, where a person had a discretion and where the appeal that is there is an appeal not over the discretion but as to whether the discretion was or was not properly used. The same would operate in relation to sub-section (2). As sub-section (1) is at present, it is provided that the matters have to be proved to the satisfaction of the Revenue Commissioners. If it was required to have an appeal, there would be consequential amendments. I do not suggest for a minute there would not be consequential amendments. There would.
The principle appears to me to be quite undeniable that all these matters must, in the long run, be matters of fact—as to whether the fact is this or that; whether the scheme in fact does this or in fact does that. I cannot see, under those circumstances, why the Revenue Commissioners should be set up as the sole judge of fact. The whole tenor, even of the Income Tax Acts— and they are restrictive enough, God knows-is to provide that, where it is a matter of fact, there is an appeal against their determination. There is no reason why we would not have a similar sort of appeal in this case except that people are jealous of any power they have—and that is the same whether it is a Fianna Fáil Minister or a Fine Gael Minister or the Revenue Commissioners. None of us like parting with it. That is the only thing that is holding this there. Will the Minister consider the matter between now and the Report Stage?
I must say I am not sure exactly on this point. I do not understand this legal phraseology very well, but, if it is a question of fact, can a person have an appeal on that? You say it is a fact, but I say the other thing is true. I am not sure that there is or is not an appeal in law in this case. I do not think it would be wise to have an appeal to the Special Commissioners because it is a matter of discretion. The Special Commissioners will have a look at it and say: "You use your discretion in a certain way: we would use it in another way." I do not think we would be much better off with that. If we give the Revenue Commissioners discretion, we will give it to them and see how it works.
That covers the special exceptional case. I would be prepared to compromise by agreeing to leave the discretion for the exceptional case, which I think is a fair compromise.
There was one point which I think Deputy Haughey mentioned. What would happen if one member in the scheme was discovered to have perpetrated a fraud? Does that mean that under the sub-section all the members could possibly lose their benefits by being assessed? All I want is some information. Is it possible that that point is met by the last part of sub-section (3), Section 33, where it refers to a retirement benefits scheme approved under Section 32 of the Act and says "shall be deemed to include references to a part of a scheme under this sub-section"? Is there power there to deal with any particular scheme where approval has been withdrawn. In other words, can the Revenue Commissioners withdraw approval of part of a scheme?
Yes.
And part of the membership only?
And part of the benefits, too. I think it is the common-sense way. As I said before, it is extremely difficult to parse every line of this section. I am quite sure that if a scheme was discovered where someone —I must say I cannot see how—under some heading or other had not properly qualified——
If he concealed the fact that he had 10 per cent. of the shares.
Then surely no penalty would apply, except to him. We would say to him: "You did not qualify under this scheme and therefore the premiums paid by you, or on your behalf, were subject to income-tax and it must be collected."
I agree with the Minister there must be something extraordinary.
I am perfectly certain nobody has the faintest notion what the section means.
Question put and agreed to.
SECTION 33.
Question proposed: "That Section 33 stand part of the Bill."
I do not understand sub-section (1) (b) and I have read it again and again until I am sick.
It refers to a matter already raised by the Deputy. If, for instance, a scheme included directors, and, say, proprietary employees, the Revenue Commissioners could approve of the part relating to the other people and say: "Providing these are excluded, the scheme is all right."
But it is "included", not "excluded"—"References to such a scheme include references ..." and so on.
Where it does, at the present time, include directors and employees, the Revenue Commissioners can say: "Providing you cut these out, it is all right."
In other words, you cannot break up the scheme.
Is it the purpose to show, not merely just to say, that even though there is just one person in it, it is still a scheme?
If that is what it intends to say, it is saying it in a very roundabout way.
We are in the process of passing this section, which clearly nobody understands, which is very gratifying. Deputy Haughey thinks it means one thing; Deputy Sweetman thinks it means another thing; the Minister thinks it means a third thing; and I do not know what it means.
Therefore, it should be referred to the commission— Q.E.D.
Deputy Dillon might disqualify himself from membership.
Does Deputy Haughey know what this means?
I think I do.
It is not what the Minister says it means.
Question put and agreed to.
SECTION 34.
Amendment No. 63 not moved.
I move amendment No. 64:—
To add to the section a new sub-section as follows:—
(5) Where the aggregate value of all benefits provided on or in connection with the retirement of a director or employee under all retirement benefits schemes subsisting in connection with the body corporate does not exceed £3,000, this section shall not take effect in relation to such director or employee.
Section 34 provides for the taxation of so much of a lump sum benefit under an approved scheme, given to a member on his retirement, in excess of one-fourth of the total benefit. That section applies to whatever the amount may be. We have, however, already dealt with excepted schemes and in excepted schemes, the person may get benefit up to £3,000 without restriction. This is to give the £3,000 exemption.
Amendment agreed to.
Question proposed: "That Section 34, as amended, stand part of the Bill."
I just want to be clear on this section. It seems to me that it means one thing and I would like the Minister to indicate whether I am right or wrong. Take the case of a scheme which is approved, despite the fact that it does not comply fully with paragraph (h) of Section 32, and does not comply fully with it because the amount of benefit which is taken on retirement exceeds one-fourth of the aggregate benefits. In other words, if a man is entitled to take £1,000 in a lump sum and he took £1,500, that scheme could still be approved. But what would happen is that the Revenue Commissioners would say in relation to that extra £500: "We are going to assess you for tax in the year you retired." I should like to know if I am right in that. The section goes on further to work out a way in which the tax on that extra sum in the year of retirement would be reduced to a certain amount, which would, I think, be more or less equivalent to the tax the person would pay if, instead of taking it in the year of his retirement, he took it over his lifetime, in the form of an annuity. That roughly is what the section seems to mean.
That would be right, provided he lived a normal life, but we are not prepared to take that risk. What is done is this. Let us say a person draws a lump sum of £6,000, with a big pension, and really ought to have drawn only £4,000; £2,000 is the excess referred to. We take the commutable pension and assume he has no other income for that year, the year of retirement. Then we take the notional pension. That would be a pension that would give £2,000 per year for the rest of his life. We say: "What would the income-tax be on that?" Obviously if he is drawing a big pension, 7/6 in the £1; if it is a small pension and he has a wife, it might be only 6/- or partly 3/- and partly 6/-. We get the average. That is applied to the lump sum. The same applies to surtax. Again, if he has a small pension, there will be no surtax; but if he has a large pension, there will be surtax. It is a much fairer method than taxing the lump sum on the year of retirement. If it were a substantial lump sum, he would have to pay surtax at a fairly high rate.
I want to rock this House to its foundations by saying that I congratulate the Minister on the excellent manner in which he has dealt with this matter in this section. It is very ingeniously devised to cater for this situation.
Will the Minister explain why this procedure has been decided on by him in regard to persons engaged in the lowly avocation of trader when every civil servant in the State on retiring gets a large lump sum and, I understand, none of them is subject to the scheme of taxation here envisaged for a lump sum payable to a citizen of the State? Is there anything iniquitous or shameful in allowing the concession granted to a public servant because the person who has earned it is in trade? I remember when I was young aristocratic old ladies very greatly regretted that their daughters became engaged to somebody engaged in trade. But if it was somebody in the public service, particularly the foreign service, it was regarded as a very eligible connection; persons in trade were not eligible.
Why is it wrong to get a lump sum in trade if it is not wrong to get it in the Civil Service? If I am employing 500 men as a director of a firm why is it wrong for me on retirement to get a lump sum or pension when the secretary of the trade union catering for my men retires on the same day and gets the same lump sum or the same pension? Why is the person in trade assessed by this elaborate procedure when nobody else is?
The answer is that he is not. If the Deputy had been listening to the debate, he would have known that that is not true. We are taxing that part of the lump sum in excess of what a civil servant would get; a quarter of the total benefits can go as lump sum. That is the figure the civil servants get. If a person gets more than a quarter of the total benefits, we tax that excess.
It is simply bringing it into line with the Civil Service practice?
Yes, we are not treating them any worse than the Civil Service.
The line is that all compensation of all kinds is to be related to remuneration in the Civil Service. At least, it is satisfactory to know that those engaged in trade are not to be treated worse.
It is trying to cut out "phoney" superannuation schemes.
What is the situation in regard to E.S.B. employees? I understand they have better terms than the Civil Service. Is their excess to be chargeable now?
I am told their terms are approximately the same.
I have a very good recollection of a file coming on my table in which the person concerned was very anxious to get the E.S.B. terms and not the Civil Service terms.
That might be. There are many awkward files.
This was a very awkward one. It stayed on my side table for a long time. Would the Minister be in a position to tell us on the Report Stage what are the E.S.B. terms as applicable here?
Yes.
Question put and agreed to.
SECTION 35.
I move amendment No. 65:—
To add to the section a new sub-section as follows:—
(4) Where the aggregate value of all benefits provided on or in connection with the death during his service of a director or employee under all retirement benefits schemes subsisting in connection with the body corporate does not exceed £3,000 this section shall not take effect in relation to such director or employee.
That is the same as the last amendment.
Amendment agreed to.
Question proposed: "That Section 35, as amended, stand part of the Bill."
Am I correct in thinking that the purpose of Section 35 is to provide that anybody making a payment of the sort visualised, that is to say a refund or a payment other than an accepted payment, has to deduct tax from it, and therefore this is making the person who makes the payment a collector of taxes?
Yes.
The Minister seems to be collecting a lot of unpaid tax collectors.
Section 35 deals with schemes which are approved despite the fact that they do not comply with paragraph (i) of Section 32. Is that correct?
Yes.
Am I to take it then that the whole purpose of the section is merely for the purposes of tax collection and has nothing whatever to do with assessment? It does not mean that the excess would be taxed the same as under Section 34?
This deals with death benefits.
Despite the fact that the death benefits are greater than laid down in Section 32, the scheme is nevertheless approved by the Revenue Commissioners? An excess is paid on the death of an employee. As far as I can see that excess is not taxable. Under Section 34 we had a case where an employee on retirement drew an excess. That excess was taxable. What I want to be clear on is that under Section 35 the excess is not taxable.
Sub-section (1) deals with the case of a man who dies in service. Such a proposal would be approved where the man had no wife or children, and the money had to be paid into the estate. Sub-section (2) says that anything above what would be permitted by way of lump sum, anything above 25 per cent. roughly, would be taxed at the standard rate of income-tax and collected by the person who pays out. Sub-section (3) lays it down that the beneficiary is not permitted to get a refund of the tax.
Sub-section (3) says:—
"Nothing in this section shall cause any such excess as is referred to in sub-section (2) of this section to be treated, for any purpose of the Income Tax Acts, as income either of the legal personal representative of the deceased director or employee or of any other person."
That seems to make it quite clear that it is not income and not taxable as income.
If that were not in there, it would be taxed on the double —it would be taxed on the person who pays it and it would be taxed on the person who receives it.
Rule 21, which is applied here, is not a charging rule: it is merely a rule which gives power to a person paying tax to deduct——
Not power, but permission.
——tax when making a payment, and to withold that tax and hand it over to the Revenue Commissioners?
If it is not treated as income, it is not subject to tax as income.
Does this mean that where a lump sum payment is made to a widow, of some sum in excess of £1,000, that excess will be subject to income-tax at the standard rate, which will be deducted from source? If that is so, it means that a very substantial benefit which will be expected, will be whittled away by deduction of tax at 7/6 in the £ on a lump sum of £1,000, which would make it very sick looking indeed as a lump sum payment.
Is not the answer to Deputy Haughey's point that sub-section (2) says "as if the payment were a payment of interest"?
It is not likely to apply to widows and orphans. If the widow got the lump sum, she would have to pay the standard rate of income-tax on the excess of the lump sum; but in all probability, if there is a widow she would get a pension. This is likely to apply where there is no widow or children and the money would go to the State.
Does the Minister state that the taxation of the excess is under Section 35? The Minister has just stated that the excess would be taxable. Where is that taxable? Which of these provisions says that it is taxable? I can see quite clearly that Section 34 says that in the case of a man who retires the excess is taxable; but I cannot see that Section 35 taxes anything. It merely puts into force Rule 21.
It comes under Rule 21 as if it were a payment of interest. It is treated as interest.
Question put and agreed to.
SECTION 36.
Question proposed: "That Section 36 stand part of the Bill."
Under the Finance Act of 1921, the Revenue Commissioners made regulations dealing with superannuation schemes. Do those regulations still stand?
Yes. We are not interfering with them at all.
Sub-section (3) of this section starts off:—
"Paragraph (b) of the proviso to Section 32 of the Finance Act, 1921..."
I have got the Finance Act of 1921 in front of me. There is a paragraph (b) in sub-section (1), another paragraph (b) in sub-section (3) and another in sub-section (4). Which one does it mean? Let me say at once that no matter which one it means, it does not make sense to me. I spotted this only a minute ago, so I could not give the Minister any notice of it.
There is an omission there.
There is nothing exceptional about this discovery.
It is sub-section (1).
That will be inserted on the Report Stage?
Yes.
Now that we know which sub-section it is, I would like to see if I understand it. It beats me. Could the Minister tell us what is in his brief, explaining this sub-section?
I am told the position is that, when deductions are made for widows' and orphans' pensions, if they are compulsorily made the premium contribution is eligible for ordinary insurance relief but if they are voluntarily made they are eligible for complete exemption. The effect of this sub-section would be to give them all complete exemption.
To put them all on the same footing?
Yes, complete exemption.
Question put and agreed to.
SECTION 37.
I move amendment No. 66:—
In sub-section (1) (b), page 28, lines 29 and 30, to delete "the time limited by the notice" and substitute "a reasonable time".
This is only a trifling matter. There should be some limit on the time that the inspector would set out. These things will not be dealt with by senior officials: it will be completely junior people who will issue these notices.
What is "a reasonable time"?
That depends on the nature of the query. A query could be one you could answer in ten minutes, or one that would require a month's actuarial calculations.
The only answer I can make to this is that the commissioners always give a "reasonable time." This question of time has come up before on two or three amendments.
Amendment, by leave, withdrawn.
Section 37 agreed to.
SECTION 38.
I think amendment No. 67 is cognate with amendment No. 64.
Amendments Nos. 67 and 68 not moved.
Question proposed: "That Section 38 stand part of the Bill."
This part of the Bill provides a new relief from income-tax and surtax. Payments made by self-employed persons to secure annuities for themselves in their old age are being relieved from tax. The relief will extend also to payments made to secure, after the death of the individual, an annuity to his widow or other dependent. Relief of this sort has long been argued for by professional organisations and others. Deputies will remember that last year I promised that the matter would be considered in connection with this year's Finance Bill. It is an extremely complicated matter to legislate for, as my predecessor pointed out in the Finance Bill debate in 1956, and again last year. This explains why this part of the Bill runs to eight pages.
It is obviously necessary to limit the amount of the payments which will qualify for the relief. The limit has been set at 10 per cent. of the person's "net relevant earnings" or £500, whichever is the less. "Net relevant earnings" are defined in Section 38 (8) and 39 (4). Roughly speaking, they correspond to earned income for income-tax purposes as reduced by payments in the nature of charges on income and all losses and capital allowances, for years from 1958-59 on, which are regarded as reducing such income.
If a person, besides being self-employed or in non-pensionable employment, also holds pensionable employment or is over 40 years of age, there are appropriate modifications of the limit. These modifications are detailed in the First Schedule to the Bill.
In order to qualify for relief, annuity contracts or superannuation schemes must be approved by the Revenue Commissioners and certain conditions have to be satisfied before such approval is given. These precautions are included to prevent abuse of the reliefs. A basic condition is that the benefits must in general be confined to an annuity commencing between the ages of 60 and 70 or, in the event of the individual's death, providing for his widow. The conditions may, however, be modified at the discretion of the Revenue Commissioners, for example, to permit of retirement before 60 years of age on grounds of ill-health or to allow of payment of an annuity to dependents other than the widow. An annuity under an approved contract or scheme may be payable at the age selected whether or not retirement has taken place.
The self-employed person who makes his own annuity contract will make it direct with an assurance company but the trustees of a superannuation trust scheme may or may not reinsure the benefits with an assurance company. The effect of Section 40 is that the investment income of the part of an annuity fund of an assurance company which relates to such pension annuity business will be exempted from tax in so far as it is applied for the benefit of the annuitants. Profits on such business retained by the company would be subject to taxation.
The general idea behind the provisions is (1) that the premiums or contributions paid by an individual will be treated as reducing his income for tax purposes and (2) that the income arising from the investment of such premiums or contributions will be exempt from tax, but (3) that the benefits must be provided entirely in the form of annuities which are subject to tax.
Could the Minister tell us does Part VI of the Bill follow the British precedent for self-employed persons?
I believe so, yes.
Are there any differences?
No, I do not think so.
Then we may take it that decisions made under the English Act will govern decisions here so that it will be easier to understand?
I think so.
Is it clear that any insurance company can be selected so long as it is an insurance company carrying on business under the 1936 Act?
Yes, I think it is clear.
That is so?
Yes.
There is just one point concerning the payment of the benefit from an insurance company. It happens that at any given moment different insurance companies offer varying types of annuities, offer better or worse bargains for types of annuities. As far as I see, it is not possible under the section at the moment to exercise a choice. Would the Minister consider some clause whereby a person could exercise a choice as between the company he has contracted with and some other company—provided, of course, it is still an insurance company—which at that given moment might be selling an annuity on better terms than the company with which he is actually insured?
On that point the British Act does differ from ours, now that I think of it. I think what the Deputy suggests is permitted in the British Act and I think they are getting a great deal of trouble over it. At least, so I am informed. As we have very few insurance companies operating here, I thought it better not to include that choice and so avoid trouble. I think what Deputy Haughey has in mind is the case where a person goes to a certain insurance company and insures himself for a pension at 65. Everything is in order and approved by the Revenue Commissioners, but at the age of 65 the man could draw the lump sum and go to another company and say: "Give me an annuity on this." I believe that is permitted in England but I do not want to permit it here because I understand they have had a great deal of trouble over it. I do not think it is necessary here as the number of companies is very small and there would be no great choice.
Is the Minister right in saying that it is permitted in England?
I think it is—no, I am sorry. I think they originally intended to permit it and then decided not to do so. I read something about it and I thought it was permitted, but I believe now it is not.
Question put and agreed to.
SECTION 39.
Question proposed: "That Section 39 stand part of the Bill."
This is obviously a part of the Bill that has to be understood by all sorts of people, by very small people, for example. Will the Minister, as soon as may be, to use the legislative phrase, after the passing of this Act, circulate or cause to be available the equivalent of a White Paper explaining the benefits, explaining what can be done under this part of the Bill?
I think that would be wise.
It would be absolutely essential.
Is it permissible to bet 6 to 4 such a White Paper will never be issued, as the Revenue Commissioners will say the Act speaks from the text of the Act and it is for the Special Commissioners or the courts to interpret it. They will say: "We cannot and we will not."
The Revenue Commissioners have told me to take you up on that to £100.
Does the Collection of Taxes Act, 1927, apply to that bet?
I will wait until I see the White Paper.
I take it the Minister will cause copies of the White Paper to be sent to me and to Deputy Dillon.
I shall read it with interest. On a point of further information, may I inquire if the White Paper will have conferred upon it the status of a document of record? If the White Paper is produced to the Special Commissioners or court of appeal, as evidence of the meaning of the Bill which it purports to explain, will the courts take judicial notice of it? They will take such notice of this Bill and perhaps the Minister could tell us will they do likewise with regard to the White Paper?
No, I do not think so.
Then the White Paper can be taken outside and used to light the pipe of the first man that wastes his time reading it.
Question put and agreed to.
Sections 40 to 44, inclusive, agreed to.
SECTION 45.
Question proposed: "That Section 45 stand part of the Bill."
This section reads:—
"The Revenue Commissioners may from time to time make regulations generally for carrying out the provisions of this Part of this Act or any arrangements having the force of law thereunder and may, in particular, but without prejudice to the generality of the foregoing, by those regulations provide..."
Do I understand the regulations made under this section will have the force of law?
Yes.
Where are the sanctions for the enforcement of such regulations to be found? Are they to be found in the 1888 Act, or what Act do they apply to? This is not a question to trick the Minister. There is an Act of 1888 called the Enforcement of Taxes Act by which the Revenue Commissioners acquire very wide sanctions to invoke against taxpayers.
I am told that may be a statutory instrument.
Is there some existing Act in which the sanctions, whereunder the Revenue Commissioners enforce these regulations, are set out? Is there a general Act somewhere in which the powers for enforcement of the regulations to which I have referred are to be found?
Usually, the first Act lays down whatever regulations the Revenue Commissioners may make. I am quite sure it is under one of the original Acts that the Revenue Commissioners have such powers.
In relation to the whole of Part VII, do I correctly understand the position that Part VII makes no further provision, in relation to the general question of double taxation agreements, than was made up to this in specific Acts every time there was a specific double taxation agreement with any country?
We are bringing in the American agreement as a basis for future agreements, and the Canadian one.
The Canadian one is the one I remember.
That would be the best for future reference.
Question put and agreed to.
SECTION 46.
Question proposed: "That Section 46 stand part of the Bill".
I wish to raise a point in connection with absolving the Revenue Commissioners from an obligation of secrecy. Perhaps the Minister will explain how this will work and in what circumstances the obligation could be waived?
The Revenue Commissioners are, of course, bound to secrecy in the affairs of an individual with regard to income-tax and surtax. Naturally, they are, because they get confidential information about the individual's affairs, but in order to work the double income-tax arrangement, they must give information. If a person who is living in England has an income here, the British may require some information which the Revenue Commissioners must give them for that man's benefit, and they must, therefore, have permission to depart to that extent from their obligation of secrecy.
Is it clear that the relaxation of the obligation of secrecy that arises under the section arises only when a person seeks double taxation relief?
That is right.
Is it clear beyond question that there is to be no disclosure of information by the Revenue Commissioners to the British Revenue Commissioners, unless the person concerned has claimed from one or the other under the double taxation agreement?
The person concerned must initiate it; otherwise, the information is not disclosed.
Would the Minister consider reframing this section in some way to include this point that the information to be disclosed will consist only of the information actually required for the purposes of the double taxation arrangement? I am not sure the section says that as it reads now. It reads: "such information as is required to be disclosed under the arrangements." I can imagine another concept of information which is necessary for the working of the arrangement only. I am not sure if there is anything in the point but perhaps the Minister would consider it.
I think the section is fairly well drawn, but we will look at it again.
Question put and agreed to.
Sections 47 and 48 agreed to.
SECTION 49.
I move amendment No. 69:—
Before Section 49, between lines 7 and 8 and before Part VIII, to insert a new section as follows:—
PART VIII.
Purchases of Shares by Financial Concerns and Persons exempted from Tax and Restriction on Relief for Losses by Repayment of Tax in case of Dividends paid out of Accumulated Profits: Income-Tax, Surtax and Corporation Profits
Tax.
(1) Where a person engaged in carrying on a trade which consists of or comprises dealings in shares or other investments becomes entitled to receive a dividend on a holding of shares of a class to which this section applies, being shares sold or issued to him or otherwise acquired by him on or after the operative date and not more than six years before the date on which the dividend becomes payable, and the dividend is to any extent paid out of profits accumulated before the date on which the shares were so acquired, then, if those shares, or those shares together with—
(a) any other shares the dividend on which is payable to that person and which were sold or issued to him or otherwise acquired by him on or after the operative date and not more than six years before the date on which the dividend becomes payable, and
(b) in a case where the trade is under the same control as another trade which consists of or comprises dealings in shares or other investments, any shares the dividend on which is payable to the person engaged in carrying on that other trade and which were sold or issued to him or otherwise acquired by him on or after the operative date and not more than six years before the date on which the dividend becomes payable, and
(c) any such shares as are to be brought into account under sub-section (3) of this section,
amount to 10 per cent. or more of the issued shares of that class, the net amount of the dividend received on the shares in the holding shall, to the said extent to which it was paid out of profits accumulated before the shares were acquired, be brought into account in computing for the purposes of the Income Tax Acts the profits or gains or losses of the trade as if it were a trading receipt which had not borne tax.
(2) Where a person entitled under any enactment (including this Act) to an exemption from income-tax which extends to dividends on shares becomes entitled to receive a dividend on a holding of shares of a class to which this section applies, being shares sold or issued to him or otherwise acquired by him on or after the operative date and not more than six years before the date on which the dividend becomes payable, and the dividend is to any extent paid out of profits accumulated before the date on which the shares were so acquired, then, if those shares, or those shares together with—
(a) any other shares the dividend on which is payable to that person and which were sold or issued to him or otherwise acquired by him on or after the operative date and not more than six years before the date on which the dividend becomes payable, and
(b) any such shares as are to be brought into account under sub-section (3) of this section,
amount to 10 per cent. or more of the issued shares of that class, the exemption shall, to an extent proportionate to the said extent to which the dividend is paid out of profits accumulated before the date on which the shares were acquired, not apply to the dividend:
Provided that if any annual payment is payable by that person out of the dividend, that annual payment shall be deemed as to the whole thereof to be paid out of profits or gains not brought into charge to tax and Rule 21 of the General Rules shall apply accordingly.
(3) If two or more persons, being persons engaged in carrying on trades of the kind mentioned in sub-section (1) of this section or entitled to an exemption of the kind mentioned in sub-section (2) of this section, have each acquired shares in a company and the transactions in pursuance of which the acquisition was made were either transactions entered into by those persons acting in concert or transactions together comprised in any arrangements made by any person, then, in the application of either of those sub-sections in relation to a dividend payable to one of those persons on shares which include shares so acquired (or shares acquired in right of those shares), there shall be taken into account under paragraph (c) of sub-section (1), or, as the case may be, paragraph (b), of sub-section (2), any shares the dividend on which is payable to any other of those persons, being shares so acquired by that other person (or shares acquired in right of those shares).
(4) Where any shares have been sold or otherwise disposed of by a person who held shares of that kind acquired at different times (whether or not including a time before the operative date), it shall be assumed for the purposes of this section that shares which have been held for a longer time have been disposed of before shares which have been held for a shorter time.
(5) Where, at the time when a trade is, or is deemed to be, set up and commenced, any shares form part of the trading stock belonging to the trade, those shares shall be regarded for the purposes of this section as having been acquired at that time by the person then engaged in carrying on the trade; and, subject to the foregoing provisions of this sub-section, where there is a change in the persons engaged in carrying on a trade which is not a change on which the trade is deemed to be discontinued, the provisions of this section shall apply in relation to the person so engaged after the change as if anything done to or by his predecessor has been done to or by him.
(6) The provisions of the Third Schedule to this Act shall have effect for the purpose of ascertaining whether a dividend is to be regarded as paid to any extent out of profits accumulated before a given date.
(7) For the purposes of this section and the Third Schedule to this Act—
(a) "company" includes any body corporate, but does not extend to a company not resident in the State;
(b) "person" includes any body of persons, and references to a person entitled to any exemption from income-tax include, in a case of an exemption expressed to apply to income of a trust or fund, references to the persons entitled to make claims for the granting of that exemption;
(c) "shares of a class to which this section applies" means shares of any class forming part of a company's share capital other than a class of fully-paid preference shares carrying only a right to dividends at a rate per cent. of the nominal value of the shares which is fixed or fluctuates only in accordance with the rate of income-tax and which in the opinion of the Special Commissioners does not substantially exceed the yield generally obtainable on preference shares the prices of which are quoted on stock exchanges in the State;
(d) "share" includes stock other than debenture or loan stock;
(e) shares shall be regarded as of different classes if the rights and obligations respectively attached to them are as regards the payment of dividends or the amount paid up or in any other respect distinguishable;
(f) any reference to shares acquired in right of other shares includes a reference to shares acquired in pursuance of an offer or invitation which was restricted to holders of those other shares;
(g) two trades shall be regarded as under the same control if they are carried on by persons one of whom is a body of persons over whom the other has control (within the meaning assigned to that expression by sub-section (8) of this section), or both of whom are bodies of persons under the control (as so defined) of a third person, and several trades shall be regarded as under the same control if each is under the same control as all of the others,
and in the last foregoing paragraph "body of persons" includes a partnership.
(8) For the purposes of paragraph (g) of sub-section (7) of this section, the following shall be taken to be the meaning assigned to "control" by this sub-section:
"control", in relation to a body corporate, means the power of a person to secure, by means of the holding of shares or the possession of voting power in or in relation to that or any other body corporate, or by virtue of any powers conferred by the articles of association or other document regulating that or any other body corporate, that the affairs of the first-mentioned body corporate are conducted in accordance with the wishes of that person, and, in relation to a partnership, means the right to a share of more than one-half of the assets, or of more than one-half of the incomes, of the partnership.
This amounts to three new sections. We had some discussion of these section when the Financial Resolution was brought in, on the subject of dividend stripping. I explained as well as I could at the time what the practice we were trying to get after was. These sections are brought in to deal with that evil that has crept in here to some extent. It has been practised to a substantial extent in England but has crept in here to some extent.
As I explained at that time, Company A, having a fair amount of profits and not doing very much business perhaps—it may be an almost dormant company—but having a fair amount of profits on which it paid income-tax, is bought by Company B. Company B, having bought that company, gets Company A to declare a dividend of practically all the money that is there, and then sells it again. They sell it, of course, at a figure very much lower than the figure for which they bought it. They can show in their accounts that loss on the sale and, as they have taken this dividend out of Company B, they can claim against their loss the income-tax already paid. The sum total of the transactions is that they have succeeded in getting money from the Exchequer. We believe the whole thing to be an unfair transaction. These section are designed to stop that.
I gave the example before in figures because it was necessary to give some idea of how the thing could be worked. The figures I gave at that time were that Company A had purchased for £135,000, that it had profits on which it had paid income-tax; Company B, having got Company A to declare a dividend which absorbed £125,000 of that and left £10,000 profits there, sold it back for £10,000 either to the original people who owned it or somebody else. They got rid of it. Now, in their returns for income-tax they show expenditure of £135,000 for a given company, which they sold for £10,000, representing a loss of £125,000. It is true that they have on the other side the £125,000 dividend that they took from Company B but, they said, that is not taken into account in income-tax because the income-tax is already paid upon it.
The loss is shown and they can claim a refund of the income-tax already paid to cover the loss, which income-tax was originally deducted from the dividends. They claim that back. It is proposed to deal with that in this way: In such cases, to be defined as well as possible, the £125,000 to which I referred will be treated as income and not as if income-tax had been deducted from it. Therefore, no refund can be claimed or given.
I am as clear as mud after the Minister's explanation, because I understood previously that the explanation in relation to this was that the purpose effected by those who carried out the transaction was that they got the £125,000 out of the company without paying surtax. I understood from the Minister on the earlier occasion that that was the purpose of the transaction.
No. It is the people in Company A who escape surtax.
In relation to the manner in which surtax is avoided, I can understand the transaction all right. In relation to the other part of it, it seems to me that the benefit that arose was different from what the Minister has set out. The profits had already paid income-tax. The £135,000 is accumulated profits in the company that have already suffered income-tax.
That is right.
In England there was the profits distribution tax and there dividend stripping meant avoidance of the profits distribution tax. I can understand that. But the profits had already paid income-tax and, therefore, it did not seem to me that the position was the same in relation to income-tax. If the transaction operates in the way the Minister says, that there are £135,000 of accumulated profits that have paid income-tax and the shares of that company are bought for £135,000 by another finance company, then the first company declares and pays a dividend of £125,000. That goes into the purchasing company and the position at that point is that the purchasing company has paid £135,000 for its interest and has got £125,000 back, so that the company stands at a loss of £10,000, and then it sells its shares back to a group of individuals.
I can understand all that from the point of view of surtax avoidance because it takes a lump of money out of the company without taking it out in a way that it is a dividend in the ordinary form, because it has gone by the purchase of £135,000. But at the end of all that transaction I cannot see where the second company has any benefit at all. It has paid away £135,000. It has got in £125,000. It has suffered a loss of £10,000. I cannot see where the benefit comes to the purchasing company and yet it is the purchasing company that is affected by these sections.
Dividend stripping, so far as anybody can understand what it means, is a scheme for the avoidance by somebody of paying his fair share of tax. There are many such legal schemes in operation. They are prepared from day to day and the Revenue Commissioners suggest to the Minister of the day that there is too great a loophole in that and the Minister closes the loophole. I have no quarrel with a Minister who wants to close a loophole but in our circumstances, with no profits distribution tax, it seems to me to be the benefit on income going out without being liable to surtax that should be caught. It is not that income that is caught but something else.
The Minister may be able to satisfy me that the effect of this transaction is to catch as well the money that is siphoned off without surtax liability. I do not know how he is going to do that, because, as I understand it, Company A has accumulated profits of £135,000,—I am assuming for the purpose of this argument that all the companies are controlled in Ireland and that there is no question of double taxation involved—and those profits could be paid out to the shareholders, subject only to the shareholders having to meet surtax on them, and there is no question of any further income-tax being payable because the whole basis of this transaction is that they have paid income-tax. That company with £135,000 on which income-tax has been paid is now sold and the people concerned who have the shares in that company get their money back in cash at the purchase price of the shares, and by that method the owners of those shares have the money just the same as they would have had it, if it had been declared to them as a dividend, except that they are not liable to surtax. If that is for the avoidance of surtax, I cannot see why they cannot get that avoidance by liquidating.
Yes. Why can they not liquidate?
As I see it, if they liquidate, the accumulated profits are paid out by the liquidator as a dividend, not in the sense of an income dividend but a dividend in liquidation.
But they do not recover the income-tax.
Am I correct in saying that there is no difference whatever as regards the avoidance of surtax between this method and an ordinary liquidation? In either case, there would be no surtax payable.
Surtax does not come into this at all.
In either case, there will be no surtax payable? Is that not correct?
Yes.
Therefore, so far as this transaction is concerned, we can forget it from the point of view of the lump sum the directors get into their hands. That was part of the argument used by the Minister on the Financial Resolution. That argument will not hold water.
It is the same surtax.
Yes, because you are liquidating and if you liquidate, nothing you can do will prevent surtax attaching. The £135,000 in the company is net accumulated profits. If that dividend is declared, it will be equivalent to a dividend of £200,000 gross. I think that is why the Minister chose £135,000 to be approximately equivalent to £200,000 gross, but £200,000 gross is only being offset by a much lesser sum net and therefore the purchasing company, being of its essence a finance company, an investment company—because unless it is an investment company, it cannot set off its capital loss against its income profit —has to set off £125,000 of an investment loss against a gross dividend of £200,000. Therefore it is taxable on the difference, £75,000.
The effect of this operation in the purchasing company is to create a liability for income-tax that was not there before, the liability to tax on the additional £75,000. That liability was not there before this transaction operated. Therefore, at the end of the transaction, in certain circumstances, there could arise in this country benefit to the revenue rather than loss because of the fact that the situation is different here, that we have not got high surtax payers of the nature they have in England. It seems to be a fact on the examples, but it does not seem to me to make sense. There must be something more in this whole process of what is termed dividend stripping than the Minister has explained to us already.
I do not know whether the practice that has grown up here is a practice that has grown up as between different countries. I can see the situation completely if you have a varied profits tax, where there is a different rate of profits tax for distributed and undistributed profits. Then the situation becomes absolutely clear because the accumulated profits in the company in Britain have borne profits tax at a lower rate of tax for undistributed profits, which, as well as my recollection goes, was only 2½ per cent., and if you distributed the profits, there was a tax of 30 per cent. Clearly, this scheme, when it was tried there, codded the British revenue out of that 27½ per cent. difference.
That I can understand without question. We have no such scheme here. They changed it recently in Britain, but we never had any such scheme. The moneys we are talking about have paid income-tax already and the only benefit there would be by such a transaction would be the benefit of surtax avoidance. If the company is, as the Minister says, a virtually dormant company, what is to prevent the liquidation of that company and the same result being arrived at? There must be some flaw in this, but I want to see where it is.
I have to disagree with Deputy Sweetman on this matter because dividend stripping is quite clearly a method whereby companies can keep from the Exchequer sums in income-tax to which it is entitled. When Deputy Sweetman was giving the instance of the company, he overlooked one point that if the company which is bought out—let us call it Company B—had £135,000 left in the kitty it would mean that at some stage it earned £200,000, paid tax on that amount and was left with £135,000. What happens is this. They declare a dividend, not for the £135,000, but for £200,000. They say: "The gross dividend is £200,000 and we pay that, less tax." They pay £135,000 into the purchasing company——
£125,000.
——which, they say, is "£200,000, less tax, net, and we pay you £135,000".
That means that if the purchasing company had a loss—it could have a trading loss or a loss on a capital transaction—they could say, as in Deputy Sweetman's instance, that they lost £125,000 on the capital transaction.
That is the Minister's instance.
Deputy Sweetman brought the argument to a certain stage. Deputy Sweetman said: "We have a capital loss of £125,000 and we have an income of £200,000. Therefore, we have a net income of £75,000, which can be taxed." He should have gone on to say: "However, we have paid tax on £200,000. Therefore, refund us the difference. We got £200,000 worth of dividends, less tax. Therefore, as we have paid tax on £200,000 instead of £75,000 repay us the difference." In other words, it is a means of paying £125,000 out of the bought company and getting back the tax it paid on it.
You could also have the instance of a company which had a trading loss forward of £200,000. It could buy a company like this, get the £200,000 gross dividend, less tax, and say: "We have a loss forward of £200,000. We have income from dividends of £200,000. Therefore, our liability for the year should be nil. But we have paid tax by deduction on the £200,000. Therefore, refund it to us."
It seems to me that that is how it works and that that is a definite way of avoiding the impact of the Income Tax Acts as we all intend them to work. For that reason, I think the whole new part is necessary. As far as I can read it, I think it very adequately covers the problem. Therefore, I welcome the new part of the Bill. I quarrel with the Minister on one point, namely, that he wants to be retrospective.
That comes up on amendment No. 71, not on this one.
The abuse is there. It must be got rid of. I think the Minister has dealt very adequately with it in the new part of the Bill.
Am I right in believing that Deputy Haughey's example is right for the first half and wrong for the second half? A trading company which makes a loss would not be entitled to set off against that loss the capital loss involved in purchasing shares.
I am setting off diviends received against trading losses.
I understood it had to be a finance company that could do it. If I make a loss as a grocer or a publican and purchase shares and sell those shares at a loss, so far as I know, I cannot set off against my trading loss the loss I have made on the purchase and sale of shares. However, I agree with Deputy Haughey that the dividend stripping operation as I understand it or thought I understood it —and I still think I understand it—is a practice which we are right in bringing to an end. We are all agreed on that.
I am not clear as to whether the principle of retrospection, to which we referred under the Financial Resolution, arises in this section.
The operative date. It is amendment No. 71, sub-section (1).
Is that not an amendment to the Schedule?
We are on amendment No. 69. The retrospection arises on amendment No. 71.
And the principle of retrospection is not incorporated in this amendment?
No.
Assuming, for the purposes of argument, that income-tax is payable at three-eighths—7/6 in the £; forget for the moment about corporation profits tax because I do not think the dividend strippers get away with it: leave that out—then, on the example we have been discussing of £135,000 net being the equivalent of £200,000 gross, am I right in thinking that the amount of tax which is refunded in that case would be £37,000.
£47,000.
Yes; tax on £75,000 being £28,000 and that would be assessable and you would get back £47,000.
You get a clear £47,000.
That is what I say.
On my example of £125,000 paid out, you get £46,875.
I will not make the Minister a liar for £875. Is the odd money because of the incidence of corporation profits tax?
No, it is 7/6 in the £.
Yes. I did it roughly. This does not in any way change the position of the liquidation?
No. The Deputy is raising that. They would escape surtax. As far as I could see, in dealing with this proposition, the big advantage to the company which is prepared to sell is that they escape surtax. Usually, there are three or four shareholders. If they paid out the dividend, they would be liable for surtax. Doing it this way, it is capital, and therefore no surtax is payable.
The Deputy suggested liquidation. In my example, I gave them nothing but surtax. However, they could be reduced by another £10,000 in the deal also and still have a fair profit.
Surtax—if there is a balancing but otherwise it could be——
Yes.
Amendment agreed to.
I move amendment No. 70:—
Before Section 49, between lines 7 and 8 and before Part VIII, to insert a new section as follows:—
(1) Where a person carries on a trade other than such a trade as is mentioned in sub-section (1) of Section 49 of this Act, and his income for any year of assessment includes a dividend the net amount of which would, if the trade were such a trade as is mentioned in that sub-section, be required to any extent to be brought into account as a trading receipt which has not borne tax, then in ascertaining whether any or what repayment of tax is to be made to that person under Section 34 of the Income Tax Act, 1918, by reference to any loss sustained in the trade and the aggregate amount of his income for the said year of assessment, there shall be left out of account—
(a) The gross amount corresponding to so much of the said net amount as would have been required to be brought into account as aforesaid, and
(b) any tax paid on the amount required to be left out of account under paragraph (a) of this sub-section.
(2) For the purposes of this section "person" includes any body of persons.
This deals with the ordinary companies to which Deputy Haughey referred.
I understood that the effect of amendment No. 69 was that the dividend that is declared itself becomes liable to tax. Is that not the method of blocking it? The dividend that is declared becomes liable to tax?
Yes. It is taken in as an ordinary receipt with no refund or cash to be claimed on it.
I am not quarrelling with the way the Minister is doing it. I am trying to understand it, but I do not. Amendment No. 69 deals with the £125,000. Is that not it?
Yes.
Am I right in thinking that amendment No. 70 deals with the £75,000—that is the difference between the gross dividend and the net dividend?
That is right. It deals with non-financial trading companies.
The type of company I mentioned.
Where is the matter of my £75,000 caught?
In No. 69.
I thought No. 69 was only making the net amount received as an ordinary receipt, liable to tax. That I can understand. That is the matter of the £125,000, but I cannot find where the part comes in that taxes the refund that the company might have got, were it not for this Bill. I thought it was amendment No. 70 but it is not.
First of all, I should say that amendment No. 69 covers the financial concerns but the next amendment covers the ordinary non-financial company. In Section 49, sub-section (1), the £200,000 situation is dealt with.
I thought the difference was dealt with in amendment No. 70.
Yes, they are caught there in paragraph (a).
If the Minister would not mind going back to his last amendment, on page 9, after the first set of sub-paragraphs it goes on to say in the second line: "the net amount of the dividend received." Surely that means my £125,000? Surely that is where they are caught.
Yes, in financial companies.
But where is the difference between the net and the gross dividend caught? There must be something that prevents me getting back my refund.
Yes.
I am not trying to catch the Minister. I just do not understand it.
It is brought into account as if it were a trading receipt.
Only the net amount.
Yes. You can leave it at that. You need not go any further. The £125,000 which we mentioned is treated as a receipt.
Which has not borne tax.
And that is the end of it.
Now I understand it.
Amendment agreed to.
I move amendment No. 71:—
Before Section 49, between lines 7 and 8 and before Part VIII, to insert a new section as follows:—
(1) In this part of this Act and the Third Schedule thereto "the operative date" means the 6th day of April, 1957.
(2) This part of this Act and the Third Schedule thereto, as well as applying prospectively with effect as from the passing of this Act, shall also apply retrospectively with effect as on and from the operative date (no interruption of application being regarded as having occurred at such passing) and, for that purpose, the said part and Schedule (apart from this sub-section) shall be construed, where appropriate, as if this Act had been passed on the operative date.
(3) This part of this Act and the Third Schedule thereto shall, so far as they relate to income-tax (including surtax), be construed together with the Income-Tax Acts and shall, so far as they relate to corporation profits tax, be construed together with Part V of the Finance Act, 1920, and the enactments amending or extending that part.
I do not think there is an awful lot which I can add to what I said already on the Financial Resolution. Anything I said then certainly appears to me to be still true. On all sides of the House we are agreed that this method of tax avoidance must be stopped; that if it is not stopped it will make serious inroads on the revenue as a whole. But what it amounts to is that the Minister is coming along and saying that people who ordered their affairs in accordance with the law, up to this, are now to be taxed ex post facto. It makes no difference whether you say a person is not going to get a benefit he is entitled to receive, or whether you are saying you are taking it off him. The principle is exactly the same in either respect. So far as I know, there is no case at all in which a revenue tax has ever been dealt with retrospectively like this. We have always been able, in this respect, to operate and to close the gaps as we go along.
I must confess that at one stage I was rather annoyed with revenue because they did not close a certain gap retrospectively. I was wrong at that time, even though it had cost me, and other solicitors like me—who did not take advantage of the particular avoidance of the law which existed—substantial sums. I was quite wrong, all the same. The loophole which had been used by some solicitors was changed in the Finance Act of 1950 but was not changed retrospectively, even though we had suffered losses, and it was correct not to change it retrospectively. Here the Minister may be saving himself some revenue. On a previous occasion he mentioned a figure. If the figure were ten or 20 times that, even if there was £2,000,000 involved, nothing would justify the abrogation of the principle that you shall not have retrospective tax legislation.
If it is passed, in relation to dividend stripping, it will be used as a precedent by some Ministers for all sorts of things. Looking back over the years, and looking back over ministerial briefs, you will see that precedents are quoted for purposes entirely different from the purpose for which the original precedent was passed. Once we have set out on this slippery slope, in relation to something about which the whole House is agreed, there is no use anybody, either this Minister or any other Minister, trying to think it would be restricted to that. The next step will be that some other Minister for Finance will come in with a similar retrospective amendment about something that only part of the House thinks is reprehensible and that a gap should be closed. You cannot abrogate a principle of this sort without making inevitable the result that the precedent quoted is one that will inure to the benefit of unworthy causes, even if we accept that this is a worthy cause. I do not think I put too far, on the last occasion, the effects I thought this would have in relation to the business community, in relation to the inception of new industry, in relation to people anxious to start out on some new venture. They will not know where they stand. It will certainly mean that no solicitor and no accountant can ever in future advise his clients as to what the clients can safely do and order their tax affairs on a safe basis within the law as it stands. They will always have to say: "After the Finance Act, 1958, there is always the danger that, although this is perfectly legal at present, the Minister for Finance might take objection to it next year and you may be forced to pay tax you did not expect to have to pay." No business can function in this way; no country can function in this way; no Government can exist with that argument.
We are all aware that under this amendment it is not proposed to require anybody to pay very much tax. We are all aware that all this amendment purports to do is to prevent persons claiming back tax, which the majority of Deputies do not think they are equitably entitled to do, and I constitute one of that majority. I experience all the temptation of saying that we ought, by effective legislation, protect the Treasury from what appears to us to be a raid carried out by unworthy persons as a result of an astute interpretation of the existing law.
I want to urge on the House most strongly that that is a temptation which should be resisted. The temptation would not be there if there was not pretty general agreement that the practice of dividend stripping is unworthy and one which it was never intended to permit under the law, but the temptation to do wrong, in order to constitute a danger, must be of its nature an attractive temptation. There is no doubt whatever that the Minister can state the case that this is not retrospective taxation at all; but he cannot deny that it is retrospective legislation. It provides that, after the passing of this Bill, something cannot be done in respect of the month of May, 1957, which it was perfectly lawful to do in 1957. It is that principle which we are concerned to defend.
I want to suggest to the House that it is a very grave error indeed to allow ourselves to be actuated by a desire to frustrate a transaction of this kind to the point of betraying what heretofore has been a sacrosanct principle of finance legislation in this country and, as far as I am aware, in every other country with a parliamentary system such as ours. I think powerful confirmation of the view we hold can be had from the experience in the British House of Commons whence this legislation has been borrowed; because all these provisions have been taken out of the British Finance Act and are now being enacted by us.
When these proposals were first brought before the British House of Commons, the Chancellor of the Exchequer there was in a position to say that these provisions were merely the implementation of a warning he had given the House of Commons two years ago. He was able to go on record as saying that he had stated on the occasion of the Finance Bill, 1956, that, if this practice continued, he proposed to ask Parliament to take such legislative measures as might be necessary to frustrate any activity of this kind embarked upon after 1st April, 1956.
It is noteworthy that, although that notice was given by the Chancellor of the Exchequer in the British House of Commons, no parallel notice was given here. But even though the Chancellor of the Exchequer was in a position to refer back to that notice, he was warned that it did not constitute a valid justification for the principle of retrospective legislation; and between the Second Stage and the Third Stage of the Finance Bill, the British Chancellor of the Exchequer, having taken counsel with his advisers, came back to the House and announced that, having carefully considered the arguments submitted in the course of the debate on the Second Stage of the Bill and having carefully evaluated the quality of the warning he had given publicly two years before, his mind had been coerced by the arguments pressed upon him and he proposed to drop the retrospective element for controlling the practice of dividend stripping.
They were dealing with very large sums and there cannot be any doubt that this practice, which had grown to very formidable dimensions in Great Britain, resulted in claims being made in respect of the last 12 months of a very large sum——
£2,000,000.
——and we have got to bear in mind that that £2,000,000 is probably drawn from the Exchequer by a very small number of financial operators in the City of London, to whom nobody willingly saw the revenue of the community diverted. I do not believe the sum here is substantial. I think the Minister set a ceiling on the possible claims that might be made upon him of £100,000. I think it may be substantially less, but he apprehends that further claims may manifest themselves which have not yet been presented to the Revenue Commissioners. I do not care what the size of the claim may be because I think we purchase at too great a price immunity from these claims, if one accepts the principle of retrospection.
I have a feeling, born of 25 years' experience of this House, that if, in financial legislation, we accept the principle of retrospection, every Deputy sitting here will live to see that claimed as a valid precedent for the principle of retrospection in other branches of our legislation. Bad as it is—and it is very bad—to introduce that principle into financial legislation for the reasons set out by Deputy Sweetman, it is infinitely worse that it should be introduced into other types of legislation, a development which I most seriously apprehend.
Progress reported; Committee to sit again.