Dáil Éireann debate -
Thursday, 23 Jul 1959

Vol. 176 No. 13

Double Taxation Relief (Sea or Air Transport) (Union of South Africa) Order, 1959—Motion of Approval.

Minister for External Affairs (Mr. Aiken)

I move:—

That Dáil Éireann approves of the following Order in draft:

Double Taxation Relief (Sea or Air Transport) (Union of South Africa) Order, 1959

a copy of which Order in draft was laid on the table of Dáil Éireann on the eleventh day of July, 1959.

This item and the next item relate to the implementation in Irish law of Agreements with other Governments for the avoidance of double taxation on income derived from the business of sea and air transport. For convenience, I propose to deal with them together.

An Agreement with the Government of the Union of South Africa for the avoidance of double taxation on income derived from the business of sea and air transport was signed on behalf of the Government by the Irish Ambassador at London on the 1st May, 1958. On the 18th June, 1958, I signed on behalf of the Government an Agreement with the Swiss Federal Council concerning the taxation of enterprises operating ships or aircraft.

These Agreements are not yet in force. Before either Agreement can enter into force, each party must ensure that the necessary steps have been taken under the law of its own country to give effect to the Agreement.

So far as concerns Ireland, it is necessary to comply with the provisions of Section 15 of the Finance Act, 1951, No. 15 of 1951. That Section lays down that the Government must make an Order to confirm and give the force of law to any arrangement entered into with a foreign government to afford relief from double taxation on income derived from the business of sea or air transport. The Section further provides that before the Government may make any such Order, a draft thereof must have been laid before this House and a Resolution passed by this House approving the Order in draft.

Drafts of the Orders to give effect in Irish law to the Agreements with the Swiss Federal Council and the Government of the Union of South Africa were laid on the table of the House on the 11th July, 1959. Deputies will find the text of each Agreement scheduled to the appropriate draft Order.

I shall now refer briefly to the principal provisions of the two Agreements, which, although they differ in some respects by reason mainly of the different taxation systems obtaining in Switzerland and the Union of South Africa, are substantially the same in effect.

The object of the agreements is set out in Article 11. Essentially, it is to provide that Irish enterprises will be exempt from taxation in Switzerland and the Union of South Africa on income derived by these enterprises from the business of sea or air transport. Likewise, Swiss and South African enterprises will enjoy exemption in Ireland from taxation on income which they may derive from the business of sea or air transport. I do not think that it is necessary for me here to enter into a more detailed examination of the provisions of this Article.

Article I of both Agreements contains definitions, which are, I think, clear. There is just one point to which I would like to draw attention. In the case of corporations, the exemption is limited to those constituted under the laws of Ireland and managed and controlled in Ireland. In other words, the benefits of the Agreements will flow only to bona fide Irish enterprises which have their head office and central administration in the State. Likewise, only bona fide Swiss and South African corporations will enjoy exemption from double taxation under the Agreements.

Article III of both Agreements deals with their entry into force and their effective dates. The Agreement with the Swiss Federal Council will have effect in respect of income arising on or after the 1st January, 1954: the Agreement with the South African Government will have effect in respect of income arising on or after the 1st July, 1951.

Article IV of each Agreement provides that it may be terminated by either party on giving due notice to the other party.

I think that it will be generally accepted that it is desirable in principle to encourage the development of air and sea services between Ireland and other countries by affording relief from double taxation to companies engaged in such business. Agreements of this kind were concluded in 1955 with the Governments of Norway, Denmark, and Sweden, and others are in negotiation. Furthermore, the comprehensive Double Income Tax Relief Conventions with Britain, the United States of America and Canada contain provisions for reciprocal exemption from double taxation on income derived from the business of sea and air transport.

Mr. Sweetman

This is an extension of a principle that has been accepted by this House for some years. I do not know whether there are any prospects—in fact, I doubt if there are —of these Conventions coming into operative effect, but, so far as the Act is concerned, the air and sea navigation must be taken together.

The Minister suggested that the benefits of the Conventions would operate purely in respect of Irish companies. I do not think that is quite correct. They apply to companies that are controlled in Ireland and there are companies that are controlled, for taxation purposes, in Ireland. It is not necessary that it should be a purely Irish company for it to have such control. Of course, it is clear that the terms of the Order must follow the terms of the ordinary income tax law because it is a Convention to abolish double taxation.

It will, in so far as Switzerland is concerned, possibly have some effect and to the extent that it will clear up the incidence of double taxation in a limited sphere, it is something all of us are glad to see.

Mr. Norton

I agree with Deputy Sweetman that anything that makes for the clarification of the mystical setup known as double taxation is to be commended from every point of view. In this instance, I would like to ask the Minister whether he is first making the machinery and hoping that later he will fit the trade into the machinery or whether the terms of this agreement will bring any immediate benefits to Irish trading enterprises. Is the Minister merely negotiating the machinery in case that at a later stage it can be brought into action with mutual advantages to both sides or are any immediate benefits likely to follow from the negotiation of these two agreements?

Mr. Dillon

I am as innocent as a child.

Mr. Aiken

I do not like that beginning.

Mr. Dillon

I like to have things explained in terms that I understand. Am I right in believing that a company operating out of Switzerland, such as Aer Lingus, is hereafter exempt from any profits they may make on a passenger picked up in Switzerland and dropped outside of that country? Similarly, is Swissair exempt from any profits made from a passenger picked up in this country and dropped outside Ireland? If an Irish ship carries goods from Capetown, is it exempt from taxation in the Union of South Africa on the profits made from the carriage of those goods?

Mr. Aiken

That is what it is intended to do.

Mr. Dillon

That will not shake the foundations of any of us here. If it makes for any advantage to Aer Lingus, more power to its elbow.

Mr. Aiken

Deputy Norton asked if it would give any immediate benefits. I understand that Irish Shipping will benefit to the extent of £1,000 on each voyage on which they picked up passengers in South Africa since 1954.

Mr. Norton

Will there be any benefit as regards Switzerland in respect of air travel?

Mr. Aiken

If we have the right to pick up passengers in Switzerland and take them on to some other place, it will avoid double taxation.

Mr. Norton

It will mean a benefit in the case where Aer Lingus might pick up a passenger in Zurich for Rome?

Mr. Aiken

Yes.

Mr. Dillon

Is it desirable to proceed on the principle of these agreements to double income tax agreements with all concerned?

Mr. Aiken

We are anxious to negotiate double income tax agreements with more countries than we have agreements with at the moment. We have such agreements with the United States of America, Britain, and Canada and I know that we are negotiating at least two others. It depends, of course, on the circumstances of our trade and capital transfers between any two countries whether it is worthwhile but, in principle, we have no objection and, indeed, in principle, we welcome double taxation agreements with other countries.

Mr. Dillon

Would the Minister consider querying the Government of South Africa to see if they would negotiate?

Mr. Aiken

I do not know if it would be worth our while or worth their while.

Mr. Dillon

You would be surprised at the number of people who have little holdings in South Africa on which they are paying double income tax.

Mr. Aiken

It may be going on.

Mr. Dillon

They have share-holdings.

Mr. Aiken

It may have started already. I do not know.

Mr. Sweetman

Surely the fellow next door might tell you?

Mr. Aiken

I cannot say.

Question put and agreed to.