Everybody will accept it is desirable that we should extend our Conventions for double taxation relief to as many countries as possible. From recollection — I should like the Minister to verify this for me—we have already the double taxation agreement of 1926 which was negotiated by Mr. Ernest Blythe with Britain. In addition, we have in more recent years double taxation Conventions with the United States of America, Canada, Sweden and now with Germany. I cannot at the moment think of any other but I should like the Minister to verify that.
I do not think there is any doubt that of all the agreements negotiated, the simplest from our point of view and the most advantageous both from our point of view and from the point of view of the other party to the Convention was the double taxation agreement with Britain. It was at that time very much more in the nature of pioneering work than double taxation agreements are today. It was, at the same time, perhaps, easier to have a simple exemption form such as the British one because our system of taxation here corresponded at that time and since to the British system more nearly than to any other—the system operative then and now by which a resident in Ireland who is not resident in Britain is able to get back the whole of the British tax. That is advantageous for residents of this country.
So far as other systems are concerned, the Minister said that this is modelled on the Swedish Convention negotiated some little time ago. I cannot remember for certain whether the American and Canadian Conventions were on a credit or exemption system and I should be glad if the Minister would refresh my memory in this respect. I find it difficult to understand how this agreement can be based on the model agreement of the OECD when one bears in mind that it is an agreement on two different bases. It is an agreement in respect of the credit system on the Irish side and the exemption system on the German side. As I understood it the OECD model came down rather more flatly that like should be taken with like and that if there was to be a credit system in one country, it should be matched by a credit system in the other, and if there was to be an exemption system in one country, it should be matched by an exemption in the other.
I should have liked the Minister in his introductory remarks to give us some indication as to how our adherence to the European Economic Community would affect the working of this double taxation agreement. Germany, as we all know, is one of the Six and, if my recollection is correct, this is the first double taxation agreement that we have negotiated with any member of the Six. In the present position of our negotiations, when we were negotiating such an agreement, we must have had very much before us the effect of entry into the Common Market on such a Convention and I am very disappointed indeed, therefore, that the Minister did not think it worthwhile to explain to the Dáil how his experts consider this Convention would be affected by our becoming members of the European Economic Community.
The only book in English that I have ever seen on German taxation—unfortunately, I cannot speak German— indicated to me that the total number of taxes in the Federal German Republic was about 50. I know we have picked out the four main taxes here, but, as far as I can see, there is no note anywhere in this Convention in relation to the other 46, some of which are, perhaps, of special relevance, such as the taxes that operate in Berlin, but the manner in which, as I understand it, this double taxation Convention will operate in respect of goods made here and profits arising from them in the export market seems to me to be limited by the provision in relation to the holding of 25 per cent in the Irish company by German nationals or by a German parent firm.
The memorandum which the Minister was good enough to make available to Deputies is prepared with the usual clarity with which the Revenue Commissioners indicate their views but I am afraid that, in relation to the impinging of the special provisions dealing with a holding by German nationals of shares carrying voting rights in an Irish company of at least 25 per cent. it is not anything like as clear as that to which we are accustomed. The "permanent establishment" which is referred to in Article 3 is defined in the earlier article but the definition in the Convention is not such as to be conclusive.
For example, if a German company has an agent here—only one— and that agent does the business of the company, gets the goods in and despatches them around the country, it seems to me that could come within the term "permanent establishment" in paragraph (g) where it says:
"permanent establishment" means a fixed place of business in which the business of the enterprise is wholly or partly carried on.
I should have thought there would have had to be some reference, in addition, to the ownership of the place of business and where it was carried on— and I use the term "ownership" to signify in the widest possible terms the tenancy of a place of business.
Article 6 of the Convention draws attention to the most unusual situation adopted by Professor Erhard in Germany to ensure the financing of German economic revival. In Germany if you do not distribute your profits, you pay far more in taxes than if you do. The tax, as the Minister said in his memorandum, in respect of distributed profits at present is some 15 per cent. of the profits so distributed but in respect of the part of profit ploughed back into the business— something we regard as highly desirable—the rate of tax is not 15 but 51 per cent., three and a half times as much. It seems rather difficult to understand the reason behind that but, perhaps, part of the explanation is that we have here a system by which the dividends paid to the shareholders of a company are entitled to take credit for the income tax paid by the company and, perhaps, the same does not arise in Germany in quite the same way in the case of corporation tax and income tax.
I am not able, I fear—perhaps the Minister is—adequately to pronounce the titles of the various German taxes but it seems peculiar that the rate of deduction on the visible profits is frozen by this Convention at 15 per cent, and, even though the German Republic may reduce its rate of taxation on profits that are divided, the Convention does not permit any profit to accrue to Irish nationals from that, unless the German Government at the same time reduce the taxation on undistributed profits. Frankly, I do not understand at all why that is necessary.
The manner in which the Minister has indicated in his explanatory memorandum that the Federal Republic is only prepared to recognise to a limited extent deduction by a company of Irish tax from the dividend as for German tax from the recipient could affect vitally the whole scope of this Convention in so far as any profit would arise from German investment in Ireland. Article 22, as well as Article 6, of the Convention applies to that.
I am glad to see also that the Convention in relation to royalties goes further than our own law in respect of royalties and that there will be exemption for capital sums paid, although here, in relation to Irish residents, that exemption does not fully apply. I do not understand why it is optional under Article 14 to tax directors' fees here or in either country. If directors' fees are paid in either country, it would seem to me to be mandatory that they should be taxed in the country in which they originate. But as far as I can read in the article and in the memorandum, the word "may" is used, not the word "shall".
It must also have been a matter of very great pleasure to the negotiators and, indeed, of personal satisfaction to the Minister when the negotiators came back to report to him that public entertainers in both countries were exempt from tax under the terms of this Convention.
I should also like the Minister to tell us how Article 21 in particular will be affected by accession to the European Economic Community. Are we to be in the position in that Community that we must grant the same personal allowances and reliefs to non-resident nationals as we must to resident nationals and if so, does it mean that inevitably we must grant the same reliefs to Germans who are not resident here but who because of Article 21, are entitled to claim exactly the same benefits as our own people are entitled to claim?
In regard to the Order itself, I am a little worried about the terms of Article 23. If it is clear beyond question that the exchange of information between the Revenue authorities of Ireland and the Revenue authorities of Germany is strictly limited to such information as may be absolutely necessary for carrying out the purposes of this Convention, then that is all right; but I am apprehensive in case there should be anything in this, either by implication or otherwise, which would mean that the German Revenue authorities would have the right to ask the Irish Revenue authorities for any information about the financial affairs of any citizen of Ireland, or resident here, for tax purposes.
It is of course a vital principle that the confidential information given to the Revenue authorities to enable a person's tax to be adequately assessed or properly assessed—perhaps as most of us think it is not adequately but grossly assessed, a better phrase would be "properly" assessed—will in no circumstances whatever pass out of the control of our own Revenue authorities. In some European countries, it is an expressed feature of their tax laws that the income, and amounts returned for income, of individual citizens should be made public so that perhaps there would be, as is believed, a greater inducement to tell the truth. I doubt whether it would be effective in that way here, but whether that is so or not, it is a system which is entirely foreign to our way of life, and rightly so.
It must be made crystal clear, beyond all question, that there is no right whatever in the authorities of the Federal Republic of Germany to ask our authorities here for any information relative to the affairs of any taxpayer, except in so far as that taxpayer claims the benefit of the double taxation agreement in this Convention and that accordingly, in order for him to get that benefit, the information must be made available for him. That is the case where it is made available at the taxpayer's own request. Of course if the taxpayer asks for information to be made available, the true information must be submitted and not only such extracts as the person might wish. At the same time, it conforms to the principle that the confidence is the confidence of the taxpayer and it can not be disclosed to any other person.
The corporation tax, the trade tax and the capital gains tax which are assessed in the Federal Republic of Germany have been dealt with fairly fully in the Minister's memorandum. As I say, I understand there are about 50 different taxes altogether levied, exacted or whatever word one likes to use, in the Republic of Germany. How far does this Convention deal with any others? How far, for example, does it deal with the real property acquisition tax? There is a reference to tax on immovable property but I took that reference to be something analogous to our Schedule A income tax and that the real property acquisition tax in Germany is quite a different thing. I should like to know whether that will come within the scope of this Convention.
Apart from that, apart from the actual taxes themselves, there is always considerable difference between the method of assessment of tax. Is it clear under this Convention that in relation to profits arising here, the method of assessment so far as this Convention is concerned will be the Irish method? My reason for asking that is that the Federal Republic of Germany have an entirely different system of dealing with depreciation, and an entirely different system of dealing with the valuation of stock and in their writings off and carryings forward adopt methods quite unknown to us here. Unless we are to have the system of the country itself adopted in the initial instance, it will mean virtually an impossible jungle through which nobody will be able to penetrate and that in turn will prevent the easy flow of trade, and particularly the flow of trade in manufacturing businesses, between one country and the other.
Let me say that I have considerable sympathy with the Minister in dealing with a matter of this kind because no matter how simple one might be, one could go on, ad infinitum, posing questions on a double taxation agreement such as this, questions which would be extremely difficult to answer off the cuff, so may I say to the Minister that if he has difficulty answering some of the questions I have posed, I shall be happy enough if he sends me an explanation later on.
