I should be happy to have them both discussed together. I move amendment No. 12:
To delete the words "1st day of January 1962" wherever they occur and substitute therefore "sixth day of April 1963".
This is the section which applies the new rates of corporation profits tax. At this stage, we are not concerned with those rates, or with that increase. We are concerned merely, at this stage, with the retrospective effect of the section as it stands. On many occasions since he introduced his Budget, the Minister has endeavoured to argue that section 37 is not retrospective. Of course, I disagree with him entirely in that respect. I have said before that I do not think he will get one reputable accountant or legal opinion in the country to agree with him.
It has transferred from being a matter of my opinion to being a matter of the opinion of a member of the Government, As reported at column 1633 of the Official Report of 25th June, the Tánaiste made it clear that he accepts that the tax imposed by section 37 is a retrospective tax. I shall read the full quotation so that there will be no suggestion that I am misrepresenting him. The report reads:
Mr. MacEntee: Is corporation profits tax to be increased? That tax has been increased in this Finance Bill already. Can it be increased further?
Mr. Dillon: Retrospectively.
Mr. MacEntee: If the Deputy was aware of the circumstances, he would realise that if this money is to be obtained in this year, corporation profits tax must be retrospective and it is with this year we are concerned.
I am glad to note that in relation to the interpretation of this section the Tánaiste has joined with us in asserting categorically that section 37 is retrospective and that he has, with all his usual talk about the collective responsibility of the Government, reneged on his colleague, denounced the Minister for Finance, and said it is a retrospective tax but, he says, it has to be introduced to get money this year.
I want to suggest to the House that if you have a retrospective tax of any kind it strikes at the whole concept of security, and the democratic system as we know it. If there is to be retrospective taxation coming back on them after they have made their plans in accordance with the law as it exists at any time, no one can possibly make any plans for the future with any sense of security. The effect of this section is to throw back the increase in taxation to 1st January, 1962. The effect of subsection (5)—and I shall be moving an amendment to have it deleted—is that additional taxation can be levied on any company where corporation profits tax has already been assessed, agreed with Revenue, and paid.
As I say, if we had any doubt about the section being retrospective, the statement made by the Tánaiste, and the application of subsection (5) by which assessments and payments can be reopened, would dispose of that doubt. I said on an earlier section, and I want to repeat now, that it would be simple for Deputies to take the easy line of saying that corporation profits tax will not affect votes in the ordinary sense, that it is not likely to have any popular appeal in the sense of swaying the electorate. On the contrary, the electorate could perhaps be more easily swayed the other way.
A little consideration will show that it is with the reserves of those companies, whether they are popular or not, that we get the wherewithal to increase productivity, to increase production, to go ahead with schemes, to modernise, to expand employment, and to ensure that exports also are expanding. If the reserves held by companies for that work are to be attacked in this way, retrospectively, then I feel there will be a definite holding back by companies in Ireland in regard to decisions on schemes of expansion or modernisation.
The section covers the period going back to 1st January, 1962. I know the Minister will say that when corporation profits tax was dealt with in 1932 the same date was taken. That may have been so, but it is certainly retrospective now and was retrospective then. It means, for example, that although a company's accounts for the year ending 31st January, 1962, were made up, passed on to the relevant inspector of taxes, assessed and paid in March or April, 1962, they are to be reopened again. The similar accounts that were made for the year to 31st January, 1963, have also been cleared, perhaps before this current year began on 6th April last. Notwithstanding that, those accounts are to be reopened.
In fact, I have made a list of the companies quoted on the Dublin Stock Exchange and I have found that of the very small number of companies quoted there, 16 end their accounting period in January, one ends it in February, 13 end it in March, and that for those three months, some 30 companies will be caught not merely by a retrospective tax for one year but by a tax that is retrospective over two accounting periods. I regret to say that I omitted to mention on the reverse of the page five further names of companies ending their accounting period in March so that it would appear that there are 35 companies caught.
From time to time, the Minister has suggested in relation to this and other aspects of his Budget that all the objection to it has been stimulated, controlled, urged on and provided by Fine Gael. Of course, that is nonsense. The other day I read a speech by the chairman of one public company who is very far from being a supporter of Fine Gael. In fact, he is generally accepted as being quite the reverse. In his statement, he said this:
Earlier in this report I have mentioned the retrospective corporation profits tax and this is probably one of the most disturbing actions ever taken by the Department of Finance.
Let me correct him and say that it is not the Department of Finance; it is the Minister for Finance.
In fact it is much nearer the pattern we expect to find in the countries with a controlled economy rather than in a country which claims freedom.
—I assume, east of the Iron Curtain is what he means by that—
How can you possibly plan your business or look after the interests of your shareholders if, having closed your accounts and paid out your dividends, you are presented with a Government Order to go back to your previous year's trading and extract a further sum of money for which no provision has been made? Our shareholders should be aware that the retrospective increased corporation profits tax is, in fact, a capital levy—a levy on your capital which we are holding in trust.
—this of course was his speech to the shareholders—
The only difference between the Cripps capital levy in Great Britain and this one is that Cripps levied on the recorded capital of each individual. This levy is only upon those courageous persons who have had the courage to put their money into Irish industry. I know of no measure more likely to frighten Irish investors and restrict confidence than this one.
That speech was made by the chairman of Unidare. Now I come to the Chamber of Commerce Journal which has been published since the Budget. It states:
The Budget proposals carried three shocks: the increase in the rate to 15 per cent thus putting us on a par with the British company tax rates against the trend established since 1939, the elimination of the margin of £2,500 for the additional five per cent—
Which of course has since been changed and has been brought down to 2½ per cent.
—which again illustrates the inability of the Revenue Commissioners to think simply, —
May I correct them and say the inability of the Minister for Finance to think simply?
—and worst of all, the retrospective enforcement to the 1st January, 1962, of the whole increase.
They go on to say:
Let us, however, look hard at the retrospective effect of the corporation profits tax proposals. They add up to a clear levy on capital, not income, since last year's undistributed profits are part of this year's capital used to run a business. It is perhaps a clever way of doing it provided one has no care for retaining the confidence of business men that there are rules which will be observed.
They go on again:
At this point we can nail the speciousness of the argument that this proposed legislation is not retrospective. The suggestion is made that since accounts for the 1963-1964 fiscal year can end at any time after the 5th April, 1962, the tax affecting them must always be retrospective. Even the Budget framers—
I would have said "framer" in the singular—
—who went back to January 1st, 1962, must have missed this point. But it is perfectly clear that corporation profits tax is and has always been a tax on a company's accounting year, not on the fiscal year, and the correct legal interpretation will be found to be that it is retrospective if it applies to any period of time prior to the 6th April of the fiscal year. The Minister and his advisers can be openly challenged to produce good legal advice giving a contrary opinion.
I have already said that I defy the Minister to produce any single reputable accountant in Dublin to say that this proposal in Section 37 is not retrospective.
Mr. Wynne, the President of the Association of Chambers of Commerce, speaking at the annual meeting had this comment to make:
Further, as you all know, many companies in respect of the year commencing 1st January, 1962, will by now have made their arrangements in regard to dividend payments and forward planning in accordance with the moneys at their disposal, having provided for these payments. Now with this retrospective tax they will not have at their disposal such moneys for any projects they might wish to pursue as some of their reserves will now, in fact, be drawn away in payment of retrospective assessment for CPT. This, as you all know, will not contribute in any way to furthering the Programme for Economic Expansion which we are all encouraged to pursue in a very positive manner.
Some years ago, there was in Britain in relation to corporation profits a differentiation in the system of taxing distributed as against undistributed profits. Their problem in Britain through the years, and the problem that has caused them acute economic anxiety, has been over-investment in relation to resources. Our problem here always has been under-investment, not the same at all. It seems to me that there is an overwhelming case in recent years for company taxation to be considered in relation to the distribution of profits rather than to the profits retained in the business. In our circumstances here, it is inevitably the profits that are retained in business which provide the capital for expansion and for further production and necessarily therefore the capital is further employed.
It would be bad that these results would be taken, solely, for annual purposes but, bad and all as that might be, there might be some case for doing it even at a high rate in respect of distributive profits and a very high rate for one year for the year looking forward. There cannot be a case for the Minister for Finance to come in and to say to a company, after it has made all its plans perhaps to put up a new wing to its factory and has seen exactly where it will stand for the financing of the project: "Notwithstanding the fact that you did all that, I am now going to make a levy on the money you had for that purpose." That cannot work for the furtherance of confidence in the business community. That cannot work as an encouragement to people to plan ahead, to go into greater production, to expand employment, to expand exports. It will inevitably be the position that not merely will there be a shock this year but the whole future planning by business will be hit. We shall find that Section 37 as it is framed at present, because of its retrospective effect, strikes at the root of the confidence a business community must have if it is to do its job in a free enterprise economy.