As Members of the House may be aware, and as the Minister most certainly is, section 21 of the Finance Act, 1922, was enacted for the purpose of enabling the Revenue Commissioners to charge supertax as it was then, surtax as it is now, on the undistributed income of certain companies. It was aimed primarily at an economy such as that of Britain and not so much at the type of economy we have here, where inevitably there is, I might say, such a preponderance of private family companies. These private family companies obtain the capital they need increasingly over the years by ploughing back into the business the profits from the business.
That is necessary partly because of the view taken over the years in various Finance Acts, by various Ministers, that the appropriate measure of depreciation is depreciation calculated on the initial cost of the goods and not the cost it would be necessary to pay for replacement of goods or machinery. It is a fact which cannot be gainsaid that by far the greatest number of our private companies have got the capital they needed to cope with the depreciation in the value of money by ploughing back their profits into the businesses.
At the same time, I can appreciate there is a necessity for a provision such as section 21 to cover the case where the provisions of the Companies Act have been used not for the purpose of building up the financial strength of a manufacturing or other company but purely for the purpose of tax avoidance. I am not interested in such cases. I am interested in the cases where the profits have been ploughed back into businesses for the purpose of making the concerns more viable in the inflationary conditions in which we live.
My objection to the method in which section 21 is operated is to the machinery rather than the phraseology of the provision itself. It seems to me that when a company delivers its accounts to the inspector of taxes—I cannot remember whether that is automatically considered a delivery to the Revenue Commissioners—the inspector of taxes should within a fixed period be able to determine whether he felt the capital ploughed back in a particular case was properly ploughed back or whether he felt it should be paid out in dividends.
If it is appropriate to pay it out in dividends, then, of course, the Revenue Commissioners would get surtax, perhaps, in respect of the dividends that were paid. If, on the other hand, it is appropriate to plough the money back into the business, we should get development of that business in the way the national economy requires, and I think the Minister will agree that if it were not for the amount of capital ploughed back into various businesses, particularly into family concerns, in that way, we should not have anything like a viable economy now or at any future time.
I understand from accountants—this is not a matter with which solicitors have any specific contact, unless it appears to be in their clients' interests— that a new technique has been growing up. The official concerned telephones to the accountants dealing with the matter and says: "Yours is a case in which we feel a direction should be given under section 21 going back over several years". I should, perhaps, explain that under the Care and Management Acts in relation to taxes, the Commissioners have a specific function in this matter, apart from the Minister. This is the only case, to my knowledge, in which it is appropriate to refer to officials rather than the Minister because the Minister is not permitted under the Acts to intervene in individual cases.
I am advised the position is that in recent times the personnel concerned will threaten a surtax direction over a period, going back for 20 years in some cases, even though during that period assessments have already been issued and the tax on those assessments already paid. The method of dealing with this is, as I have said, the telephone—nothing is ever put in writing. The official says on the telephone: "This seems an appropriate case for direction going back over a substantial period", and having, by that means, created an atmosphere or background, he then says: "If you pay so and so, I shall not proceed to recommend to the Board of the Revenue Commissioners that a direction be made."
The amount involved, of course, varies in individual cases. Previously I have used the very strong word "blackmail". That is what this would be considered in private life. I understand that where the taxpayer sticks out his neck and says: "I will not be browbeaten in this matter", a direction is never issued. It seems to me, therefore, it must be a very odd type of case in which a Government Department threatens to make a direction and when the taxpayer stands out against them, no further action is taken. It shows, as I have said, that in relation to all taxation, there must be finality somewhere. I suggest, as has been suggested by one accountant to me—he has cases in which the Commissioners have threatened directions going back for 20 years—that this is quite indefensible.
In this amendment, I propose that the Commissioners be allowed a year in which to make up their minds what to do. I do not suggest a year after the end of the period in question because that could be defeated by the company concerned not furnishing the accounts in time, but a year after they have got the accounts is plenty time for the Commissioners to consider the matter. It would enable the company concerned to know exactly where it stood.
I stress there is no suggestion in the amendment that the Minister should not get any taxes which it is felt should be paid at present. On the contrary, I can see a case being made against this amendment that more directions might be made. I would be prepared to put up with that for the sake of getting matters settled within a year, but the situation in which a person does not know over a long number of years where his company stands militates against modernisation and adaptation.
I must say I understand that the method adopted is not peculiar to this country. I happened to be in London recently. I inquired from a big firm of accountants there whether the British Revenue operate rather in this way of making a big threat and then taking something very substantially less in order to avoid a fuss. I was told that they did, though of course their direction legislation is entirely different from ours. It does seem a pity that when we copy British legislation and British practice, we should copy their bad points in a case such as this, rather than some good ones.
