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Dáil Éireann debate -
Tuesday, 14 Jun 1966

Vol. 223 No. 3

Committee on Finance. - Finance Bill, 1966: Financial Resolution.

I move:

(1) That in relation to accounting periods ending on or after the 1st day of April, 1966—

(a) corporation profits tax under Part V of the Finance Act, 1920, shall be increased as follows:

(i) charge of an amount equal to twenty-three per cent of the profits shall be substituted for charge of an amount equal to fifteen per cent thereof;

(ii) as respects the first two thousand, five hundred pounds of profits, instead of there being a charge thereon of an amount equal to five per cent thereof, there shall be a charge thereon of an amount equal to seven and one-half per cent thereof;

(b) paragraph (b) of the proviso to section 52 (1) of the Finance Act, 1920, as amended by section 37 (1) (iii) of the Finance Act, 1963 (No. 23 of 1963), shall be further amended by the substitution of "thirty per cent" for "twenty per cent".

(2) That special provision may be made by the Act giving effect to this Resolution as respects accounting periods which began before and ended on or after the 1st day of April, 1966, for the purposes of the preceding paragraph.

The House will remember that, when I introduced the Budget on 9th March, I was not then in a position to indicate what the rate of British corporation tax would be. I said then that it would be necessary, as soon as that had been ascertained, to move a Resolution in connection with the Finance Bill. That has since been ascertained and, in order to increase the corporation profits tax on Irish companies, which should be relieved in another way, it is necessary to move this Financial Resolution.

Is it correct that the combined effect of this Resolution and of Amendment No. 20 by the Minister will be to get no more tax than he was getting previously but to get it in a slightly different way because of the integration for double taxation relief with the new British system?

Not only will that happen but, in effect, it will work out very slightly, marginally, in favour of the taxpayer.

In each case?

In the corporation profits tax case.

I understand it will over the whole board on the average, so to speak, but will it work out in each case in or about the same? Or will it mean that in some cases there will be more to be paid and more to be relieved in other cases? It makes a very substantial difference which is true.

I understand it will operate without any change in each case and, in so far as there will be a change, it will be slightly in favour of the taxpayer.

Could I get some clarification? The wording of this is not such as to enable the ordinary Deputy to know exactly what is being done. Is the Minister saying that item No. 9 on today's Order Paper provides that certain steps be taken which will, if they have any effect at all, have the effect of reducing the amount received by way of corporation profits tax?

It will make no effective change, but, in the working out of the percentages, it will work ever so marginally in favour of the taxpayer.

I should like to make a comment on that in the context of the various Resolutions we have been considering. This strikes me as indicative of the Government's attitude. Although it is not, I am sure, done intentionally for the purpose of showing the Government's hand, it is indicative of the Government's attitude that the only element of the population which will be relieved by this mid-summer Budget, even if only in a very fractional way, are the groups normally required to pay corporation profits tax, companies and elements of a similar kind in our society. That conveys to me the attitude of mind of the Government vis-à-vis the economy. Had the Government bent their energies and their minds in the direction of increasing corporation profits tax with a view to reducing the demand they are making on the ordinary taxpayers in the other Resolutions, the picture would be somewhat different. The tax on cigarettes, tobacco and petrol has been increased. This increase, it must be obvious to everybody, will have the effect of substantially increasing the cost of living and will have an inflationary effect therefore upon the economy. Steps of this kind taken by the Government invariably lead to wage demands, and increases, which, in turn, lose their value by reason of price increases imposed by manufacturers and distributors implementing the terms of this mid-summer Budget and the Resolutions under it. The matter should, I think, therefore be commented upon.

We cannot do much about it, but it does at least call for comment from these benches that the one instance in which there will be a possible lightening of taxation is in relation to corporation profits tax. To my mind, that speaks for itself. I put that in juxtaposition with the positive steps taken by the Government to increase the price of hardpressed tobacco which makes up 80 per cent of the tobacco used in the country. One remembers that this particular tobacco is used by the older generations, particularly the old age pensioners. When one looks at these facts and assesses them in their perspective, that adds further to my conviction, at any rate, that the bias so far as this Government are concerned is towards the protection of the wealthy vested interests and the relative disregard of the interests of those upon whom the cost of living bears most heavily.

This is a very highly technical proviso which both Deputy Sweetman and the Minister understand more readily than the average Deputy. I do not agree with Deputy Dunne when he says there is nothing we can do about it. I think there is a great deal we can do about it by exposing its true meaning to the country. I would, therefore, ask the Minister to bear in mind that we are not all ex-Ministers for Finance. I fully appreciate this is a very complex business, but would I be right in seeking to popularise the effect of this Resolution taken within the meaning to which Deputy Sweetman has referred, namely, that it is in pursuance of the reciprocal income tax agreement with Great Britain?

It is a device to act as a counterweight to the British decision not to levy income tax on corporations but to collect the revenue in the form of corporation tax?

That is right.

I think, therefore, that Deputy Dunne is perhaps, if I may say so with profound respect, off the beam here. This is a piece of machinery more than anything else. Does this, in fact, mean that if a citizen of this State holds shares in a British company, where heretofore the income tax was deducted from his dividend and, at the end of the year, he filled up a form and the British sent him a cheque for the amount of income tax deducted from his dividend, he can now fill up a corresponding form and recover from the British Government the corporation profits tax on the profits of the company from which he draws his dividend? I could understand that perfectly well but I am not quite clear as to how this piece of machinery the Minister has devised is designed to operate. Does it relate to the individual Irish shareholder in a British company and, if it does, is some machinery envisaged by which the individual Irish shareholder will ultimately recover from the British Government a sum corresponding to what he used to get by way of refund of income tax on a dividend received from a British company which has paid income tax under the old fiscal system that obtained in Great Britain before their last Finance Act which substituted corporation profits tax for income tax?

To use the old Question Time jargon, the answer to the first part of the Deputy's question is in the negative and therefore the second part of his question does not arise. The Irish companies that do business in Britain were charged on their profits in one way or another by profits tax but the corporation profits tax was introduced in the second last Budget of the British Chancellor of the Exchequer. The profits tax was eliminated and there were certain adjustments between the company and the shareholder as to the inclusion of their profits or dividends as the case might be.

As a result of these double taxation agreements, there are devices by which adjustments are made. We give credits to Irish companies, in relation to their taxability in this country, for what they pay in Great Britain. By reason of the increase in the amount, we have contrived a way of giving them increased credit but, in order to do this, we have increased the corporation profits tax which helps us to get from the British companies operating in Ireland the amount of relief we give to Irish companies for the tax they have to pay in Great Britain.

It is rather complicated. I find it difficult to understand myself and therefore all the more difficult to explain. In so far as we have increased income tax which is payable by Irish companies on their profits, then we have hit the Irish companies fairly hard in that respect. The increase is from 6/4d to 7/- in the £. The marginal decrease in corporation profits tax, which is hardly worth taking account of, is that, having taken a figure of 23 per cent, to which we increased corporation profits tax from 15 per cent, the relief given against income tax payable works out very slightly marginally in favour of the taxpayer but, over all, by reason of the increase in income tax, the company will pay much more tax to the Exchequer.

It is extremely difficult to follow this. This Resolution, and the amendment on the Order Paper, relate only to corporation profits tax and are specifically referable to that and to the percentages in it. The old basis was that the first £2,000 of profits was taxed five per cent and that now goes to 7½ per cent. The residue of profits was taxed at 15 per cent and that now goes to 23 per cent. The effect of that, with the British charge for corporations carrying on business outside this country, is virtually marginal either way. But, regardless of that, any company operating here, be it an Irish company or not, will be chargeable to income tax at 7/- in the £ instead of 6/4 in the £. Therefore, the Irish company resident here, that is, managed and controlled here, will effectively be paying 8d more in the £. However, the company trading here but not managed and controlled here will not be charged more for income tax purposes because it will get that extra 8d in the £ repaid to it under the double taxation agreement. Therefore, is it not a fact that what will happen is that the Irish company, the company resident and controlled here, will pay more tax but that the British company operating here, which is not resident, managed and controlled in Ireland, will not have to pay any more income tax? I want to know where that foreign company stands in relation to corporation profits tax. As I understand it, the foreign company pay corporation profits tax. Not merely is it chargeable but they pay and do not get any double taxation relief.

They do. They do not pay income tax here: they pay corporation profits tax. They get credit for that in Great Britain against corporation profits tax.

I am thinking of this from the standpoint of the Exchequer. The Irish company, resident here, is paying 8d in the £ more income tax this year. The Irish company is paying, under this Resolution, the same amount of corporation profits tax this year. Therefore, the Irish company is contributing 8d in the £ more on its profits to the Exchequer. There may be a marginal difference but it is roughly 8d in the £. The British company that trades here is assessed to income tax but discharged by the double taxation agreement and has to pay corporation profits tax. Will the increase in corporation profits tax on the British company operating here be equivalent to the 8d that has gone up in income tax for our own companies?

It will be higher, in my opinion, because the 8d increase for Irish companies on income tax is ascertainable. It will be an eight per cent increase for corporation profits tax in respect of the British resident company—from 15 per cent to 23 per cent. I could not say whether the 8d increase paid by the Irish companies is more onerous than the eight per cent increase in corporation profits tax payable by British companies. Perhaps if the Deputy would let me inquire, I may be able to get an answer to that.

The Minister sees my point.

I understand that the eight per cent increase is an increase of almost 1/6d in the £ on the British company.

They will have to pay 1/6d and not 8d?

That is the balance I wanted to get at.

In respect of companies trading exclusively in our own jurisdiction, does this Resolution affect their liability to corporation profits tax?

It does. They have to pay the increase in the corporation profits tax of eight per cent as from 15 per cent to 23 per cent, but they get credit for that increase against their income tax. In effect, they do not pay more, except of course that they do pay more income tax.

The corporation profits tax element does not increase their total burden?

No, but their total burden is increased by the 8d increase in income tax.

Question put and agreed to.