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Dáil Éireann debate -
Tuesday, 14 Jun 1966

Vol. 223 No. 3

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

I move:

That for the purpose of any Act of the present session to charge and impose certain duties of customs and inland revenue (including excise) to amend the law relating to customs and inland revenue (including excise) and to make further provisions in connection with finance, it is expedient to authorise as follows:—

(a) to redeem borrowings, and interest thereon, in respect of capital services, there shall be charged annually on the Central Fund or the growing produce thereof a sum of £1,739,171 in the twenty-nine successive financial years and a sum of £1,819,988 in the thirty successive financial years commencing in each case with the financial year ending on the 31st day of March, 1967;

(b) there shall be made any repayments of estate duty which are provided for by any section of the said Act providing for amendment of section 29 of the Finance Act, 1965;

(c) there shall be made any repayments of income tax and corporation profits tax which are provided for by any section of the said Act providing for amendment of Part III of the Finance (Miscellaneous Provisions) Act, 1956.

Paragraph (a) of the Resolution is in the usual form, that is, a Money Resolution to redeem borrowings and interest thereon in respect of capital services. Paragraph (b) is necessary for the purpose of giving effect to the increased benefit that will be given to widows and dependants for the purpose of estate duty in the Finance Bill. As I announced in the Budget Statement, provision is being made for an increase in the amount of the estate which can claim relief and for an increase in the amount of the relief from estate duty given to a widow or other dependant. The section makes that relief retrospective to the introduction of the Budget last year. In order therefore to provide for payment in retrospect, it is necessary to have a Money Resolution passed. That is for payment of sums paid in discharge of death duty which under the present relief ought not to have been paid.

Paragraph (c) refers to the relief from tax on profits derived from export by companies who do not manufacture goods of their own but to whom goods are consigned by, say, a company in Germany, which are processed further here and reconsigned back. The profits made on the added value of those goods will now be liable to the export tax relief as in the case of goods manufactured by persons themselves and exported.

Is this entirely new?

It is in pursuance of the encouragement for the export of manufactured goods. It is new only to the extent that it applies now to goods consigned from outside, further processed here and reconsigned back to the person who consigned them here in the first instance.

It relates only to the added value of the operations in the Republic?

What percentage of value has to be added?

There is no percentage laid down.

How is it assessed?

The profits made on the process are assessed.

Has it got to be processed in some shape or form as against distributed? If it has to be processed in some shape or form, there must be some standard laid down for the processing. If there is no standard laid down for the processing, may I put this example to the Minister? If a person brings in here 100,000 tons of any particular commodity and redistributes that 100,000 tons by keeping 80,000 tons in this country and exporting 20,000 tons, on which he makes a profit by reason of the fact he has been bulk buying, does he get the relief on his profit on that 20,000 tons he has exported?

As far as the sale of the goods within the country is concerned, naturally he cannot get any relief on that. I see the Deputy's distinction. Having imported 100,000 tons, the unit cost per ton is less than if he only imported 20,000 tons which he was going to export in an advanced processed form. I should imagine this would be a matter for accountancy anyway. We are not interested in the degree of processing as long as there is some processing done and as long as the processor or manufacturer can show he had to pay a certain amount. He may have paid nothing for the goods. In fact, he does not own them at all. He does not in fact buy them. The practical case is this. The Industrial Development Authority came up against a couple of cases whereby firms in other countries were prepared to have work carried out here by Irish firms or by subsidiaries of the firms in these other countries. They found it perhaps profitable to have that work done here. The goods would be consigned from the company in Germany to the Irish company here. That company may or may not be independent of the German company. The goods would never actually come into the possession of the Irish company. Therefore, they would not be bought by them. They would have been consigned to them for processing and reconsigned back to the company abroad. The Irish company would of course have made some profit by reason of whatever payment they got from the company abroad. That would be assessable and therefore entitled to the tax relief on profits derived from exports. I do not think the example given by the Deputy is envisaged in this Resolution. I am speaking without further consultation and I shall have to confirm that.

Could the Minister quote me the enabling section that enables these exports so to be treated?

Section 27 of the Bill.

I can quite understand 1,000 gross of handkerchiefs being consigned to this country for the purpose of being embroidered and re-exported to the country from which they came or elsewhere and the embroidery of each handkerchief costing 1/- and the profit on it being 1½d per handkerchief. That would be the profit of the Irish entrepreneur for the purpose of paragraph (c). I can see the point of capturing that kind of processing trade. At the other end—I am not referring to any particular firm—I am thinking of another kind of processing. We all know that razor blades come from the steelworks in strip, are run through a machine and are substantially cut up; and razor blades in strips are relatively cheap. The razor blades are passed through a razor blade machine and have a substantial value. Suppose a firm abroad consigns to a subsidiary in Ireland a roll of steel ribbon at a fair price and then has consigned back to itself a million dozen of razor blades at a fair price but, in fact, at ten times the price of the original consignment and secure from us a large income tax concession in respect of what is described as a processing operation within our jurisdiction.

The reason I offer these two extreme examples, one of which appears to me to be legitimate and desirable and the other of which would present an opportunity for manifest tax avoidance which none of us here has in mind to facilitate, is that I wonder if paragraph (c) is too widely drawn and, if it is, can any measure be taken substantially to constrict the application of the proposal? I would recall to the Minister's recollection that in regard to trade agreements we have made in the past, when dealing with the question of country of origin it has been admitted that raw materials purchased by us from abroad and submitted to a processing operation which added at least 25 per cent to their value qualified as goods originating in Ireland. Has the Minister in mind applying any percentage of valuation which the Revenue Commissioners could contest if they thought an attempt was being made to drive a coach and four through a loophole in the law and in order to have some standard which would enable the Revenue Commissioners to say to a skilful entrepreneur:“This is a kind of processing which was never contemplated because it is not a genuine processing operation which provides employment of material value within our jurisdiction, and it is for that purpose, to provide material employment within our jurisdiction, that we devised this resolution”?

If Deputy Dillon will refer to the opening words of section 27, he will see there in regard to the type of case he envisages, that is, importing goods by way of purchase, processing and re-exporting, this does not apply. Section 27 (1) specifically states:

In the case of a body corporate carrying on a trade which consists of or includes the rendering to another person of services by way of subjecting commodities or materials belonging to that person to any process of manufacture...

it may claim the exports profits. It may not involve purchases.

Consigned without transfer of ownership.

The other question raised by Deputy Dillon was whether the Revenue Commissioners would set any minimum percentage of the value for commodities to be processed in this country. The Revenue Commissioners would not be interested in that. It does not matter what percentage processing done in this country bears to the total value of the commodity as long as the amount of processing is capable of being assessed and the amount of profits made derived from the processing is similarly capable of being assessed.

Does the Minister not see the danger that a subsidiary whose principals are resident abroad could have material consigned here and submitted to some operation which involves the employment of virtually no labour at all? It could agree with its principals that the processing that took place here increased substantially the value of the material, thus creating a loophole for a claim for such a company to trade here in a processing capacity free of income tax, when the processing is virtually valueless and yet they can represent the end product as having a very substantial added value. I can appreciate, however, that in complex matters of this kind, one can raise all sorts of odd cases, which no Minister can answer off the cuff. I simply invite the Minister to glance at the matter from this angle to see if the danger exists and, if so, whether it would be appropriate to ask the Revenue Commissioners to close such a gap if it emerges.

I certainly take the suggestion of Deputy Dillon seriously, out it would hardly be worth a foreign firm's while to transport goods here and have a very small degree of processing carried out in order to claim export tax relief. It would not appear to be an economic proposition, but in so far as Deputy Dillon wishes me to examine something which he considers ought to be examined, I shall have it done.

Do the goods have to come here?

Yes, they do.

By virtue of section 27?

Have they to be processed here?

It says "any process of manufacture" and "rendering in the State of such services". We can perhaps discuss it on section 27. Paragraph (b) of section 27 (1) says the rendering of services shall be regarded as the manufacture of goods. Therefore, physically dividing the parcel into five 20-ton lots is a service.

Paragraph (c) goes on to say:


(i) such services are rendered to a person who is not resident in the State in relation to commodities or materials which have been imported into the State...

Question put and agreed to.
Resolutions reported and agreed to.