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Dáil Éireann debate -
Thursday, 26 Jul 1973

Vol. 267 No. 12

Finance Bill, 1973: Committee Stage (Resumed).

Question again proposed: "That section 18 stand part of the Bill."

I am glad the Minister said before Question Time that he was sympathetic to the proposal which I discussed with my colleague, the shadow Minister for Finance, Deputy Colley. Some time ago I submitted a question to you, Sir, on this point and you said that it would be better to leave it until the Finance Bill was being discussed in the House. I accepted your ruling.

All sides of the House are sympathetic to those who are physically or mentally handicapped either from birth or as a result of an accident. We know that accidents happened ten or 15 years ago and people were awarded a certain sum of money. I am not a lawyer, but I presume the decision of the court was that this sum of money invested would give to the person an income per week which would be equal to what his pay was prior to his injury. Unfortunately, under our income tax code a person who has money invested and gets interest on it, does not get the equivalent of what an employee gets by way of earned income relief. He pays the full rate of unearned income tax on the interest of the investment.

The Minister is a lawyer and he has the back-up staff to do what I am asking him to do which is to give to those people earned income relief. The courts decided that the interest on the money invested would be the income of the person who was injured. I want the income tax code to be amended so that this person will qualify for something similar to earned income relief. It is earned income because the person was injured at work through no fault of his own.

I am very pleased that the Minister is sympathetic to this. He was not sympathetic to a lot of things which were said in the House over the past few days but just before Question Time, he said he was sympathetic towards this. I do not want him to say that he will amend the Finance Bill now, but I hope that in the future he will sympathetically consider these people and give to the handicapped, some of them in wheelchairs as a result of injuries, a similar concession to the concession workers get in earned income relief.

Deputy Nolan said that I had not been sympathetic to some cases made in the House in the past few days. He will realise that that was because I did not consider that they had merit. I am sympathetic towards meritorious claims. I explained before Question Time that, where compensation was paid to people in respect of injuries received in industrial accidents, such compensation ought to take into account the appropriate income tax liability and, in fact, does in most cases, unless the legal advisers or the actuarial advisers were lacking in professional skill.

In all cases where there is an assessment of loss, the assessment takes into account income tax liability on earnings if the person continues to work, and on income if the person does not continue to work but receives a capital sum. It is important to bear that in mind because a certain amount of emotion can develop understandably around a person who receives a capital sum, but it should be borne in mind that the capital sum, if paid in compensation, ought to have taken into account income tax liability thereafter.

I mention that as a first consideration which has to be borne in mind before you would consider any relief. The difficulty in giving relief is a difficulty which I am sure Deputy Colley will understand. If you give relief on compassionate grounds for one ailment or disadvantage, you may well open the floodgates to demands for compassionate treatment on many grounds, some of which would be worthy, but others of which could well be fabricated. I do not think any Member of this House would want to make it easy for people to avoid making their proper tax contribution on the basis of a fabricated claim. I am not suggesting that this is so in relation to the claims which Deputy Nolan has in mind.

In summary, what I said before Question Time was that I am sympathetic to the idea that the disadvantaged should not be treated in the same way as income earners. I am also sympathetic to the idea that the disadvantaged should not be treated in the same way as people of substantial wealth who need never work because they have sufficient income from their capital. Finding a remedy for this is fraught with many difficulties. I want to assure the House that I will endeavour to overcome these difficulties, but we must be terribly careful that, as we try to alleviate the hardship of the kind of case Deputy Nolan has in mind, we do not open the floodgates to those people who are experts in using every loophole in the tax law to make immense gains for people of substantial wealth.

Deputy Nolan, Deputy Colley and the rest of the House can be assured that we are in agreement on the principle and, if I can find some way to meet it, I will certainly put it into operation. I am deliberately pointing out that the cure is not an easy one to find.

I thank the Minister for his reply. This point has come to a head now because of the fact that 20 years ago somebody was injured in a workshop, a quarry, or somewhere else, and a capital sum was allowed to him. He was advised that it was sufficient to provide for his wife, his family, and himself, for his lifetime. We all know about inflation, and the interest he is now receiving does not compare with its value 20 years ago. I want him to get some relief.

I am glad the Minister has said he will consider it sympathetically and try to find a way around it. Anything the Minister does for the handicapped, the poor, or the sick, involves difficulties. Take the case of the free television licences and the free travel. People are availing of these schemes who were not intended to when they were originally introduced. The same will happen when the Minister introduces a regulation, I hope, to give some sort of relief to the people I am talking about. Due to the hardship involved and the concession the Minister would be giving to the handicapped, if a few people got in who should not have got in, I would not have any objection, and I am sure the Minister would not.

Question put and agreed to.
SECTION 19.
Question proposed: "That section 19 stand part of the Bill."

The purpose of this section is to grant to the bodies mentioned in this section the same exemption from income tax as is granted to charities. Bodies of persons or trusts established for a charitable purpose only are entitled to exemption from income tax on income from dividends, interest and annuities in so far as such incomes are applicable and applied to charitable purposes only. This exemption would now apply to the income of the bodies mentioned in the section. In certain circumstances the profits of a trade carried on by charities may also be exempted from income tax under section 334, but it is unlikely that bodies of the kind contemplated will be carrying on a trade. Technically, a trade could be held to exist if they engaged in the sale of literature and made a profit from this activity, but in the light of their objectives it is not expected that such sales would be at a price which would give rise to chargeable profits. This section is linked with section 14, as I mentioned earlier, which provides for the recognition for income tax purposes of covenanted subscriptions by persons to bodies which have consultative status with the United Nations or the Council of Europe.

I raised on section 14 the bulk of the questions I wanted to ask in regard to this matter. There is just one other point I want to have clarified. At the moment I understand that beneficiaries of the covenanting procedures are substantially educational bodies; there are certain others but many of them are educational bodies. Could the Minister tell me if such bodies are also entitled to the same benefits as are proposed to be conferred under both sections 14 and 19 on the types of organisations the Minister has in mind?

On Second Stage Deputy Haughey raised the question of whether or not an organisation such as Gorta was included in the benefits to be derived from this section. Could the Minister let us know whether that is so or not.

I did mention this morning that I personally had not read the constitution of Gorta and, therefore, I would not like to express a view upon it. I do not know whether Gorta has consultative status with these international organisations, but the House can be assured that this will be interpreted in the most liberal fashion. It may well be that Gorta would be entitled to consultative status but has not yet applied for it. It may have; I do not know, but in order to ensure that no spurious organisation claiming to serve the cause of human rights should receive relief, we have felt it desirable that the safeguard of acceptability to an international organisation ought to be built in. This is desirable not only from the point of view of ensuring that no spurious organisations are involved but also in order to ensure that international organisations would also see that Ireland is taking active steps to subscribe to and implement the principles contained in the Universal Declaration of Human Rights and the European Convention.

Could the Minister give us a list of the organisations that are covered by this?

I know Deputy O'Malley was not here earlier when I dealt with this matter, but I am sure that if he consults with his colleague he will get a picture of the situation.

Question put and agreed to.
SECTION 20.

I move amendment No. 2 (a):

In page 12, lines 11 and 19, after "trade" to insert "or profession".

Section 20 permits a deduction in computing the profits of a trade in respect of the payment made by a trader to an Irish university for the purpose of enabling it to establish a chair or to promote research in marketing or industrial relations or other approved subjects. It has been represented that a deduction should also be permitted where a like payment is made out of the profits of a profession. The purpose of the amendment is to achieve this, and I am positive it will commend itself to the House.

I think I am right in saying this point was raised by Deputy Haughey on Second Stage.

I am not sure, but if the Deputy so suggests——

I think he might well be given the credit for it.

As the Minister pointed out, this section enables a person carrying on a trade, with the addition now of a profession, to claim a deduction in computing profits for tax purposes in respect of any payment by him to an Irish university for the purpose of enabling him to establish a chair or to promote research in marketing, industrial relations or subjects approved by the Minister for Finance. I would suggest that the terms of the section are too narrow and that the Minister might consider extending its scope to include all institutions of higher education. If he were to do this, he would make a very worthwhile contribution to Irish education through ensuring further and more rapid development of the technical and technological side of education. This would very considerably help us to achieve the aims we have in relation to education, that is, to secure a better balance in our educational system. If this were to be done, it would be very much to the benefit of the individual student and the community as a whole.

May I also suggest that the terms of the section should relate to any moneys made available for educational purposes? I believe that if this were done industrialists would contribute much more than they do to the development of educational projects. I think it is worthy of comment that the sums of money being made available for sporting events are huge in comparison with the rather puny amounts of money made available by industrialists and others for educational purposes. I appreciate that firms make money available in these circumstances for advertising purposes, and they might feel they would not gain the same value from promoting educational projects as from financing sporting fixtures. However, it is not beyond the ingenuity of man to devise a system whereby they would get the type of return they require. If, on top of this, they got a worthwhile taxation concession, I believe this would tilt the scale in favour of educational projects. This would have a most beneficial effect on the whole cultural and economic development of the community. Those who are not closely involved in educational matters might feel that, considering the huge sums spent on education over the past few years by the State, a few thousand pounds from outside sources would make little difference. The facts are, of course, that despite the very large sum being made available by the State there are areas of the educational field, very worthwhile in themselves, which for one reason or another are low on the priority list and which would benefit greatly from such a system.

Deputy Faulkner has been relating his remarks to the section. I am anxious to ascertain whether the amendment is accepted.

Amendment agreed to.
Question proposed: "That section 20 stand part of the Bill."

On the section, would the Minister confirm that the phrase in subsection (1) (a) "Irish university" means a university anywhere in Ireland, North or South? I take it that is what is meant. I would also like to ask whether the wording of subsection (1) (a), which refers to a sum for the purpose of enabling the university to undertake research would include the kind of operation which is quite frequent where a university gives a grant to an individual to carry out certain types of research. The wording of the section seems to confine it to the university undertaking research. Does that include a university undertaking research by way of a grant to an individual to carry out that particular kind of research?

In regard to subsection (2) (c), which is a wise provision allowing for the inclusion in the benefits of this section any other subject than those mentioned which is approved for the purposes of the section by the Minister for Finance, I should like to inquire in that regard whether there are any criteria which should be applied by the Minister for Finance in approving a subject?

The section is so drawn that if provision is made for a Chair in any university on this island it will carry the appropriate benefit so that both Queen's University, Belfast, and the new University of Ulster would both gain if Chairs were to be established as a result of contributions envisaged by this section.

In relation to any future proposed donations we are providing that the Minister for Finance of the day would have the right to adjudicate upon whether or not they should get this tax concession. This is the most appropriate way of dealing with it although it does impose upon the Minister of the day——

It is creating headaches.

——the personal difficulty of having to make a decision and, perhaps, bringing on himself criticism because he failed to give a concession for a project which the proposers considered to be a worthy one. I share Deputy Faulkner's anxiety that this should be interpreted as liberally as possible. Having regard to the fact that the tax burden is about one-third, at the most half, of possible tax liability, people are unlikely to be enticed into giving donations for educational purposes when the ultimate consequence is that they still have to meet two-thirds or half of the cost, the balance being carried by the Exchequer. I am aware that many useful contributions have been made in the field of education and scientific research in recent times which might not have been made if the fiscal incentive was not there and society has benefited as a consequence because sometimes if you do not give the fiscal incentive the only alternative assistance you can give is a 100 per cent charge at the expense of the Exchequer. I would hope that this would be liberally and generously interpreted. I do not think it will lead to any extravagance because universities are unlikely to take unto themselves the responsibility of establishing Chairs and disciplines in their own universities simply for the fun of it and because some wealthy entrepreneur wants to spend money to advertise himself. As Deputy Faulkner said, there appears to be more money spent on the promotion of sport because it attracts the attention of hundreds of thousands of people who attend the sports events together with a greater number who might be looking in on television.

I would hope that this small relaxation might lead to a situation in which we would have some new Chairs established in our universities which would be in keeping with the demand of the 20th century because, without in any way diminishing the immense and continuing contribution which must be made to our human welfare by some of the humanities, I think the time has come to encourage universities and people who can benefit from university education through their own economic activity to make contributions towards university education and research. That is the whole purpose of this amendment and if it is sensibly used by myself, as long as I hold the office of Minister for Finance, and by my successors, I am sure considerable benefit will accrue to the universities, to their students, to industry and to education generally with the least possible expense to the Exchequer.

(Dublin Central): Is it confined to the universities solely? I have other things in mind.

I have in mind the National Institute of Higher Education in Limerick which I think would be an appropriate body to benefit.

(Dublin Central): Is it confined to the universities?

(Dublin Central): I think other useful research could and should be carried out. I would like to see traders and industrialists promoting research into drugs, alcoholism, et cetera. This is something to which business people could contribute. Recently one company contributed a substantial amount for research into alcoholism. This should be encouraged. Nobody wants to promote alcoholism. There is no concession given here to a company or trader who contributes in this way.

There is also the question of drugs. I am sure there are people who are genuinely interested in the carrying out of research which might enable us to find a way of overcoming the problems of the increasing use of drugs. Therefore, I suggest that we broaden the scope of the section. Contributions made to a hospital, for instance, might be as important or more important than contributions to a university. Research of this nature would benefit our society as a whole.

I welcome the section. It is not before time that people who have extensive business interests and who have never thought of subsidising projects of this nature, were reminded and encouraged to do so. I refer in particular to companies who have large business interests in Ireland and in other countries but who have aided educational projects in other countries only. Some years ago, in a trade union context in which I was involved. I spoke rather severely on this question because it seemed to me that the promotion of educational research was being confined to strong economic units, to places where it would have the greatest impact by way of advertising, et cetera. Therefore, if this section results in giving a prod to companies of the type I have in mind, it will have done a good job.

I am wondering how comprehensive is the term "trader" as used in the Bill. Would it cover our own semi-State companies? How many of these companies are paying tax? I agree with what Deputy Faulkner said, that is, that most contributions of the type we have in mind seem to be directed towards sport. I suppose it is a reflection on our society that companies see in sport the best means possible of advertising their products and that, consequently they invest in horse racing or golfing for example.

What Deputy Fitzpatrick said is important. I would suggest extending the facility to cover places of education other than the universities, for instance, places of education for the mentally or physically handicapped and where much research must be carried out so that the results of activities in other countries can be co-ordinated and applied at home. It might be possible to extend it beyond the mere field of the universities— not that I am complaining in that regard because the more research we can have in those institutions the better. I would like the Minister to answer my question in relation to semi-State bodies which, laudably enough, have realised in recent years that the promotion of science projects is important.

Some semi-State bodies engage in trade: for example, the ESB, CIE and Aer Lingus and, consequently, would qualify under this provision. Bord Fáilte do not engage in trade and, so, would not be covered. I accept the criticism that it applies only to universities but I am not saying that this is the last word on this. The provision is an innovation and a worthwhile one. It comes at the behest of a number of organisations and commercial enterprises who indicated a readiness to provide money to found new Chairs and courses. If other proposals arise which we consider to be worthwhile, we can deal with them, if possible, within the ambit of this legislation— that would apply only to universities— but if they should arise in relation to other institutions of higher learning it will also be desirable to extend the provision to cover them. However, we ought to crawl before we run and that is what we are doing here.

There is a very good research unit at St. Patrick's Training College. That is the type of institution that could be helped by a provision such as this.

I am not opposed to that concept but at the moment we are dealing with the universities. We are acting here in response to a number of proposals that have been put forward and if we hear of any worthwhile offer being made to any other institution, we can make provision to deal with it but I do not think there would be any great loss if we had to wait another 12 months to do so.

Would the Minister not agree that the necessity for extending the provisions in 12 months time or so, could be overcome by his inserting some such phrase as "Irish third level educational institutions" rather than the phrase "an Irish university"? The institute I have in mind primarily is that at Limerick which is analogous to a university and which is a modern concept of a university. It seems strange that such an institution and, indeed, the research unit at St. Patrick's Training College should be excluded when the universities, in the old sense of the word, are included. I do not consider it logical to pick out a certain section of our third level educational institutions.

I rise to support the views expressed by other speakers on this side of the House and also to advocate that the provisions be extended to cover, for instance, the dairy research centre at Moore Park in County Cork where work of great importance is being carried out in relation to the dairy industry. Like many other research institutions, they are suffering from a chronic lack of money and, consequently, are curtailed to a certain degree in their work.

Therefore, I suggest that the Minister extend the facility to cover any body engaged seriously in research that is to the benefit of the country. We would be utilising to the maximum capacity the excellent staff at Moore Park if we could help them in this way.

The reason why I suggested that it might be worth while considering the inclusion of third level institutions other than the universities was because there is a serious imbalance in our educational system. Basically, this is because of historical reasons. It is heavily weighted towards the academic side of education while in other countries in the European Economic Community it is heavily weighted in favour of the technical side of education. The Minister has said that the monetary aspect of this section might not prove to be exceptionally attractive. Nevertheless, if he were to include the other third level institutions, many of which deal with the technological and technical side of education, it would have a very worthwhile psychological effect and would give a considerable boost to the efforts that have been made to correct the imbalance in our educational system. This would prove advantageous to the general educational situation and particularly to economic development.

I should briefly explain that there is no statutory recognition of third level education. There is a statutory recognition and understanding and formula for university education. So, we are making a beginning this year. To date no proposals have been brought to the notice of my Department indicating an anxiety on anybody's part to make a contribution towards research in any of the other excellent institutions that have been mentioned here today. I would give this personal assurance to the House: if we get some proposals affecting these other institutions, we will take a look at them and we will be only too happy between now and next year's Finance Bill to take whatever remedial measures might be necessary to give life to any such proposals.

As I say, apparently even the seed has not been sown yet for this. I regard all these suggestions as being worthy. If the seed is sown now, the plant can come over the ground next year and we will be ready by next year's Finance Bill to provide the sunshine in which the plant can ripen to fruition. I accept what has been said. Let those who have these good ideas generate the same ideas amongst those who may be benevolent towards the institutions they have in mind.

I am glad to see the Minister displaying a sunnier disposition today.

It is my natural inclination.

The Minister could have fooled us. I want to refer to one small technical point. In passing, may I suggest to the Minister that what he has just heard from this side of the House is merely a short preview of the headaches in store for himself and his successors under sub-section (2) (c)? I want to reiterate a point that was lost sight of in the course of the discussion. I asked the Minister whether he could say that the wording in subsection (1) (a) relating to any sum paid to a university to undertake research would be deemed to cover the case where a university made a grant to an individual or group of individuals to undertake certain aspects of research; whether that would mean that the university was undertaking the research.

It would include the kind of development the Deputy has in mind. If it is done under the auspices of the university, we would regard it as being done by the university.

That is what I want to confirm. As the Minister knows, a great deal of university research is done in that way.

Question put and agreed to.
SECTION 21.
Question proposed: "That section 21 stand part of the Bill."

The purpose of this section is to enable the certification procedure under section 121 of the Income Tax Act, 1967, to apply to proceedings for recovery of income tax estimated for PAYE purposes under sections 7 and 8 of the Finance Act, 1968. In proceedings, under section 131 of the Income Tax Act, 1967, for the recovery of an amount of tax, a certificate signed by an officer of the Revenue Commissioners stating that a certain amount of tax is due and payable by a defendant is accepted as evidence, until the contrary is proved, that the stated amount is due and payable.

(Dublin Central): Would this be after the Revenue Commissioners had failed to get the facts from the trader as to what the debt actually is?

This is to cover the situation in which somebody fails to make a return. Obviously, the only way in which the Revenue Commissioners can in such circumstances secure an order of the court is to provide an estimate. The effect of this would be that if a person is avoiding payment of tax and receives an estimate in excess of his liability, the defaulter is more likely then to present the true account and as a result of that the estimate can be put aside in favour of the actual figure, but unless we have this it means that many people can avoid meeting their responsibilities until proof can be produced as to what the actual liability is.

(Dublin Central): Can measures not be taken under other parts of the Bill?

I think the question being asked is will this happen only when all other channels have been exhausted for the recovery of the alleged debt. Would this come into operation only when all other channels have been exhausted?

The Deputy can be certain that the Revenue Commissioners do not resort to legal proceedings unless and until there is reason to believe that the person liable is unwilling to produce any records. If there is the least effort on the part of an income tax payer to meet his liabilities the Revenue Commissioners will not resort to legal proceedings. It is only when there is total lack of co-operation that they must resort to procedures of this kind.

(Dublin Central): Have you power at the moment to impose a penalty on a trader who fails to produce the returns before you adopt this procedure? Is it not already in the Bill?

(Dublin Central): That procedure would have been exhausted before you would adopt this remedy?

The penalty would apply irrespective of these proceedings.

Am I right in saying that it does not necessarily follow that the Revenue Commissioners would have to apply the penalty for failure to produce records before this section is applied? It might so happen but it is not necessary that it should happen that way. Is that so?

Question put and agreed to.
SECTION 22.
Question proposed: "That section 22 stand part of the Bill."

The purpose of the legislation contained in the section is the prevention of the abuse of the income tax relief available in respect of life insurance premiums on short-term policies. The insurance policy normally met with is an endowment policy, that is, one securing the payment of a capital sum at the expiration of a fixed term of years or at death should that occur previously. Such policies are a combination of investment and insurance against risk. In policies running for long terms the risk element predominates but where the insurance matures at the end of a short period the cost of the risk insurance, particularly for young lives, is relatively small and the greater proportion of the premium is really an investment or saving. The broad effect of the section is to deny income tax relief in respect of premiums on policies taken out on or after budget day for a period of less than ten years. Subsection (1) applies the new provisions to endowment policies taken out on or after budget day and to policies issued before that date if they are altered after that date to increase the benefits or to extend the term of the insurance.

Subsection (2) defines an endowment policy to which the new provisions are to apply. It excludes from the new provisions industrial assurance business which does not lend itself to the abuses which the new provisions are designed to eliminate. Sub-section (3) provides, in effect, that income tax relief will not be given in respect of premiums unless the policies are qualifying policies within the meaning of the First Schedule.

Perhaps the Minister could explain the position in regard to policies taken out by purchasers of dwellinghouses. A person purchasing or erecting a dwellinghouse may take out a policy on himself to cover a period while paying off his mortgage. He may want to protect his widow or dependants should he die. The policy proceeds would help to pay off the mortgage or debt on his house. Will a person taking out such a policy be entitled to income tax relief?

Yes. The section is only concerned with policies of a lesser life than ten years. The kind of policy the Deputy has in mind would usually be for life or for the period of the mortgage and if the mortgage were over ten years the policy would be in no way disadvantaged by this section. What we are anxious to curb is the kind of policies generated recently by financial institutions which had an insignificant risk element. They were available to people of considerable wealth who could use them and it was used as a form of tax avoidance. The genuine policy-holder who takes out a longterm policy to cover genuine risks will suffer no disadvantage as a result of this section.

I agree entirely with this section but I would like to ask one question. Very often older people are not able to get life insurance, perhaps, for longer than ten years. They may be trying to provide something for their death. For instance, a person aged 61 might find that no insurance company would give a policy maturing at over age 70. This would cause a certain amount of difficulty. Does the Minister envisage any way out for such people?

Could the Minister clarify the First Schedule under the heading (c) which states that the total amount of premiums payable under the policy in any period of 12 months must not exceed (1) "twice the total amount of the premiums payable in any other such period...." Is the Minister just ensuring that these policies will apply to ordinary people who will pay a regular contribution? Further down under (d) it is provided that the policy must guarantee that the capital sum payable on death will be equal to three-fourths at least of the total premiums, et cetera. Looking at the capital growth rate and what some companies especially foreign companies, offer—capital gains up to 40 per cent and so on—does the Minister think that a guarantee of three-fourths is adequate?

I think it is. I am alert to the dangers the Deputy has in mind but I am certain that we have constructed this so that the genuine policy-holder who takes out a policy against genuine risks has nothing to fear. This has the effect of closing off the kind of investment advantage that was being taken and which had very little to do with insurance as such but was purely a system of acquiring capital. I am not unmindful of the point Deputy Crowley raises. It is difficult to provide some scheme to cover such cases. I can see there are occasions when elderly people are in difficulty in getting a genuine life insurance when they want to provide themselves with some protection. One could possibly draft an amendment to provide that these restrictions would not apply where an insurance policy was taken out to cover the life of a person over the age of 56. There are great difficulties in trying to adjust this but my mind is not closed to the Deputy's point.

Perhaps you would need to be more specific and apart from specifying the age you might have to specify the categories that would be exempt from the section.

I do not think we are creating any difficulties for genuine policy-holders in this section.

I think you are.

I should like to make clear that we certainly support the principle behind this section. I am aware that certain financial institutions were availing themselves of a loophole in the law and if they had been allowed to continue it would distort very substantially the whole structure of financial institutions. It is, therefore, necessary to have a section on these lines. Nevertheless I think Deputy Crowley's point is important. I suggest that the kind of problem he has envisaged could occur where a farmer was taking out insurance to assist him in meeting possible death duties. In such a case the man concerned could be relatively elderly and would run into the difficulty we are considering here. I do not think the Minister can at this stage—if he can, well and good—produce an appropriate amendment, but if he can produce any amendment that would go some way to guard against the dangers envisaged so much the better. Perhaps the Minister would assure the House that he will keep an eye on developments that arise as a result of the enactment of this section and, if necessary, bring in amendments to this Bill without waiting for next year's Finance Bill if the kind of dangers that are mentioned here should appear to be looming up and that this section is not satisfactory in dealing with them.

The Opposition are in a more generous and kindly mood now than they were in last night and if they would accept an oral suggestion from me we might be able to provide for this now. I should like to provide for it. I would suggest that on page 12, line 37, the first line of section 22, we could meet the point by inserting the words "made on the life of a person under the age of fifty-six years" after the words "This section applies to any policy of life insurance..." Thereafter the section would read as it stands at the moment.

This would have the effect of offering the protection against the genuine policies taken out by senior citizens to cover the kind of eventuality in relation to old age, estate duty and so forth. Of course, with the likely replacement of estate duty in the not too distant future, this becomes less of a need than heretofore.

Let us wait until that happens.

I think it would be meeting the point if the House agreed to it. This is the best way seeing the time difficulties we are involved in in relation to this House and the Seanad.

I take it that the Minister is satisfied that with an amendment of that kind the section would still be sufficiently restricted to prevent the financial institutions who have been indulging in this practice continuing to do so. I think that it would not be feasible for them to operate on the basis of insurance policies for those over 56 years of age but is the Minister satisfied that that is so?

I am not satisfied that it is so but I think it is less attractive. If one looks at the mortality rate one will find that the more of us survive 40, 50 and 60 years of age the greater is the longevity of life beyond that. I am not going to get involved in an actuarial argument at this stage. However, I should imagine that this will be closing off a large amount of the abuse and we will still be providing for the kind of genuine case I am prepared to accept exists.

I would think that that is true. I should like to express our appreciation to the Minister of the manner in which he has met the points put forward. We certainly will agree to this amendment.

May the Chair take it that section 22 (1) will now read: "This section applies to any policy of life insurance made on the life of a person under the age of fifty-six years", et cetera.

Agreed.

Section 22, as amended, agreed to.
SECTION 23.
Question proposed: "That section 23 stand part of the Bill."

I should like to know who is going to define or decide what is "necessarily" as compared to "wholly and exclusively" incurred. I presume it would be the inspector in agreement with the company officials of whatever company is involved?

The Minister is now four months in office and he must have experience, as a result of being in office for that period, of how world trade is promoted. He is suggesting in this section that we, in Ireland, should give a lead to the world in the promotion of trade in such a way as is not done in the United States, Japan and Western Germany. I have a feeling that this section might interfere with the expansion of our business potential. For that reason I would ask the Minister to be very careful of the implementation of this section as it now reads.

As far as this side of the House is concerned we support the idea behind this section. Any action which can be taken to prevent tax avoidance, although it is almost close to tax evasion that is involved here, and without at the same time creating injustice or unnecessary difficulties will have the support of this side of the House. A certain amount of clarification may be required and I would ask the Minister does he not consider that there may be a certain lack of definition in regard to the proposed rules regarding expenses such as entertainment.

It seems to me that under Schedule E the rule which governs expenses necessarily incurred for salary employment would not of itself extend naturally and without any amendment, to expenses necessarily incurred for a business under Schedule D. We cannot just transfer the rule from one to the other. I assume that some thought has been given to this by the Revenue Commissioners and presumably some advice has been offered to the Minister as to how it is proposed to implement this section in practice. The House would appreciate if the Minister would elaborate on what is envisaged as to how this section is to operate.

I am also interested in this section. The last speaker has referred to more definitive rules. I should like to know if it is intended to separate business expenses in relation to home business and foreign business. We know that today a large number of firms are encouraged to engage in the expansion of exports. We also know that in conjunction with this sometimes heavy expenses are incurred by way of entertainment. I should like to be assured that, while we support the aim of this section, such firms will not be unduly penalised in regard to the section.

(Dublin Central): Could the Minister give any example of what he has in mind when he says “wholly and exclusively incurred for business purposes” and what type would be disallowed? What has the Minister in mind as to where this is abused?

The present code uses the words "wholly and exclusively" and the word which we are now seeking to import is "necessarily". The purpose of the section is to strengthen the powers of the inspectors of taxes in dealing with tax avoidance by way of claiming as business expenses rather lavish entertainment of business customers or allegedly potential customers. We ought to realise that a great amount of so-called business entertainment is being conducted at the expense of the general taxpayer because it would not be on as lavish a scale as it is if the provider of it was not comforted by the fact that half of his bill will be borne by the general taxpayer because he will not have to pay tax on it; it does not seem to me socially justifiable that those with wealth should be able to entertain themselves and their friends lavishly at only half cost to themselves leaving the unfortunate pool of taxpayers to make up the loss in taxation.

Deputy Carter referred to the possibility of having a differential between entertainment spent on natives and that spent on foreigners. Legislation was introduced in Britain in 1965 to the effect that no deduction whatever would be given for expenditure on business entertainment, including hospitality of any kind, except, subject to certain conditions, entertainment of overseas customers. I suspect this is the kind of case Deputy Carter has in mind. The legislation being introduced here is not as restrictive as that of Britain in so far as it does not seek to disallow completely expenditure on business entertainment. In Britain, all home business entertainment is excluded. What we are proposing to do is to apply an additional test, namely, that the entertainment expenditure was incurred, not only wholly and exclusively, which is the test under existing law, but also "necessarily" for the purpose of the trade. In any case of disagreement as to whether or not expenditure is necessarily incurred for the purpose of the trade there will be the usual right of appeal to the appeal commissioners and to the court. The legislation, I might add, will have effect only from 16th May onwards.

A certain worry arises in the minds of Deputies because of the rather tight way in which the word "necessarily" has been interpreted under Schedule E, but the two interpretations are not comparable. The disadvantages of "necessarily" under Schedule E are that they are related not so much with the word "necessarily" as with the words "in the performance of the said duties"—of the employment. The most restrictive element in the Schedule E rule is the fact that the expenses must be incurred in the performance of duties. It may be necessary for an employee to incur many expenses for the purpose of his employment which did not arise in the course of the employment—for instance, travelling to work, the use of a phone, the purchase of technical journals, indeed the very garments he wears. But if these expenses are not incurred in the performance of the duties, relief is not allowed.

The concept under Schedule D which we are now dealing with is different. Here the test is that the expenditure be wholly and exclusively laid out or expended for the purpose of the trade or profession. The criterion is whether the expense is for the benefit of the business and this is determined by the principles of ordinary commercial trading and practice. This is in contrast to an employment where the duties are prescribed by the employer. What is laid out for the purposes of the trade is very wide and what section 23 proposes is that an expenditure on entertainment must be necessarily laid out for the purposes of the trade. Of all the expenditure incurred in the carrying on of a trade only that relating to entertainment is being subjected to the new test, the objective being to impose some curb on the allowance for tax purposes of rather lavish sums claimed under this heading, which could not really be justified as expenditure warranted for the purpose of maintaining or expanding business. I can understand the anxiety of Deputies about an unduly restrictive use of this which could damage business prospects either in relation to the maintenance of existing business or the possibility of getting new opportunities, but I think the wording we have used and the way in which the Revenue Commissioners will use it will not work in the way in which Deputies may fear.

Some arguments have been advanced, not here but elsewhere, that this would inhibit the giving of Christmas candles—not, indeed, that there are that many given nowadays by traders, but there are other benefits of a small kind which might not be allowed. The Revenue Commissioners operate the old principle of not being bothered with things which are de minimis and it would not be worth their while to chase after the Christmas candles, the box of cigars, or anything else that might be given to show goodwill. Quite clearly, however, where, and many cases of this have come to light, many hundreds and thousands of pounds are spent in providing “entertainment” I think the time has come to curb expenditure of that kind and I gather from what the Deputies opposite said they are not in disagreement with us in our effort to curb extravagance in this field, an extravagance which in many cases is not related to the genuine promotion of business. I accept all the worries of Members opposite. These things have concerned me for some time past, but I think we have arrived at a formula.

Would the Minister define "business entertainment"?

It can take many forms.

Is there a statistic of the demands for income tax allowance for business entertainment?

I do not think we have such a statistic, but the amount is growing, and growing fast. The interesting thing is that the expenditure in many cases did not show a return in growth of activity. Maybe it is misspent money and is a bad calculation but, if one saw a significant growth in activity as a result of many nights out for the directors, one might say the expenditure was related to the business. But there is no evidence of that.

The Revenue Commissioners ought to know the amount claimed.

As the House is probably aware, I spent many years as a full-time commercial traveller and I am well aware of what business expenses are and I am well aware of having to justify any expenses incurred to one's managing director, expenses incurred in trying to further business. Deputy Colley spelled out in great detail my little worries about this particular section and how it will be interpreted. Deputy Crowley asked a question which is unanswerable. What exactly is a business entertainment? About a week ago I was watching a TV programme on BBC 2. It involved a pharmaceutical manufacturing company which installed a computer; the managing director admitted that he and his co-directors had made a great mistake in installing the particular computer. He said that what happened was he and his co-directors were subjected to high-pressure salesmanship and they believed the computer would do the job but they discovered it would not. After some years they had to remove it and install a different type of computer. Now, if you wish to promote business, particularly in high-priced items like computers, entertainment expenses are a must and very few managing directors of big business concerns will negotiate with you unless you wine them and dine them in a first-class hotel, and pretend they are the most important people in the world. This Bill provides income tax relief for Irish inventors. You can invent anything you like but it will be no use to the economy or to the inventor unless the invention can be sold.

An employee who works in the precints of this House invented the easy release of plastic covers off cigarettes. He got 500 cigarettes for this suggestion from the Imperial Tobacco Company. About four years later this suggestion was used and the patentee probably made £½ million. To invent something is not enough; it is worth only a few cigarettes. No matter what you invent or what tax relief is given to the inventor, it is no use unless you can promote the sale of the item. If you are dealing with international companies you are expected to entertain them in the most expensive hotels and provide the most expensive meals and this expenditure should be tax free. If you give tax relief to the inventor you must also give tax relief to the person who promotes the sale of the invention.

Unlike my colleague, Deputy Lemass, I am not too worried about people being able to justify to the Revenue Commissioners that they have necessarily spent money on entertainment. I am more concerned about what exactly is meant by "business entertainment". We have become a member of the European Economic Community. That is not too far from Asia and other Continents where "business entertainment" might have a completely different definition from ours.

I assume that business entertainment here is taking somebody out for a meal, as Deputy Lemass said, and giving him the best in the best hotels. To ensure that the two words "business entertainment" are not abused they should be clearly defined. For instance, in certain countries it is a sine qua non of any operation that they are brought to see pornographic films. That could be defined as “business entertainment”. It is important that the Minister should spell out for the House exactly what he and the Revenue Commissioners mean by business entertainment lest there be further abuses of the expense account saga.

I should like to follow a little further on what has been said by Deputy Carter. We should differentiate between entertainment expenditure with the aim of selling goods in this country and selling goods for export. We give concessions in many fields: for instance, profits made on exports by companies are free of income tax. It would be logical if we were to introduce a system whereby those who must expend money on entertainment to sell abroad would have something over and above those who engage in business here. The competition is more keen and incentives are more necessary. It would be an incentive if the Minister would give this concession.

There are two types of expenditure. First of all, there is the entertainment of people who come to see our products and to make business arrangements. Secondly, there are those people who are energetic and far-seeing who go out looking for markets and who meet their customers outside this country. We should give them a concession over and above what the Minister may have in mind. We should differentiate and thereby give our business people, people who are dealing with the Common Market countries, and people who are trying to sell outside the Common Market, some decent facility by way of entertainment expenses.

Deputy Colley agreed with this section. I believe it goes quite a considerable distance towards endeavouring to identify the cases in which entertainment expenses should be granted. Subsection (4) deals with sums paid for the purpose of defraying expenses incurred in providing business entertainment. Subsection (5) provides:

For the purposes of this section "business entertainment" means entertainment (including hospitality of any kind)...

Subsection (6) provides:

This section shall apply in relation to the provision of a gift as it applies in relation to the provision of entertainment.

Subsection (7) provides:

In this section—

a reference to expenses incurred in, or to the use of an asset...

a reference to a trade includes a reference to a business or profession.

It goes quite a considerable distance towards meeting some of the points made by Deputies opposite. It is a good idea to curtail over-expenditure by companies at the expense of the taxpayer.

Everybody is in agreement on that.

We want to ensure that expenditure by bigger companies is curtailed. Deputy Lemass mentioned his own experience. The ordinary everyday expenses and the additional expenses are covered in the section. We cannot be too explicit. Deputy Crowley wanted an exact definition of "business entertainment". You could set out the different categories which would fall within the meaning of "business entertainment" in Schedule and wind up finding that the further you go the more you leave out.

What I am concerned about is abuse. I am in complete agreement that it should not be abused and that is why I think "business entertainment" should be defined.

The section goes quite a considerable distance and if you were to continue to define it you would only confound it. I do not believe it would be wise to define explicitly the words "business entertainment", because it might lead to further confusion.

I do not want it spelled out too clearly, but "business entertainment" may come under many headings. It can go from a game of draughts to call-girls.

I can state this as a rule, that the income tax code may not condone sin.

Which rule is that?

I give that on very good authority.

Line 30 says: "including hospitality of any kind". What does "hospitality" include? I agree with the Minister in what he is trying to do, and I also agree with Deputy Carter——

I do not think Deputy Carter was advocating call-girls.

Neither is Deputy Crowley.

I merely want to stop the abuses of what business entertainment should include. The Minister is as capable as I am of interpreting what "hospitality" could mean. I should like to have clearly defined in some schedule what exactly business entertainment means or the limits to which business entertainment should be permitted to go.

If you prepared a schedule of business entertainment, it might be an encouragement to some people to misspend their lives, and, also, having set out a recital of things either permitted or prohibited, you would undoubtedly generate thoughts in other people's minds as to how they might escape from the particular disciplines which were set out in that schedule. You obviously cannot do this. One man's entertainment is another man's boredom. One man's appetite is another man's indigestion. The more you try to define this the more difficulties you create.

The House may take it that in relation to the application of this rule under schedule D, it will be used by the Revenue Commissioners to permit every legitimate expense which can arise in relation to the promotion of one's business, but it will also be used to curb the kind of expenditure which not infrequently arises where people engaged in business take one another and their wives out for entertainment, on yachts, on holidays and so forth. There is undoubtedly an abuse which would not exist if people had to pay the full cost of the entertainment themselves, but where they think they can make the revenue pay —and that means ultimately the taxpayer, and that means the poorest of the poor carrying part of the burden —they do not hesitate to have expensive meals, expensive nights and perhaps holidays in the very best hotels and in various other forms.

I do not think that is socially justifiable. We are bringing in a code here which is not unduly restrictive but which will make it possible for any reasonable enterprise interested in stimulating business to engage in so doing. I do not think it will have any dampening effect upon enterprise or the promotion or obtaining of business. I should like to say this about the difference between domestic business and foreign business. On the domestic plane, you can, of course, have far more abuses than in relation to the occasional visits of possible trading partners or purchasers from abroad. You may take it the Revenue Commissioners will look with a more careful eye upon entertainment within our domestic environment than they will on entertainment offered to foreign purchasers and potential foreign customers, because they are not around all the time, whereas our neighbours are, like the poor, always with us.

If we seem in business to be entertaining them on a rather lavish scale, then it is only proper that the Revenue Commissioners should have sufficient machinery available to them to scrutinise whether or not such entertainment is genuinely for the purpose of promoting business, and where it is not for that purpose, then it is time we called a halt to the entertainment of one another at the taxpayers' expense, and that is what I think has been occurring. That will be carefully examined, and if any evidence comes before us which indicates that this is unduly restrictive, we shall be only too willing to make amends. But remember this, the Revenue Commissioners will not be the people to make the final decision in this matter. It will be open to any person who feels the Revenue Commissioners have been unfair to him to go to the Appeal Commissioners and ultimately to the court. If a person has a genuine promotion, is expending money on entertainment of potential purchasers, then they ought to be able to prove their case, at least at some point, either at the local tax inspector level, at the appeal commissioner level or in court. If a person cannot get through to one of those three institutions then there is every reason to feel they have been expending money which it is beyond all decency to allow to them.

I think it is clear that what Deputy Crowley was advocating was that one should define "entertainment expenses" in order to be able to say: "This and nothing else will be allowed". In practice, however, I think the Minister is right in saying that to attempt to define this too closely would almost certainly lead to more problems than it would solve. As far as we on this side of the House are concerned, I want to reiterate what I said earlier, that we are fully in support of this section and what it is aiming to do. My objective was to try to get the Minister to spell out in greater detail how the Revenue Commissioners propose to administer this as compared with how the analogous position is administered under Schedule E. The Minister did that, and he did it to my satisfaction.

I totally agree with what is in the section but I am a little worried about the interpretation of the section by the Revenue Commissioners. I visualise a situation in which some of our progressive business establishments or manufacturing concerns, having revamped or extended the business, hold a reopening function. They may invite the Minister for Finance and many others along for the reopening and may have very heavy overhead expenses in relation to this entertainment. I do not suppose that if the Minister for Finance was there the Revenue Commissioners would seriously object to the entertainment expense but if other personalities were invited, like Gay Byrne, the Revenue Commissioners might decide it was not necessary in relation to the business. It might be a good public relations job, and I would like to get it on the record that the Minister would be of the opinion that that should be looked upon as a legitimate business promotion by the industry concerned.

Does the Minister mean a car or a house where one might entertain a foreign buyer?

We are imposing a limit on such things. We are only allowing for such proportion of the cost as would be directly attributable.

I agree with the Minister.

Quite clearly it is wrong to allow a person the annual cost of owning and operating a yacht if you only take somebody out for a couple of days when he comes over on a visit.

While I agree with the principle behind this I see certain difficulties. Indeed, I think it will be absolutely impossible for the Minister and the Revenue Commissioners to define absolutely what is a legitimate expenditure on entertainment. The Minister mentioned a yacht. We Deputies are given a certain allowance in relation to our business which is agreed between the Minister and the Revenue Commissioners, as far as I am aware, in consultation with the Committee on Procedure and Privileges. For instance, I am concerned with a multi-national company that I am trying to persuade to establish in this country. When those people come here to investigate sites and to discuss matters with the IDA I, as an individual Deputy, feel obliged to make sure they are entertained in the manner to which they are accustomed. Deputy Donegan and Deputy Byrne have probably tried to promote in the same way on their yachts. This section lacks one thing —a definition of what is justifiable expenditure. The Minister says you can appeal to the courts. You spend £30 or £40 entertaining business people if you are a Deputy to try to attract them to come to the country and, if you are an inventor, to try to get a company to manufacture and market your product. If you bring your wife along the Minister suggested: "We scratch her out" so that you pay for her meal yourself. Even though the managing director of the company has brought his wife along.

I have not said anying about scratching wives.

I understood the Minister to say that certain business executives went out to expensive hotels to have expensive meals and brought their wives along.

I thought we were talking about calls girls not wives.

The Minister specifically mentioned wives. As a sales representative you must buy one customer two glasses of brandy before you can do business, while for another customer you buy one bottle of stout. How do you define these things? How can you say what is justified? I know that in Kerry when I was selling garments from my own factory I could not do business with anybody unless there was a decent bottle of stout or a small whiskey before we started.

What is reasonable would depend on the environment.

The words "wholly and exclusively" were already in the section and therefore whatever argument will take place should be on the possible interpretation by the Revenue Commissioners of the word "necessarily". The Minister has stated that the Revenue Commissioners would look with a rather liberal eye on this addition to the section and I am satisfied that that meets the case.

Question put and agreed to.
SECTION 24.
Question proposed: "That section 24 stand part of the Bill."

In this year's budget speech I indicated that the Finance Bill would contain a measure which would have the effect of restricting the amount of capital allowance in respect of motor cars used by business and professional people to the allowances appropriate to a maximum price of £2,500 for each car. As will be apparent from this section, the new provisions are not retrospective. They operate only from budget day.

Motor cars used for business purposes are eligible for wear and tear allowances to the extent they are so used. They are expressly excluded from initial allowances. When a motor car ceases to be used for business purposes any deficiency or excess in the wear and tear allowance granted, after account is taken of any proceeds of sale, insurance, et cetera, is adjusted by means of a balancing allowance or balancing charge. The normal rate of wear and tear on motor cars which is given on the reducing balancing basis is 20 per cent. Under existing law there is no limit on the cost of a motor car which may be taken into account for the purpose of calculating the wear and tear allowances and balancing allowances or charges in respect of the car. Sections 24 to 28 are aimed at ending this position by confining the allowances in the case of expensive cars to what these allowances would have been if the car had cost £2,500.

Apart from the provisions for relief in respect of capital expenditure on machinery and plant, there is provision for the allowance as a deduction, in computing profits, of non-capital expenditure on the suppy of implements, utensils and articles employed for the purpose of a trade or profession. Some items coming within this description might also qualify as machinery and plant, but in respect of such items the taxpayer may claim the deduction just referred to instead of capital allowances. In practice it is found convenient in some cases to extend this alternative form of treatment known as the "renewals basis" to machinery and plant generally. In such cases capital allowances are not given but when the machinery or plant comes to be replaced the net cost of replacement, that is the cost of the new machinery or plant, less anything received from the old machinery or plant, excluding any amount representing additions or improvements, is allowed as a deduction. Where the renewals basis is applicable in the case of expensive cars the restrictions provided for in section 25 will apply.

I agree with the idea the Minister has here. As the sum is specified, and quite properly so, at £2,500, the Minister should bear in mind the increasing cost of such items. It is highly unlikely that you would get a car which costs £2,500 at present for that figure in 12 months time.

When the Minister read this out on the budget I interjected that we would have a nation of minis because that is what we will be paying for a mini soon. I think the smallest car on the market now costs £986. Unfortunately, I am only an honorary member now of the Irish Commercial Travellers' Federation because I am not engaged to a sufficient extent in salesmanship. I know some people like to call themselves company representatives and executives but they are commercial travellers, strictly salesmen. In my days as a commercial traveller, I found it necessary to travel up to 600 miles in a week because the type of business with which I was concerned involved dealing only with one major store in any one major town. We were not interested in having more than one account in towns smaller than, say, Cork or Galway.

I would remind the Deputy that Cork is not a town.

It is by international standards as also is Dublin by the same standards. Most people engaged in the profession of commercial travelling are supplied with cars. Most companies insist that their representatives drive cars that are respectable and that they stay in first-class hotels and not in guesthouses because companies know that if they do not keep up a good appearance, their representatives will meet with poor reaction in selling the product concerned.

A book published not so long ago on the art of salesmanship and which has become the manual of commercial travellers in America advises a commercial traveller to have a gold watch strap which he should wear below his wrist, to ensure that he had his car keyring in his hand when seeking business and to make sure also that the car he is driving is a big one.

What is the purpose of the keyring?

I acted as an agent for a Scottish wool firm and for Deputy Crowley's information, I sold some of the wool in Cork. At that time instead of using my modest Anglia which has been referred to by the Press, I hired an Austin Princess for my week's business in the country because I knew if in a small car, I approached the people with whom I wished to do business they would have no respect for the product I was trying to sell. I can assure the House that the sales I made more than made up for the cost of the hired car. The Minister is small-minded in relation to some matters, I agree with his intention in relation to the last section but there is no point in his bringing in restrictive legislation that will prevent the people of Ireland, who are already behind in the European marketing situation, from promoting business. The representative of an international firm could not be taken down the country in a Mini Minor. One would need to use a Princess or a Rolls Royce for him.

Could he not hire one for himself?

They expect the person who has the product to sell to them on their rounds in a decent car and to book them into a decent hotel.

The Deputy provided the answer to that by hiring an Austin Princess.

Can the Minister for Finance inform me if tax would be deductible on such expense?

Yes, assuming that it was legitimate expense in the course of business. If I understand Deputy Lemass's argument, he is suggesting that the income tax code should be used to put a premium on snobbery.

Deputies

No.

No, on international business.

I have long been of the opinion that there are many people travelling in fancy cars who cannot afford to have such cars except at the expense of other taxpayers who cannot afford to buy tyres for their bicycles. It is time we had a healthier society than that and that people using fancy cars simply because they can charge half the cost to the taxpayers should be told that they will not be justified in continuing that kind of conduct. If it is necessary for one to travel in an Austin Princess in order to sell shirts, he must be offering very poor value. I do not know of any businessman who would be prepared to buy goods merely because the representatives arrive in a car that cost £5,000. However, if that is the position, it is no wonder that inflation is so high in some parts of the country.

Is there inflation only in some parts of the country?

Obviously, only in some. It is not a problem in West Cork. I accept what Deputy Brugha said earlier about the need for keeping a careful eye on the ceiling of £2,500. The increases in the cost of cars have been much greater than the minimum increases in the cost of running cars. I would hope that it would be possible to adjust the figure so as to keep the situation in line with what we have at present. In striking the figure of £2,500 we had two things in mind. One was that the figure would be reasonable even in respect of cars that would be used for the purpose for which Deputy Lemass has in mind and also to ensure that no damage would be done to the Irish car assembly industry. So far as I know, there are only three cars assembled here which cost more than £2,500 and all others are well below that figure.

May I take it from the Minister that there is no question now of a Minister of State driving a Mercedes which would cost about £6,000?

Ministers of State do not drive at all.

I agree that it is necessary for a Minister to have a substantial car while engaged on official duties because it is important that a Minister be able to travel at speed, safely and in some comfort. Therefore, he would be justified in having a Mercedes or a better car, than those provided at present which are only four-seaters.

On the other hand, there is the commercial traveller whose living depends on his being able to travel quickly, safely and in comfort but he is to be confined to a car that is not capable of covering great distances. This concerned me greatly because for about 12 years I travelled the highways and the byways of this country endeavouring to sell products ranging from ladies' frocks to plastic bottles. The type of business in which one is involved determines largely the distances and the territory one must cover. For instance, the man who is selling cigarettes from one shop to another might not find it necessary to travel outside a particular area, but the man whose firm has an account only in the major towns will need a car that would be in the £4,000 price bracket. At present I am driving a Daimler and not a modest Ford as the Press reported but I bought this car, secondhand, for less than £500.

Was it the one used by Hitler?

A new Daimler would cost me £5,400. My reason for buying a car of this size was not to impose on the taxpayer—not being a full member of my union now I am not justified in claiming expenses — but because I find it necessary as a second row spokesman of Fianna Fáil to——

Cut a dash.

——go to various places in the country for the purpose of addressing political meetings and other functions. I find it necessary to have a car of some substance to convery me to these places. In my view the figure of £2,500 which the Minister has chosen is narrow and will prove to be counter-productive. I should like the Minister between now and Report Stage to have another look at it. In certain cases £2,500 is fine but in other cases it is restrictive and counter-productive and repressive of the economy and of trade.

I do not entirely disagree with the Minister in regard to this section. I am surprised that he says there are only three cars assembled in Ireland the cost of which exceeds £2,500. I would have thought that there were many more cars in that range. It is important that the taxpayer should not be asked to subsidise Princess driving or Mercedes driving. I appreciate some of the arguments put forward by Deputy Lemass. Presentation is a very important part of selling and, perhaps, a car could be defined as part of that presentation.

I am much more concerned about the fact that we discriminate in the people that we allow to claim tax allowances in respect of cars. An executive or business director can claim his tax deductions in respect of a car but an ordinary employee who has to drive a considerable distance to work does not get any tax allowance from the Revenue Commissioners in respect of his car. I would have thought that the Minister in this Bill would have given some consideration to the many workers who have to use cars in order to go to and from their place of employment. This is a phenomenon that will increase. We make a big song and dance about the depopulation of the countryside. We must take positive action to ensure that people remain in rural areas.

For instance, in my constituency, there are people who used to live in West Cork but because employment was available only in the city they had to take up residence there. If there were a tax allowance in respect of a car used by employees it would be an incentive to people to remain in rural areas and to drive into the city every morning. At least it would be an incentive to them to return to the rural area at the weekend.

Five or six years ago I raised this matter in the Dáil and the Minister's party and the Labour party, then in Opposition, and the present Minister for Local Government in particular, supported it to the hilt.

We have not yet suceeded in getting the allowance but, perhaps, the Minister would give very careful consideration to those persons who are being discriminated against, without any justification that I can see. He would be taking a positive step towards his just, or more just, society if he would allow the same privileges to the ordinary workingman as he allows to the executive or director. This is a very important issue. The Minister should give it his fullest consideration with a view to easing the lot of the ordinary workingman.

I have to express complete agreement with the last speaker. There are people living within a radius of Galway city who want to live at home but who have to go to work in the city, for which purpose they must have a car. These are the people for whom I would like some tax relief in respect of a car. If a director wants a big car the taxpayer should not be expected to subsidise him and in his case the figure of £2,500 is correct.

People living on small farms require off-farm employment to subsidise their income. It is recognised that the income from a small farm is not sufficient to maintain a family and that the small farmer must have outside employment. It is socially desirable that these people should live at home and I would very seriously ask the Minister to do something in their case in respect of a tax-free allowance in respect of a car.

I have tried to explain some of the psychology of salesmanship and the way to impress a buyer. When I hired that Princess I went to Cootehill where there is a modern textile factory in which I think the Government invested far more than they should have and which is closing down. The managing director at the time was an Englishman. The Princess that I had hired was assembled in Ireland and was hired from an Irish company. I drove the manager to the hotel in order to entertain him there. He said to me: "You know, they do not make them here like they make them in England". I did not disillusion him. This is the psychology of selling. When I was trying to explain that psychology the Minister opposite said: "There is your answer. Cannot you hire a Princess in that type of situation," but the Bill goes on to section 26 where it says that you cannot, if the car cost more than £2,500 at the time it was assembled. It seems to me that the Minister has not read his own Bill or else he is trying to mislead me. Section 26 clearly lays down that you cannot hire that Princess for the purpose of sales psychology.

I should like to support what Deputy Crowley has said in respect of workers who drive short or long distances to work. The Minister must be aware, as every Deputy and Senator is aware, that one of the complaints about the recent budget was that there was no relief by way of tax-free allowance of this kind for workers. A worker who gets an increase of £2 per week finds that 50p of that goes in income tax. I cannot understand why a worker who has to drive 10 or 15 miles to his work cannot get a tax-free allowance in respect of his car. He must have a car in order to get to his work. In the left-hand corner of the tax form that every worker receives there is an item "Expense allowance, £8 per annum". That is the expense allowance given in the case of a worker who has to provide overalls and tools for his work and a car to enable him to get to his work. I want to support Deputy Crowley on this and ask the Minister to consider sympathetically points made by Deputy Crowley and others.

I mean no disrespect to Deputies when I say that many points which they have raised are not relevant to this section but I shall deal briefly with them.

Disrespect to the Chair.

No. I appreciate there is difficulty in understanding the scope of some of these sections. The Deputy has shown a certain skill in getting around the restrictions of Parliamentary procedure. We are dealing only with people who have cars and claim income tax allowances in respect of them where they are in excess of £2,500. I am grateful for the manner in which most Opposition speakers have accepted £2,500 as being the proper ceiling. On the point which Deputy Lemass took up and on which he endeavoured to challenge my colleague and me, the procedure is that in respect of the higher charge of hiring the Austin Princess he could set off, for income tax purposes as much of that as would be attributable to a car of £2,500 in value but if the price of snobbery goes above £2,500 it is appropriate that people should carry that can themselves without charging the price of that snobbery to the taxpayer and we make no apology for that particular notion.

I agree with the Minister.

I doubt if the people of Cootehill would have been disappointed if it was a car of lesser status than an Austin Princess and I doubt if the sale would have been any less effective. On Deputy Crowley's other question about income tax relief for people travelling to and from work, there are two elements here to be considered. The executive who has a car allocated to him by a company does not receive total tax free allowances in respect of that car. The Revenue Commissioners only allow a percentage of the cost of running that car in respect of the business. You can ask any person who has a company car and you will find they have not a very flattering opinion of the Revenue Commissioners who allow only a certain percentage because they say a percentage of the cost, the operation and capital cost, is attributable to moving to and from the executive's home and personal use at week-ends and so on. People should not think there is any difference in principle between the treatment given to an executive and to a worker.

From the point of view of a person who has not a company car and is travelling some distance, I have often heard the argument advanced when I was in the Opposition benches but could never go the road with those who said there should be an allowance for a variety of reasons. There are great benefits in having one's home in rural pastures and those of us trapped in the concrete jungle would much prefer to have a home in rural pastures where the environment is more benign and rents and housing costs tend to be lower. CIE is operating at a loss this year of about £12 million and it would seem to be in conflict with public policy to provide an incentive to people to purchase their own cars to travel in competition with CIE. I am not saying which mode of transport is the right one but, ultimately, we must come to a decision as to whether, for commuter activity, the private car or public transport is the appropriate way.

The Minister is showing appalling ignorance of transport in rural Ireland.

I am not. I have not concluded my statement. I thought Members opposite chastised me because I said somebody had shown ignorance of a certain matter the other day. That was described by Deputy Lynch as an exhibition of arrogance. I wonder what he would think of Deputy Crowley who talks about appalling ignorance.

I withdraw that remark but the Minister is certainly not aware of what is happening.

I am quite well aware that many people are unable to get employment in their own locality and are forced by circumstances to travel to their employment.

Where there is no transport.

Yes, I am aware of all that but it is suggested that we should meet that case. You cannot meet any case under tax law without meeting all cases on the same principle. If there are anomalies and what people consider to be inequitable circumstances in tax law, it is because principles are applied and you can only apply the principle of providing tax relief in respect of the cost of getting from your home to your place of work and that must apply to everybody, including the person using public transport. You cannot give tax relief to a person who uses a private car but not to a person using public transport. If you use public transport because it is available, you are probably a better citizen because you are not choking up the roads. I would ask Deputies not to get into a dissertation on this because it is not particularly relevant. I have thrown out some of the other arguments which I think are worthy of consideration before one jumps to a conclusion about what might seem to be the unanswerable case for tax relief in respect of the cost of operating a car to and from work.

You could have a minimum distance of 15 or 20 miles.

Even if you provided a minimum distance, I know many extremely wealthy people in this city who live more than 15 or 20 miles from the centre of Dublin because they can afford to do so and if you were to apply that principle they could afford to travel tax free while the worker in Ballyfermot would have a weekly transport bill of about £1.50. I do not think that could be justified.

Did the Minister ever hear of the County Meath workers? He should be very grateful that the present Minister for Local Government is not on these benches while he is discussing what he is discussing now.

I am aware of all this.

(Dublin Central): Will the £2,500 be reckoned on a retail or an assembling level when the price of the car is being decided?

The ordinary retail level.

(Dublin Central): That is what I want to know. In the case of assemblers who give cars to their directors and probably their travellers, on what basis will they be assessed?

Much below the retail price.

It will be on the invoice price.

(Dublin Central): That is the cost price?

The price for which the car is purchased.

Not in this case.

You could buy a car at very much below what is normally accepted as the retail price.

(Dublin Central): That is not my point. I am speaking particularly about assemblers who would give cars to directors. At what price would these cars be taken into consideration by the Revenue Commissioners?

We are now getting down to matters of detail. In the time available I do not think we can deal with the multitudinous problems arising on the desk of any Revenue Commissioner or tax inspector when he comes to deal with particular tax problems. If a person buys a car at a lower price than most other people we may say more luck to him but we should remember that the depreciation and other advantages, if we may call them advantages, and other allowances would be related to the price he pays. If he gets a car for only £2,000 his depreciation will be less than if he gets a car for £2,500.

The Minister is not saying that, as in the case of Deputy Fitzpatrick, the figure arrived at by the Revenue Commissioners would be the invoice figure to the director or employee concerned? The Minister is not saying that categorically.

It seems that the cost must be related to the cost of purchase to the person who has the car.

The Minister must know that there are many cases in which the Revenue Commissioners, by statute, can construct an artificial price related to the market value where this is necessary. I do not expect, since this is a new section, that the Minister would necessarily be able to give a clear cut answer at this stage. All I am trying to ascertain is that he is not, in fact, giving a categorical answer one way or another.

I have clearly indicated that these are problems to be dealt with at the desk of an inspector of taxes and not here in this House, but if anybody thinks that he can make a good deal by being a director of a motor assembly industry then he ought to get a directorship quickly.

Irrespective of who buys the car should it not be the recommended retail price of the manufacturers?

No, because the Deputy must surely be aware, and I do not wish to jump to any assumption but I am stating my own beliefs, that probably most cars are not bought at the list price. This happens for a variety of reasons. The principle one is that a car is bought against a trade-in and the ultimate figure that the Revenue Commissioners can look at is the actual trade-in price, compared with allowances of depreciation which were given to a purchaser during the time of having a car. Here we are getting into an area of great administrative detail and I am not going to be the tax adviser to Dáil Éireann.

Deputy Nolan's suggestion is right and if it is not accepted or acted upon administratively the Minister is going to find that as a result of these sections there will be an enormous number of executives who, strangely enough, have done a marvellous deal when they bought a new car.

This matter will be watched very carefully and the former Minister for Finance knows just how carefully.

Maybe I misunderstand the situation but does that mean that a person with an Austin Princess now who trades it in for another Austin Princess, which will only cost him £2,500, is still likely to get the same treatment as somebody buying a much smaller car?

What Deputy Crowley is overlooking is that if a person trades in a car against another car, even against this Austin Princess, the car that is being traded in would be considered as part of the purchase price. Even though the net cash passing is only £2,500 the value of the Austin Princess, or whatever other car is being purchased, would have to be added to that. I think the Deputies can take it that the Revenue Commissioners are not going to allow themselves to be hoodwinked in this. They are going to be very just and if people do not like their form of justice they can go to the Appeal Commissioners, and, ultimately, to the courts, if they want justice at a different level.

Question put and agreed to.
Sections 25 and 26 agreed to.
SECTION 27.
Question proposed: "That section 27 stand part of the Bill".

(Dublin Central): This section relates to the hiring of cars?

Yes. As the Deputy appreciates, a lot of people today do not buy their cars outright but hire them. We are ensuring that provisions relating income tax allowances to a ceiling of £2,500 will apply whether the car is purchased outright or is bought under hire purchase, a letting agreement or in any other manner.

(Dublin Central): How does the Minister propose to assess the size of the car being driven?

It relates to a motor car costing £2,500.

(Dublin Central): On hiring?

Yes. It is related to a car costing £2,500.

(Dublin Central): Will it have any bearing on the amount charged for hiring?

No, it will be related to the item hired. It may be that one will have to take a notional figure as to the value of the car or the list price of the car spoken of. It will have to be related to the car hired and not to the rent charged because the rent could vary greatly for a variety of reasons.

(Dublin Central): It is not very clear-cut but I will accept it as regards leasing.

I assume that the section relating to hiring would not apply to car hire firms? Their position would be that it is necessary to have their cars to carry on their business.

We are only dealing with the case of a person who has, what one might call, substantial possession of the car, and the use of the car as though it were his own property while he has it. The kind of case the Deputy has referred to is simply the hiring of a car in the ordinary course of business. We are trying to have everybody equally treated whether they buy the car outright or hire the car under a hire purchase agreement or a leasing agreement.

Question put and agreed to.
SECTION 28.
Question proposed: "That section 28 stand part of the Bill".

This is a related section providing for a situation in which the hirer of a car can become the owner under the particular contract.

Question put and agreed to.
SECTION 29.
Question proposed: "That section 29 stand part of the Bill".

This section deals with the interpretation of sections 24 to 28 and contains supplementary provisions. A salient feature to be noted is that, under subsection (5), motor cars bought before budget day and those purchased under contracts entered into prior to that day are, in general, excluded from the restrictions. Car-hire concerns which purchase or hire cars in the ordinary course of their trade—the point Deputy Brugha mentioned—are also excluded.

What does the Minister mean when he says "are generally excluded"? The first category he referred to?

It is a safety valve.

I am not sure who said that, but somebody over there is very wise when he said this is the safety valve. In other words, a genuine contract before the day of the budget will be excluded but we have to keep the situation open in case we find a case which was not genuine.

Question put and agreed to.
SECTION 30.
Question proposed: "That section 30 stand part of the Bill".

The object of the section is that an Irish resident, who is entitled to payment of the tax credit, as provided in the agreement made on 2nd May, 1973, shall be chargeable to Irish income tax and surtax on the amount of the tax credit. This will be done by adding the tax credit to which he is entitled to the amount of the dividend he has received and charging the total to tax under Case III of Schedule D. Up to the present the position has been that an Irish resident received a British dividend net after deduction of British tax and was entitled to claim repayment of the British tax that had been deducted from the gross dividend. The charge to Irish tax was made on the gross dividend. To maintain the same position under the new arrangements the Irish recipient of a British dividend will be charged to Irish tax on the dividend and the amount of the tax credit he is entitled to under the agreement made on 2nd May, 1973. This is achieved by providing that the charge under Case III of Schedule D shall be on the full amount of the dividend together with the amount of the tax credit to which the recipient of a dividend is entitled under the new amending agreement. As the new agreement is confined to dividends paid on or after 6th April, 1973, and not later than 5th April, 1975, the operation of the section is restricted to this period.

The section is subject to the provisions of sections 76 and 77 of the Income Tax Act, 1967, which lay down the basis period for the charge under Case III of Schedule D, that is, the preceding year's income or current year's income as the case may be. Where the recipient of a dividend is a company which holds 10 per cent of the voting power of the company paying the dividend, the recipient company is not entitled to payment of tax credit under the terms of the agreement and such a company will be assessable to Irish tax only on the amount of the dividend received. The section provides that the income to be charged to tax under Case III of Schedule D is to be computed by making an addition to the dividend received of the amount of the tax credit for payment of which provision is made in article 1 of the new agreement. As a company holding 10 per cent of the voting power in the paying company is not entitled to payment of the tax credit there cannot be any addition to the amount of a British dividend paid on or after 6th April, 1973, and not later than 6th April, 1975, for the purpose of assessment under Case III of Schedule D in the case of such a company.

The section deals only with income which is a dividend within the meaning of article 1 of the agreement set forth in the Schedule to the Act. In that article "dividend" is defined as including any item which under the law of the United Kingdom is treated as a distribution of a company. The term "distribution" has a very wide meaning under the Tax Acts of the United Kingdom. It can include items which would not normally be regarded as dividends and may also include payments which would not be chargeable to Irish income tax. The new provision does not bring into charge to tax any payments or other items which under the general law would not already be chargeable.

Subject to what the Minister has said about no new tax charge being made, may I take it that this arrangement will be reciprocal and, as in the previous case, the legislation in Britain is being enacted in or about the same time as this legislation?

Yes. I may say that the reason why this is operative until 1975 is because we hope—I do not want to be accused of undue optimism —to bring in a system here analogous to that of Britain before 1975 so that we will have this system of crediting tax.

Question put and agreed to.
SECTION 31.
Question proposed: "That section 31 stand part of the Bill."

This is seeking confirmation of the agreement already entered into with the British Government.

Question put and agreed to.
SECTION 32.
Question proposed: "That section 32 stand part of the Bill."

The purpose of this section, and its accompanying Schedule, is to charge to tax—

(a) profits arising from exploration or exploitation activities carried on in this country's area of the Continental Shelf and profits arising from dealing in rights arising from such activities; and

(b) certain emoluments of employees working on the shelf.

Paragraph (a) defines "exploration or exploitation activities" as activities carried on in connection with the exploration or exploitation of the seabed and its subsoil together with their natural resources, whether situated in the State, that is within its territorial waters, or in a "designated area", which is defined in paragraph (c), that is, the area of the Continental Shelf over which the State has rights.

Under existing law the profits from such activities carried on by a person or company non-resident in this country would be chargeable to tax only if the activities were carried on through a branch or agency.

It will be observed that the definition includes a reference to natural resources generally, a term which covers not only petroleum deposits but gas and all other resources as well.

Paragraph (b) defines "exploration or exploitation rights" as rights to assets generated as a result of exploration or exploitation activities as defined or rights to an interest in such assets or rights to the benefit of such assets. This definition is intended to relate, for example, to the case of an exploration concern which carries out prospecting surveys and searches in the State's Continental Shelf area and which then sells the information, which it has gathered, to another concern for development.

If the sale is made under a contract executed outside the State, by, for example, a foreign prospecting company to a foreign development or mining company, the profits on the sale would not be chargeable to tax under existing law. The section, however, will bring such profits into charge.

Paragraph (c) defines "designated area", a term which is used in the Continental Shelf Act, 1968, under which the Government have power to make orders to designate areas outside territorial waters in which the State has exploration or exploitation rights. Under the International Convention on the Continental Shelf concluded at Geneva in April, 1958, the areas of the Continental Shelf to be allotted to each country were agreed. It is understood that two such areas have been designated.

Paragraph (d) which defines "tax" and "for tax purposes" is, I think, self-explanatory.

Subsection (2) provides that any profits or gains from exploration or exploitation activities carried on in a designated area of the Continental Shelf, or from exploration or exploitation rights, are to be treated as profits from activities in the State; in other words, an activity such as mining oil on the Irish Continental Shelf will, for the first time, be treated in the same way as if it were carried on in the State, so that, in effect, the State's jurisdiction for tax purposes is extended to include the Shelf areas.

It will be observed that profits from exploration or exploitation rights are not qualified as regards the place where the underlying transactions take place. It is intended that dealings in such assets created as a result of activities connected with resources in the Irish Shelf area will be chargeable to tax, regardless of the locus of the contracts.

Subsection (3) provides that profits or gains arising to any person not resident in the State from exploration or exploitation activities carried on in the State — that is, in Irish territorial seas—or in a designated area of the Continental Shelf, as well as profits derived from exploration or exploitation rights, without qualification as to place, are to be treated as profits of a trade carried on in the State through a branch or agency.

This procures that the profits of non-residents in relation to the activities and dealings mentioned will automatically be chargeable within this country.

Subsection (4) is intended to provide the assessment machinery for the purposes of the tax charge. Section 200 of the Income Tax Act, 1967, provides that a non-resident may be charged in the name of any agent, in like manner as the non-resident himself would be charged if he were resident. Under the present subsection (3) the profits or gains of a non-resident from activities on the Continental Shelf are chargeable as if they arise from a trade carried on through a branch or agency here. In the case of a holder of a licence issued under the Petroleum and Other Minerals Development Act, 1960, it may be taken that there will be an agent or some authorised person in whose name an assessment may be made. Where, however, the licence-holder employs another non-resident company to do the actual exploration work, the latter might have no ties whatever with this country and there might be no agent in whose name an assessment might be made. In these cases, the subsection deems the licence-holder to be the agent for purposes of assessment.

I mentioned this extensively because it is a very unique and, I believe, effective way of capturing, for the benefit of Ireland, profits which can be made from marine exploration within Ireland's territorial waters and the Continental Shelf.

I welcome the details which the Minister has read into the record in regard to this section and the Third Schedule. The content of this section and the Third Schedule is the logical consequence of the allocation by international agreement of areas of the Continental Shelf to this country and their exploration and, hopefully, exploitation in the near future. I take it that what is involved in the section and the Third Schedule is the laying down of the framework by which income tax, surtax and corporation profits tax are to be levied in respect of activities within our area of the Continental Shelf but outside the area of the State.

I take it that there will be and there is thinking at the moment in regard to the manner in which profits derived from exploration of our resources on the Continental Shelf will be taxed. It is conceivable that, in some cases, there might be exemption from tax for a certain period, or that there might be tax at particular rates, depending on the outcome of the studies being carried on in relation to this matter which, in turn, will be affected by the extent to which the exploration is successful.

The point I wish to clarify is that I am assuming that what is contained in this Bill is laying down the legal framework by which tax could be levied but that it is possible that, in future, arrangements could be made to exempt certain activities for certain periods from the current rates of income tax, surtax and corporation profits tax, or to apply different rates to such activities if this were thought necessary.

As this type of taxation from our point of view is completely new in the sense that we are endeavouring to impose income tax, surtax and corporation profits tax on some developments which will more than likely take place outside the State, and especially on parts of the Continental Shelf, I should like to know from the Parliamentary Secretary how the amount of oil struck at a given place will be evaluated and what check have we that the strike as given by the company who make it presents the true facts? In an ordinary domestic case there are checks, but this strike will be so far out in our territorial waters that I should like to know who is the competent person who will be employed by the State to ensure that the amount of the strike returned for tax purposes is correct.

I did not expect to intervene in this debate. In reply to Deputy Crowley, I cannot see that there is any inherently greater difficulty in dealing with this problem than there would be in assessing the reliability of anybody else's tax returns. If a company deriving their profits from exploiting the Continental Shelf turned in a figure which the Revenue Commissioners might have reason to suspect, they would refuse to accept it in the same way as they would refuse to accept a return which they suspected from anybody else.

I admit it will probably involve the State in an instance like that in the use of Revenue cutters of a kind not known since the days of brandy smuggling. I do not see that there is any essential inherent difference between one kind of tracking of the profits and another. If there is a problem at all in this section—and I am not saying there is— in an academic way I would be interested to know from the Minister what machinery the State has in mind in order to enforce Revenue claims against companies operating on the Continental Shelf because the extent of national rights over the Continental Shelf——

The Parliamentary Secretary is making the case I was making.

No, I think it is a different case.

Very slightly different.

I am trying to kill a few seconds until the competent Minister returns to his seat. No doubt he has an answer to it. If there were a problem at all in the section, which I do not admit, it would not be so much the question of satisfying oneself as to the accuracy or honesty of returns, as the question of revenue enforcement. There are very severe and sharp weapons at the disposal of the Revenue Commissioners for enforcing income tax demands within the State. Obviously an operation on a different scale altogether would be needed in the case of, perhaps, a foreign company with installations, and perhaps even floating installations, very many miles out at sea.

That is exactly what I have in mind.

As Deputy Crowley said, this is new to the House. Having listened to the Minister my immediate reaction is to compliment him for what I think he is endeavouring to do in the matter of bringing profits from Irish wealth to Irish people.

He mentioned the case of an Irish company holding a licence and said that if that company were to part with their licence to an outside exploration company, the new proposals would apply to the new company. In layman's speech that is more or less what he indicated. I am aware that a company holding an exploration licence on the Continental Shelf have already handed over their rights to another company. Will the legislation proposed here cover arrangements already made?

This legislation can only operate from 16th May this year, and I am not sure of the date from which the transaction to which Deputy Tunney refers took place. However, we are at least stopping any gaps there may now be. As regards what sanctions are available to the State to enforce this, there is a very simple one, that is, that nobody can operate in those areas without a licence from the Department of Industry and Commerce. Therefore, if any licensee fails to pay the tax due, he gets no licence in the future.

The physical enforcement——

Even outside the physical enforcement, what way have we of evaluating the amount of any strike except the word of the people outside who have made that strike?

Even already—and I think it is generally now accepted that the divisions are now unsatisfactory—the Department of Industry and Commerce has certain rights of royalties in relation to what may be produced as a result of any activities here. They have their rights of inspection and so forth, and if the need arose, the Revenue Commissioners would not hesitate to put their own inspectors on the site in order to ensure there was no loss of revenue, just as they have their own inspectors in every distillery and brewery in the country. If liquid assets are being produced anywhere, even on the high seas, you can be certain the revenue will be there to keep an eye on the situation.

I accept the Minister's explanation about breweries, distilleries and so forth. That is easy enough to implement, but does this not open up a whole new field to the Revenue Commissioners.

A new sea, actually.

A new sea, as Deputy Colley rightly says. I wonder have we got people in the Revenue Commissioners competent to evaluate an oil strike or a gas strike, which would be even more difficult, I imagine, unless you were a highly technically qualified person. We agree completely with the legislation in this respect, but we want to make sure that there are no abuses of the licences we grant to these people.

Even though the Revenue Commissioners may, as the Deputy says, be getting into a whole new sea, they will not be out of their depth. If they have not got the expertise today, we can be sure they will get it.

I did raise a point on which I would appreciate a view from the Minister: am I right in assuming that what is contained in this legislation is the legal framework for the levelling of income tax, surtax and corporation profits tax, but that nothing in this legislation will prevent the operation perhaps by the Minister for Industry and Commerce or the Minister for Industry and Commerce in conjunction with the Minister for Finance of what are considered to be the necessary and appropriate tax arrangements having regard to particular developments on the Continental Shelf? In other words, it would be possible, despite what is here, to visualise exemption from tax or tax at different rates from the standard rate?

Yes. I am quite certain this does not inhibit the possibility of giving some preferential treatment to encourage development which might not otherwise take place.

Or alternatively, even applying heavier rates of tax in certain cases?

Question put and agreed to.
SECTION 33.
Question proposed: "That section 33 stand part of the Bill."

Section 33 is a section to which I would draw the attention of the House because it is a most significant section which I believe will have far-reaching beneficial effects in stimulating research and development in this country. One of the possible disadvantages from which we have suffered as a result of particular disciplines we applied in industrial development over the last couple of decades is that is was of a kind that did not encourage research, development and inventiveness in Ireland. We tended rather to accept into Ireland, and apply here a certain amount of research and inventiveness elsewhere.

The purpose of this section is to exempt from income tax, surtax and corporation profits tax income derived from patent royalties arising to individuals or companies resident in the State where the work in connection with the devising of the patented invention is carried out in the State.

We have every reason to believe that as a result of this we shall be able to bring to Ireland a great deal of research and development activity which otherwise would not come here. That would be the kind of research and development activity which other countries are engaged in because the parents of many of our own industries are operating there, but it will also have the most significant advantage of encouraging Irish people to engage in research and inventiveness at home and also, indeed, having done so, to ensure that they make their own inventions available to Irish industry. It will also discourage them from selling to foreign countries their own particular research.

The definition of "a qualifying patent" is intended to restrict relief to income from patented inventions where the work on the devising of the invention is carried out here. In theory, it could be said that there might be difficulty in establishing whether this work was carried out here, for example, in cases where detailed study and research was carried out in libraries outside the country into works of reference not available here and where tests under particular climatic conditions were made. It is proposed, however, to adopt a liberal attitude in relation to such tests in cases where the spirit of the section is fulfilled.

"Income from a qualifying patent" includes all such income whether arising at home or abroad. The definition of "resident of the State" excludes a person who is also resident elsewhere. As in the case of the exemption in favour of writers, composers and artists under the Finance Act, 1969, the exemption for patent income is being confined to persons solely resident in the State.

If an individual were, say, resident in Britain as well as in this country, the exemption of income from Irish tax would merely confer a benefit on the British Revenue at the expense of the Irish Revenue with no benefit whatever to the individual. As the exemption will be available to companies as well as to individuals the term "any person", which includes a company, is used in the definition. A company must, therefore, be managed and controlled in the State in order to qualify for the exemption. A company not managed and controlled here will not qualify for the exemption. It is unlikely that the work in connection with the devising of an invention by such a company would be carried out in the State but, in any event, any benefit flowing from an exemption from Irish tax would, as in the case of the "doubly resident" individual, normally flow to the Revenue of the country of management and control, at the expense of the Irish Revenue and not to the company itself.

Subsection (2) grants relief from income tax in respect of income arising on or after the 6th April, 1973, from qualifying patents, regardless of the point of time at which the patents were registered.

Section 92 of the Patents Act, 1964, enables the State to make use for the service of the State of any patented invention in return for the payment of compensation to the patentee— fixed, if need be, by arbitration. In connection with such use there may be no formal document corresponding to the licence referred to in the definition of "income from a qualifying patent" in subsection (1). Subsection (3) brings any such compensation within the definition of "income from a qualifying patent" and the exemption is accordingly extended to the compensation. Subsection (4) is a technical provision designed to secure that the "single source" provisions governing the basis of assessment under Case III of Schedule D will not be affected by the disregarding for tax purposes of income from qualifying patents.

Subsection (5) is designed to meet the case of an "inventor" who submits accounts showing income, of which, say, half came from qualifying patents, credited and various expenses debited. If half of the income were to be disregarded but none of the expenses, a position might arise in which he could claim that the accounts showed a trading loss in respect of which he could claim relief against other income. The subsection ensures that in such cases, there will be an apportionment of receipts and expenses. I trust that this statement may be of some assistance to Members in understanding the section.

The statement by the Minister is very valuable and will be of considerable assistance not only to us but to people outside this House. I would also like to say that in our view the object of this section is entirely laudable but speaking for myself I must say I have certain reservations about the method by which it is being done. These reservations I touched on the Second Stage debate. The Minister may recall that I referred to the fact that there was a lot to be said, if one wanted to assist business or companies of this kind, for giving them a straightforward subvention which would be seen by everybody and could be measured rather than doing it by way of tax relief which could not be measured in advance or, indeed afterwards even when it is in operation, could not be measured except by the person or company and possibly the Revenue Commissioners.

Apart from that, there is another aspect of this that troubles me somewhat. I do not know whether the Minister has yet had the experience, but if he has not he certainly will have the experience, of meeting people who will complain bitterly that they, who are earning quite a small income, are paying tax deducted by way of PAYE on every eligible penny they earn, whereas there are people who are very wealthy and who are not paying tax on their incomes on foot of the exemption to which the Minister refers, brought in by my predecessor for writers and artists.

Again, in that case the object was very laudable but there is no doubt that the approach to this problem on the basis of the 1969 Act and the basis of this section does present numerous problems. I do not want to be too specific in this regard but I recall vividly when I was Minister for Finance meeting a deputation of people who are currently engaged in an industrial dispute. The matter which they were seeing me about concerns the matter in connection with which the industrial dispute now subsists. They were seeking special income tax allowances because the nature of their work was such that it was of tremendous value and importance to the public, and it was, and they argued very strongly that from the social point of view their contribution to society, for which they were quite poorly awarded, was at least as valuable as that of writers, artists and others. I had to resist that argument. I am pointing this out to the Minister because I believe that the extension that is involved here, although for absolutely laudable purposes, is perhaps going to lead to demands for further treatment of this kind, other very desirable and acceptable purposes, and I am sure the Minister can see the road on which we are going if we do this, a road which could well lead to a revolt by ordinary taxpayers who cannot see why they should have to pay tax in full while people who may be very well off, and certainly much better off than they are, are exempt from tax. I want to make it quite clear again that I agree fully with the objects of the section but I am concerned at the possible consequences. I have been concerned, quite frankly, at the consequences of the provisions in the 1969 Act, but the situation is made more difficult when there is, in effect, an extension of this principle. I am sure the Minister will appreciate the reasons for my concern. I do not expect him to say, even if he shares my concern, that he will do anything about it in this Bill. This would be unreasonable to expect. I do think it important to point out at this stage the dangers which can arise if we follow on the road on which this section represents a further step.

I compliment the Minister on this section. It is a highly laudable and worthwhile section. There are two methods one could consider here. There is exemption from income tax, surtax and corporation profits tax or, as Deputy Colley suggested, the direct cash subvention. Such a subvention would certainly be an incentive but I believe tax relief is better. Where a patent would be working it would be paying for itself, and it would be able to prove itself a success. If it were proving itself worthwhile it would be of benefit to the person and it would entitle him to tax free allowances. In that way the Exchequer would benefit and the person who has patented the invention would also benefit. On both scores I believe the tax-free allowance would be better than the subvention.

This section is highly laudable because this country will have to gear itself in the matter of technological and scientific developments. We have got our regional technical colleges. We are becoming much more technically minded. This will benefit people who will be using their talents in this country and helping to keep people in the country.

I welcome this idea. It is, to a considerable extent, a logical extension of the various types of tax relief projects of a somewhat similar nature introduced by this party, when in power, in budgets over a period of years. Personally, I would tend to agree with Deputy Colley in relation to a grant though I certainly would not rule out the exemption from income tax as well. A grant might meet the case better here because one of the problems, particularly in relation to individuals rather than companies, is that you can have individuals who have brilliant ideas and no capital. For that reason, such persons would never be able to develop their ideas and bring them to fruition. I realise, of course, that people in this category would need to be able to convince the Minister that they were working on a worthwhile project before he could decide to make any money available to them. I notice that in the explanatory memorandum it specifies work in connection with the devising of a patented invention carried out in the State. Does this apply also to the country in which a patent is first taken out? I remember when Deputy Haughey was speaking either on the budget or during the general debate on the Financial Resolutions he said he understood that in America a patent was not acceptable unless it is patented there in the first instance. As America, obviously, would provide the most lucrative market for a patent, an inventor would wish to patent his invention there first. Can the Minister say whether the patent would need to be taken out here first so as to entitle the inventor to the reliefs envisaged in this proposal?

It is hardly necessary to say that this provision is timely and one which we hope will be useful. My first question is one to which there is simply a "yes" or "no" answer, that is, whether there is provision in existence or being introduced in this legislation that will exempt from tax the expenditure that any individual or company might incur in the pursuit of some invention that never came to fruition, in other words, is the cost of an abortive invention free from tax? If not, that is where we should begin because in that way we would encourage those who wish to pursue any brainwaves they may have but who might not have the means to embark on that course of action. Although any such ideas may prove in nine cases out of ten to be useless, there should be tax relief for whatever expenditure might be incurred. If there is no such provision I suggest that the matter is deserving of serious consideration so that no opportunity would be lost in regard to viable projects although these may only comprise I per cent of all projects embarked on.

My second question relates to the first clause of subsection (1) of the section where a qualifying patent means:

a patent in relation to which the research, planning, processing, experimenting, testing, devising, designing, developing or similar activity leading to the invention which is the subject of the patent was carried out in the State.

I am not satisfied that the Minister is not creating untold difficulties in relation to this very laudable section because in many cases experimental work in regard to inventions may have to be carried out abroad if, for some reason, it cannot be done here, or it may be that certain materials may have to be used which cannot be produced here. From the wording of the section it would appear that unless the entire work was carried out here, the benefits would not apply. Can the Minister assure the House that any necessary work carried out abroad in respect of an invention would not disqualify persons from entitlement under the section? In some instances the carrying out of certain work abroad might only entail a fraction of the cost that would be involved in carrying out the same work here.

I am very glad to give the assurance, as I have given it already in my introductory statement, that the Revenue Commisioners propose to interpret these clauses very liberally. In a country such as ours, which has the lowest rate of investment in research and development in the western world, there are a great many skills and facilities for research and development lacking but a small country like Ireland is particularly suited for research and development and we have far more graduates in science and far more people skilled in technology leaving our universities and institutions of higher learning than we ever had before but, because of the rather depressed state of research and development, the prospects for their employment here are less than they ought to be. So, we are most anxious to make it attractive for these people to get off the ground, as it were, so that we would develop our own research and development here because there is no doubt that we have, of course, quite rightly and usefully relied to a great extent on foreign investment and foreign interest here but that is not necessarily the kind of investment and interest and economic development activity which you keep in times of great international stress or economic stress. It is much better to have your own indigenous industry, based upon your own research and development of your own resources, and that is what we are most anxious to develop.

As people proceed with that research and development here and make their own inventions they will certainly have to make investigations abroad and, perhaps, get some of their work processed abroad because of the lack of laboratory facilities and skills here. We propose that where it can be shown, as we believe it can be in most cases, that the work is done by Irish residents and is governed and controlled and effectively operated from and substantially done here, those people will get the full benefit even if some part of the work has to be done abroad. Every case has to be considered on its own merits. The Revenue Commissioners, I am satisfied, will take a liberal attitude, realising that the purpose of this is to stimulate research and development in Ireland by Irish people.

On the point that Deputy Faulkner made, if I understood him correctly, he was wondering whether the benefits would be available to anybody who first registered their patent in Ireland. Am I right?

Who first registered their patent in America.

This was mandatory in order to be able to sell the patent in America.

First of all, the benefit will not be available to anybody who simply registers in Ireland for the first time because we have to be satisfied that the research work was done here. We are not concerned if people register their work elsewhere because, for a variety of reasons, including, I am sorry to say, the inability of our own Patents Office to register patents as quickly as other places, even Irish inventions and Irish patents are sometimes more expeditiously registered elsewhere but if the work is done here and the person remains in Ireland the profit from any royalties on those patents will accrue to the Irish person and we will be giving the advantage to the Irish person. We are, of course, most anxious to get Irish patents and Irish inventions registered first in our Patents Office and my colleague, the Minister for Industry and Commerce, is taking steps to try to improve the Irish Patents Office. Its principal difficulty is one in relation to staff and it is a difficulty that affects not merely the Irish Patents Office but, indeed, many other offices in the public sector which have to be staffed by professional people, that the rates of remuneration offered to them there are often not comparable with the temptations offered in the private sector. Quite clearly, if we are to avail to the full of the skills and the research facilities, the enterprise and the initiative of our own scientists and technologists, we ought to be improving all this area of research and development and the application of science and technology here.

That is one of the purposes of this. I am alive to the dangers that Deputy Colley raised. I identify the dangers he spoke about in relation to similar reliefs in relation to other activities but these will have to be looked at. We have made this as tight as is necessary. We have also made it as liberal as it should be to get the most benefit out of it. I do not regard any of these arrangements as final, as permanent. We will take a look at the situation as it develops but we believe that this is a most useful encouragement to research and development in this country and that the benefit will accrue not merely to the inventors but also to Irish industry which must inevitably be the principal beneficiary if we can encourage Irish inventiveness to develop in Ireland.

I asked a question. The Minister may have forgotten. The question related to the expenditure incurred in abortive efforts, in the case of inventions which never reached the stage of being patented. If these are not covered it would be very useful to cover them.

If the person is in the ordinary course an inventor that would be part of his trade and for ordinary income tax purposes if a person were to suffer losses in relation to certain inventions and development of certain patents the losses would be set off against profits he might make where he would be successful.

That is not the kind of person I have in mind. The greatest inventions have come from persons who were not engaged on the inventions as a business.

Sometimes they come from a person who is idling and sees steam coming out of a kettle.

He might have some other occupation.

Obviously, you could not allow to be set off against substantial profits made on an invention losses from some activity which had nothing whatever to do with it.

I am taking it the other way round. A man may be trying to invent something and the experiment may go wrong at the end of the line and he may have expended a considerable amount of money on the project, which he could ill afford.

Again, we come down to dealing with particular cases and the Dáil Chamber is not the best place in which to get tax and legal advice and I am not going to put myself in the role of being a tax and legal adviser. I accept the point made by the Deputy. I know the Revenue Commissioners are prepared to set off losses against profits but obviously you cannot give a global answer to that. Every case must be looked at on its merits. You would have to see within what period the losses and profits were made. Losses made five years ago could not be set off against profits made today.

Would the Minister rectify the position in relation to invention and research generally? Would he extend section 20, which we have passed, to include other institutions outside the university? This would be a very definite relief of the chronic situation.

I have given so much jam this year that I would prefer to have a little to spread next year.

Margarine next year. The Minister might consider making an exception of the Old IRA men.

I do not see how they come into section 33.

Is there any possibility of getting a percentage on the taxes that are overpaid by citizens?

There are facilities now whereby the Revenue Commissioners pay interest on tax which was overpaid. I do not want to identify all the categories but certainly there are some.

Question put and agreed to.
Progress reported; Committee to sit again.
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