On the basis that we tried to amend it and have failed, we agree to the section.
Finance Bill, 1975: Committee Stage (Resumed).
SECTION 12 (Resumed).
Question proposed "That section 12 stand part of the Bill."
Question put and agreed to.
SECTION 13.
Question proposed: "That section 13 stand part of the Bill."
The purpose of this section is to secure that the taking of land for grazing livestock will be treated as the occupation of land for the purpose of husbandry. The section cures a strange anomaly which existed in the law and which caused our colleagues in the Upper House to make hay while the sun shone one day last July by drawing attention to the particular anomaly.
By virtue of court decisions where farming profits were chargeable to tax under Schedule B land taken for grazing was held not to be occupied by the person taking it and as a consequence that person was chargeable to tax under Schedule D in respect of his grazing profits. Under the scheme of taxation on farming profits included in the Finance Act, 1974, farmers who occupied land of a rateable valuation of £100 or more became chargeable to tax on their farming profits. By virtue of the court decisions referred to a farmer who took land for tillage purposes would be regarded as the occupier and the valuation of this land would count towards the £100 figure. On the other hand, if he took the land for grazing he would not be regarded as the occupier and the valuation of the land so taken would not count towards the £100 figure.
Again as a result of these decisions, a farmer who took land for grazing would be chargeable to tax under Schedule D in respect of his grazing profits regardless of the valuation of the farmland occupied by him and taken for grazing purposes. Indeed, any farmer who took land for grazing rather than any other purpose was liable to tax on profits from that grazing. It is proposed to eliminate these indefensible anomalies by providing that the taking of land for grazing would be regarded as the occupation of land for husbandry, the provisions to apply from 1975-76 onwards.
The amendment will secure that for the present and subsequent years grazing profits will not be chargeable to tax unless the total rateable valuation of the land occupied by the farmer together with the rateable valuation of the land taken for grazing amounts to or exceeds £100—or £50 if the farmer is also carrying on another business, trade or profession. On the other hand, the rateable valuation of the land taken in grazing will be aggregated with that other farm of land occupied and in the cases where the total reaches or exceeds these limits the farmer will be liable on his profits. Such farmer will, however, have the same right to the notional basis of assessment as a person who owns and occupies a farm of land of the same total rateable valuation.
I am grateful that my opposite number is a lawyer because he will understand the reason for the court decision which led to this anomaly. Any use of the land other than grazing was regarded as occupation. Grazing was not regarded as a use but as an easement and it was not regarded as so substantial as to amount to an occupation of the land and so this strange situation arose in which agricultural profits from not dissimilar activities were treated in a different way. We propose, as indeed the Seanad recommended last year, that that anomaly be corrected.
There are some questions I should like to ask the Minister. First of all, assuming this section to be in force, what will be the position of the owner of the land who lets it for grazing? From what the Minister said, I assume that the tenant of the letting can become liable to income tax provided he comes within the limits laid down.
Yes.
In what way is the income received by the owner of the land from the tenant, treated for the purposes of income tax?
In precisely the same way as the person who is the owner of farm land would receive a rent in respect of conacre. Such rent is not a farming profit but is a profit arising out of the letting of a property to another.
This question was raised also last year in the Seanad, when I drew attention to the fact that a person could occupy office premises in Dublin and pay tax on the profits arising out of the use of those premises, while the landlord of those premises might also have to pay tax on the rent paid by the tenant to him for the use of the offices. There are two separate activities involved. After all, if land is let, there are the activities of the letting of land and making a profit from the letting. That is a profit earned by the landlord. Then there is the profit arising out of the use or occupation of the land and that is a profit of the tenant. These are two separate persons. Therefore, their individual liability to tax has to be measured.
But the liability to tax of the landlord in that case is quite separate and distinct from the liability under the farming taxation of profits. In other words farming, by definition, does not include the letting of land.
No.
May I take it from the Minister that that type of land would be doubly taxed? The man who takes it for conacre could have it added to his valuation for taxation purposes and the income of the person who lets it on conacre would also be taxable. Am I to take it that that land would be doubly taxed? I am not clear on it. Am I to take it that if a man lets a piece of land to a tenant on conacre the valuation of that piece of land would be added to his own and, if it brings him over the valuation of £100, he pays tax? If it brings him into the tax bracket on a valuation basis does he pay tax on the land he has taken?
Yes. Supposing a man has, say, 75 acres of land and he takes 30 from another to use it, then he is liable on the profits made out of the 105 acres.
Exactly.
Supposing a man has 100 acres and he lets off 30 to another, he does not escape liability to tax. He is the owner of £100 rateable valuation. He would pay tax, if he is liable for it, on such profits as are generated for farm purposes out of the £70 valuation, and he pays tax, as a businessman, on whatever profit he would make out of the letting of the land, that is, the rent. The rent and the farm profits would be treated in a different way.
That bears out the point I was making. That 30 acres of land let would be doubly taxed. It would be added to one man to bring him into the tax bracket and the income from it would be taxed on the man who let it. Therefore, those 30 acres of land are doubly taxed. I cannot see how it could be any other way according to the explanation given by the Minister.
It is no more taxed twice than is, say, office accommodation, where the owner is taxed on the rent which he gets from the tenant and the tenant is taxed on the profit he makes through its use. If that is double taxation, then the whole world is riddled with it. But there are two separate incomes—one arising out of the payment that X makes to Y; Y has a profit and Y pays tax, if liable to tax, on it. X has the use of the land, generates a profit out of that use and he pays tax on that. The profit generated out of the use of land obviously would be greater if one was not paying tax to another. Therefore, one pays more tax. But if that person has to pay somebody else for the use of the land, the former's profit is depressed accordingly. Somebody else is making the profit and pays tax on it, if liable to tax.
The only point I am making is that it is double taxation on that piece of land.
No.
Certainly, it is. I could not see it any other way. If I had 75 acres I would make sure not to take another 25. I would take 24 leaving me with 99 or I would take what would bring me up to a valuation of £99 but I would not go over that. Then I could make whatever money I liked on it. If I was under £100 valuation, I would not be taxable.
Is the Deputy arguing that it is double taxation on a shop if the owner of the shop rents it to a tenant to carry on a retail trade?
It is double taxation definitely. I am merely trying to clarify the point. As I have said, undoubtedly it would be double taxation on the particular piece of land to which we have been referring.
Can we leave land out of it for a moment because there may be a certain emotive approach to the matter? The principle is that one person lets his property to another and pays tax on whatever profit he makes in respect of the letting, in respect of the rent or service charge, he receives. Somebody else pays tax only on the profit made from its use. But, before calculation of his profit, if he is on an accounts basis, he deducts from his gross profit the rent he pays to another. Therefore, there is no question of double taxation. It is simply a question of two different people paying different portions of tax.
It is two taxes on the one piece of land.
No.
Undoubtedly it is. I am not sufficiently intelligent to see it any other way. No matter how I toss it over in my brain I cannot see but that that piece of land is doubly taxed—the man who has taken it and the man who has let it.
Would the Deputy accept this? If the occupier of land had no rent to pay, his profits would be greater? If the occupier of land was not paying rent on it, he would have a greater profit than when he is required to pay rent to another?
Of course, yes.
That is the sole point at issue here. If he were the sole owner and occupier of the land and was not beholden to anybody else then he would have a greater profit. But where the profit is shared, as it were, he pays tax only on the net left to him after he pays another, and that other, if he is liable to tax, pays only on the rent he has received. But one does not pay tax on the same sum twice; one person gets an allowance in respect of what he pays to another.
One person does not pay twice but two people pay on one piece of land. I should like the Minister to have a look at that because it appears to me that the one piece of land is doubly taxed.
The Deputy has a good debating point but the same arises if there is a landlord and three or four other owners of different rights or interest in land under it.
The point I am making is that, in that type of set-up, there is the danger of bringing an awful lot of people into the tax bracket who would not otherwise be included. If a man was under the £100 valuation and took land that would bring him over the £100, he is immediately brought into the net even though his own valuation would not bring him in at all. Now the man who let the land to him is brought in as well on the profits from the letting of that land. That is an example of two people who could be brought into the tax bracket who would not otherwise be included in accordance with the £100 valuation.
In fact, we are letting out some people who previously were liable to pay profits on grazing but who will not now be liable if they are below a £100 rateable valuation.
I could not agree with the Minister. However, I will not contest the matter further.
Am I right in thinking that in previous enactments there is a definition of the word "farming" to the effect that farming means farming farm land?
Yes, the 1969 Act.
We are importing here an extended definition of that, that is, "farming" means farming farm land, that is, land in the State wholly or mainly occupied for the purposes of husbandry. That is the extension of the existing definition?
Yes.
By defining "occupation" we are bringing in the grazing situation to which the Minister was referring. I take it that is the effect of this section?
Yes.
The aim is to ensure that persons who are grazing land will, if they come within the other limits, become liable to income tax on their income from grazing. That is the purport and intention of this section. Is that right?
Yes. In case there is any doubt, they were always liable to pay tax on grazing but we will treat grazing in future as husbandry, as a farming activity.
So that the various valuation limits of £50, £100, and so on, will apply if they did not before?
Yes.
Question put and agreed to.
SECTION 14.
Question proposed: "That section 14 stand part of the Bill."
Sections 14 and 15 which follow on Financial Resolution No. 12 passed on budget day, are designed to make clear the extent of the application of the phrase "an individual to whom section 16 applies" which appears in two sections of the Finance Act, 1974. Under the general scheme of taxation of farmers' profits contained in Chapter II of Part I of the Finance Act, 1974, it was provided that farmers occupying farm land of valuation of £100, or more, were to be charged tax on their farming profits. A farmer who or whose wife was also carrying on another trade or profession or who was a director of and controlled more than 25 per cent of the shares of a trading company and who occupied land of more than £50 valuation was to be charged tax on farming profits on an accounts basis.
Neither the notional basis of assessment—section 21 of the Finance Act, 1974—nor marginal relief—section 19 —was to be available to such a farmer who was referred to in the legislation as "an individual to whom section 16 applies". The reason for this special treatment was to prevent evasion of tax which was taking place by attributing business profits to farming activities. It has been rather fancifully suggested that, under the provisions as drafted, an individual to whom section 16 applies, means only farmers who have farms of valuation between £50 and £100 and who or whose wives carry on another trade or profession and that those with farms of valuation over £100 are not covered. It was, of course, intended—and no reasonable person could dispute it—that the provisions were to apply to all such farmers who occupied land exceeding £50 in valuation. While it can be maintained that the provisions do so apply—and I am satisfied it can be so maintained successfully—the position is being made abundantly clear by appropriate amendment, with effect from 1974-75, of sections 15 and 16 of the Finance Act, 1974. The amendments are being made accordingly by sections 14 and 15, respectively, of this Bill.
I understood the Minister to say he is satisfied that, in fact, the 1974 Act did what he wanted to do and that this section is simply designed to remove any doubts there were, but he has no doubts about it. Assuming that the 1974 Act did not do what he wanted to do, and therefore this section 15 is essential, there are people who have maintained that they are not liable to tax and have not submitted any accounts. On the enactment of this section which, by subsection (2), is deemed to come into force and take effect as from 6th April last year, is it the position that such people who maintained they were not liable and did not submit accounts will now be deemed to be in breach of their responsibilities under the 1974 Act in not having submitted accounts and perhaps be liable to some penalties as a result?
I understand that no case has come to the notice of the Revenue Commissioners in which anybody has formally made this claim. The view is expressed in an academic environment as a possible interpretation which could be made and, quite obviously, the matter is one which is better tied up and put beyond doubt. I do not think anybody in the House could seriously dispute that what we are not doing reflects what was the intention of the Legislature last year. It is better to put this matter beyond doubt rather than to put anybody through the process of having to have the matter dealt with by the courts, that is, if anybody even thought it worthwhile to do that. This is not the first time when, on reflection it was felt that when there was an opportunity to make the intention of the Legislature clear it should be done and that is what we are doing.
I agree that the intention was clearly as indicated by the Minister. I have no objection at all to the position being thoroughly clarified. However, I have some doubts. If the Minister is right when he says that really he has not any doubt on this at all, I have some doubt as to the wisdom of enacting this section because certainly the enactment of it suggests at the very least that there was some doubt, if not more than that, up to now. If that is so, people with valuations of over £100 could, perhaps, argue very strongly that they were not liable last year and that subsection (2) is applying taxation to them retrospectively, a position which could produce problems. At the very least I should like to have an assurance from the Minister that no penalties will be applied to any person who is beyond doubt being brought into the net by this section on the basis that he did not comply with the law last year. Subsection (2) is applying this section as from April of last year. It is important to ensure that, although that may be so for the purpose of assessing a person's tax, and so on, no penalty for non-compliance prior to the enactment of this Bill would be sought to be exercised against any taxpayer.
No assessment having been raised on any case in which this question could arise, no question of penalties would arise either. I think the Deputy may be assured on that point. Penalties would only arise after assessment and no case has arisen that we know of.
I wonder if that is quite accurate. Could not a penalty arise because of non-submission of accounts? There would be no assessment in such a case or very conceivably there would be no assessment yet.
I can give the Deputy this assurance. If we find that anybody is at any loss because of this matter I will give serious consideration to such amendment of the law as might be necessary to deal with it, if it could not be dealt with under the existing law.
It may be that it can be dealt with without amending the law. I do not think there is any doubt that the intention was that such people should become liable. Nevertheless, if in curing any defect which may exist, we do so by making the section retrospective, we have an obligation to ensure that, while the intention in the Bill last year is carried out, no taxpayer will suffer a penalty by reason of the fact that we are now making clear that he was liable last year. It was not clear that he was liable.
The Deputy can be assured that no question of penalty will arise.
Question put and agreed to.
SECTION 15.
Question proposed: "That section 15 stand part of the Bill."
This section is complementary to section 14.
Question put and agreed to.
SECTION 16.
Question proposed: "That section 16 stand part of the Bill."
This section refers to section 17 of the Finance Act, 1974, which contains provisions in relation to the apportionment of the rateable valuation of farmland where it is owned or occupied by an individual jointly or in partnership with another or others. The section did not cater for the case where a person occupied the land not in partnership with others but as a tenant in common. The present section amends section 17 with effect from 1974-75 and provides for apportionment in cases of that kind. Let me say that the amendment with effect from last year operaters to the relief of a potential taxpayer and not to the relief of the Revenue. Section 17 of last year's Finance Act provides that where farmland is beneficially owned by an individual or his wife jointly with another person or persons and the land is occupied by the individual or his wife in partnership with another person or persons that individual will be deemed to occupy land of rateable valuation in proportion to his share of the beneficial ownership. Thus, if the total rateable valuation is £150 and his interest is a half share, he will be treated as occupying land with a valuation of £75.
The point raised in the Seanad last year by Senator Alexis FitzGerald was that if land was owned jointly or as tenants in common and both persons occupied the land, but not in partnership, the apportionment provisions would not apply. He was, I think, right in that view and it is proposed now to get over the difficulty by inserting the words "or otherwise" after "in partnership". The result will be that section 17 (4) will now cater for cases where land is beneficially owned jointly or as tenants in common and occupied with other persons in circumstances other than in partnership—that is to say, as joint tenant or tenant in common, or in any other similar way such as in coparcenership, which is a form we do not often come across today. Coparceners are, of course, females who have an interest in land acquired by inheritance. There are a number of other strange creatures in the law and strange legal arrangements which would not be true partnership is undersense in which partnership is understood. This will ensure that such holdings are treated for tax purposes as being divided in the same way as if they were partnership interests.
Speaking from recollection, I think I raised this point on the section last year. Perhaps I did not put it with the clarity with which Senator Alexis FitzGerald is wont to put his points and he may have made it clear to the Minister, but I recollect expressing some concern on the effect of this provision last year and the doubt that existed. It is satisfactory that the position should now be clarified.
I understood the Minister to say —I may have misheard him—that this section was in relief of the taxpayer and not of the Revenue and consequently it was intended to operate as from 6th April, 1974. Where does that appear in the section?
Subsection (2) of section 15.
Question put and agreed to.
SECTION 17.
I move amendment No. 2:
In page 10, to insert the following section before section 17:
"17.—Section 20 (1) of the Finance Act, 1974, is hereby amended with effect from the 6th day of April, 1974, by the substitution of ‘fifteen months' for ‘six months' and the said section 20 (1), as so amended, is set out in the Table to this section.
TABLE
20. (1) Where, for the year of assessment 1974-75, a person is by virtue of section 15, chargeable to tax in respect of profits or gains from farming and would, in accordance with the provisions of section 58 (1) of the Income Tax Act, 1967, be charged to tax under Case I of Schedule D on the full amount of the profits or gains of the year preceding that year of assessment, he may, by notice in writing given to the inspector within fifteen months after the commencement of the said year of assessment, elect to be charged to tax for that year of assessment on the full amount of the profits or gains of that year and not on the full amount of the profits or gains of the year preceding that year of assessment."
This section does two things. It continues the notional basis of assessment of farming profit in the year 1975-76 and it also extends to 6th July, 1975, the period within which farmers may opt for the notional basis for 1974-75. Bearing in mind the changes made in the Bill in regard to capital allowances in relation to farm buildings which affect the position for 1974-75, I consider it only reasonable that farmers ought to have a period of some months in which to review their position for that year before deciding to go on the accounts basis or elect for the notional basis.
The Minister will recollect that on Committee Stage of the Finance Bill last year, which went on all night, I and my colleagues on this side of the House urged very strongly on the Minister that the right being conferred here ought to be extended and the Minister resisted that argument at considerable length and with considerable vehemence. It is a matter of some satisfaction to us now that he has seen the light at last. He will recall that not very long ago in another debate the Parliamentary Secretary to the Taoiseach accused this side of the House of filibustering on the particular issue before the House and referred back as an example to what was done in the debate on Committee Stage of last year's Finance Bill.
This particular section and some following sections contain the provisions we were trying to get the Minister then to put in, provisions he refused to accept at considerable length and very vehemently. If there is to be any question of blame laid on one side of the House or the other with regard to delay in passing legislation, in all fairness the record of this debate on this Bill and last year's should be looked at together. When it is seen that the Minister is now doing in this amendment what we were then urging him to do it will be appreciated that the hold-up in the passage of legislation last year was not on this side of the House. The proposal to extend the period is certainly welcome. It is the kind of thing that should be done. It should have been done last year.
I do not think any useful purpose will be served by having a discussion at this stage about what happened in the course of the all night sitting last year. We are extending the period within which a person may opt.
But those changes are the changes we urged last year.
Some of them are being made because we have given corresponding increases on the industrial side and I have always believed in giving a similar tax code to everybody as far as possible and avoiding giving any group special privileges unless there are some vocational reasons for doing so.
Since we discussed this matter the Government have consulted with the National Economic and Social Council on the question of taxation of farm income. The council issued Report No. 2 and in the course of it it was clear there was a lack of agreement on many aspects of taxation of farm income. Since then there were representations by farm organisations asking for an independent assessment. The Government would welcome an independent review of this matter because we are anxious to have a code that is not only fair but that is seen to be fair. The National Economic and Social Council were requested by me last February to carry out a review. The review will examine the taxation of farming profits, taking account of special circumstances of farming and, in particular, the need to promote investment, efficiency and production while having due regard to the interests of the general body of taxpayers. I accept that leaves some area of mobility and fluidity in the situation and in that atmosphere, we considered it appropriate to make this extension.
The reason we were insistent last year on election being made was because of the value of concentrating the mind. If the matter had been left to an indefinite date in the future, people would not have oriented themselves to the need to examine their affairs and assess their position. It is desirable that people make a decision but there is a natural inclination to postpone doing this. The fact that there was a date and that many people have observed it has been beneficial to them and to the administration of the tax code. In the light of the adjustments in this year's Finance Bill, we considered it reasonable to give this extension. So far as the Government side are concerned, reason has prevailed at all stages in this matter. Reasonableness is our middle name and it is reflected once again in yet another amendment to the tax code.
Amendment agreed to.
Question proposed: "That section 17 stand part of the Bill."
I take it that this is doing the same thing in regard to section 21 as was done in the amendment in regard to section 20 of the 1974 Act?
Yes.
Question put and agreed to.
SECTION 18.
The amendment put down by Deputy Colley has been ruled out of order.
Amendment No. 3 not moved.
Question proposed: "That section 18 stand part of the Bill."
I appreciate that the amendment which I put down is out of order because it could involve a charge on the Exchequer and, therefore, it can only be moved by a member of the Government. Nevertheless I should like to put this case on the section. My understanding of the position is that expenditure on farm buildings after 5th April, 1974, under the 1974 Act would be entitled to benefit from an initial allowance of 20 per cent and an annual allowance of 10 per cent. Under this Bill it is proposed to give the annual allowance of 10 per cent in respect of expenditure incurred between 6th April, 1971 and 5th April, 1974. That applies to expenditure on farm buildings but I understand a similar allowance has applied to market gardeners for a long time.
I also understand that the allowance is not given where there is expenditure on buildings used for the intensive production of livestock where the activity is not carried out as part of the trade of farming farm land. I would urge the Minister to follow what seems to be the logical situation and to give the allowance in such a case. There are other points on the section I wish to raise but it might be better to deal with this matter first.
Section 18 brings within the scope of the farm buildings allowance capital expenditure incurred by farmers on or after 6th April, 1971 on the construction of farm buildings. Annual allowances will be deemed to have been made for years prior to 1974-75. The balance of the expenditure will qualify for the annual allowance of 10 per cent as from 1974-75. An initial allowance of 20 per cent in respect of such expenditure incurred on or after 6th April, 1974, is also being provided so that farmers will have a total write-off of 30 per cent of such expenditure in the first relevant year of assessment and 10 per cent in each succeeding year, that is over a period of eight years.
If I understand Deputy Colley's suggestion, it appears a person should have similar reliefs even though he is not a farmer on the grounds that any unit of this kind is a manufacturing unit and, therefore, qualifying for relief. I know one learned judge took the view that a broiler chicken plant was more like a factory than a farm but the chickens are alive and animal production takes place in the unit. It is not like the manufacturing of a lifeless object. I do not think the two are quite the same or should be treated as the same, even though the end product is food. We are told that mankind may produce food from synthetic fibres although I do not know if it would be very digestible or what would be the consequences. At this stage it is a little early to start dealing with this kind of a situation in our tax laws. We would need to know more about them in the light of experience. Certainly I will look at the suggestion of Deputy Colley. At this stage I would not be prepared to give a definite "yes", but neither would I exclude the possibility of making some adjustment in the future.
I appreciate what the Minister has said and perhaps I might clarify my suggestion. In the case of buildings used for the intensive production of livestock but where the activity is not carried on as part of the trade of farming farm land, it appears under this section that the allowance being given to farmers would not extend to the section. On the other hand, the allowance that would apply to an industry has not extended to it, nor would it be necessary to give it now. I understand it has been given to market gardeners. I appreciate the Minister has to look into the matter and I should be glad to hear in due course, perhaps on the next Stage, the result of his consideration.
The Deputy has identified the anomalies that exist in this matter. The exemptions and concessions given for industrial plant are different from those given for agricultural plant.
I appreciate that.
We are dealing with something that is in between these two. I would not like to rush into an amendment in this field without careful examination and I would not like to hold out any promise that I would be able to do it in this year's Finance Bill.
I imagine that the Minister should find it possible between now and the next Stage to have it examined and at least to be in a position to give a reaction to it even if he cannot incorporate it in this year's Bill. I should like to draw the Minister's attention to the reference to section 29 of the Finance Act, 1975, which is this Bill. Is that a usual form of citation in a Bill, to refer to the Bill as an Act?
Yes, but for drafting purposes it must be so described. Otherwise we would be in the odd position that when the Bill would be passed by the House the word in the Bill would be "Bill" and not "Act" with the result that we would have to come back in order to have the Bill converted into an Act.
I should like to refer the Minister to lines 19 to 31, inclusive, in section 18. Would the Minister outline the effect of that subsection?
The new subsection (2A) provides that where expenditure on farm buildings and other works has been incurred between 6th April, 1971, and 5th April, 1974, an annual allowance of 10 per cent is to be deemed to have been allowed for each of the relevant years of assessment from 1970-71 to 1973-74, inclusive, and it is provided that any such allowance should not be carried forward to 1974-75 or any subsequent year. In other words, it would be deemed that those allowances had been given and written off because at that time they were not subject to tax at all but the expenditure had already taken place. The practical effect of this is that a farmer will be entitled to the unallowed residue of qualifying expenditure as set out in the example I will give later. The new subsection (2B) provides that where, for any year of assessment an individual is chargeable to tax on a notional basis or is not chargeable to tax by virtue of section 15 (3) of the 1974 Act, that is because the rateable value of the land is less than £100, an annual allowance is deemed to have been made. If this provision was not included the position could arise in which a farmer with land of £90 valuation in 1974 would be exempt from tax for a number of years in which he incurred capital expenditure of say, £20,000. After five years he buys a farm of £30 valuation and becomes chargeable to tax in respect of his farming profits. But for the present provision he could claim to set against his chargeable profits the full £20,000 capital expenditure incurred over the period when his farming profits were exempt from tax. The present provision ensures that only a balance of such expenditure, £10,000 or less will be allowed since annual allowances of 10 per cent will be deemed to have been allowed for the appropriate earlier years. The provision also applies where the tax charge is on a notional basis.
I appreciate the Minister's efforts to clarify the position and I understand, I think, the object of the exercise. Will the fact that a farmer is deemed to have received the annual allowance, although he did not, operate to his detriment?
He will still have the residue. It is only to ensure that he cannot claim the full amount but only the residue. He will be deemed to have received the benefit during a period when he was exempt from tax. We had a similar provision in respect of mining taxation where in some cases people would be deemed to have received the benefit of certain write-offs before the liability to tax arose and they only had the residue after.
The section is purporting to give relief by way of annual allowance in respect of expenditure incurred between 6th April, 1971, and 5th April, 1974. That was a period when the farmer was not liable to tax. If the Minister deems him to have received an annual allowance in those years how does he get the allowance, in fact, which the Minister is purporting to give him under this section. Does the Minister see my difficulty?
I think so. I will give the Deputy figures which may help things. Let us assume an allowable expenditure of £10,000 between 6th April, 1971, and 31st December, 1971, and that the profits for 1971 would form the basis of assessment as they would for the year 1972-73. Total expenditure would be £10,000. The allowances which would be deemed to have been made would be for 1972-73, £1,000, and for 1973-74, £1,000. That would leave a balance then of £8,000 still available from 1974 onwards. The farmer would be able to claim an annual allowance of £1,000 for 1974-75 and for the next seven years until he has exhausted his £8,000.
What the Minister is doing, in effect, is assuming that the farmer in question is claiming on the buildings which would have been erected in 1971 and thereby effectively reducing the period during which he can claim on the buildings erected between 1971 and 1974. The Minister is reducing the period when the existence of these buildings would be any use to the farmer for income tax claim purposes.
That is a construction which could be put on it but on the other hand he was not liable for tax until 1974.
The Minister is assuming that he was.
No, he did better than other taxpayers. He did not pay tax at all.
That is a matter of opinion.
In the example the Minister gave there would be an £8,000 residue available which he could claim at the rate of £1,000 a year over eight years. Is that correct?
Yes, that is so.
In relation to paragraph (2B) (a), line 36, page 11, there is reference to the provisions of section 21 of the 1974 Act. Is that the correct reference or should the reference be to section 20 or, alternatively, to sections 20 and 21?
Section 21 deals with the notional basis in (2 B) (a).
If the Minister would refer back to his amendment No. 2 he will see that there we are dealing with the notional basis of assessment also and the reference is to section 20 (1). In that amendment we are putting in a new section. Then if he would refer to the existing section 17 he will see that that refers to section 21 (1).
Section 20 of the 1974 Act deals with the optional basis with the right to exercise such.
I understood the Minister to say that the same arguments applied in favour of his amendment No. 2 as applied in favour of section 17 of the Bill.
The Deputy is one step ahead of me now. Is he talking about amendment No. 2 to this Bill?
Yes. The Minister may recall that he made the arguments mistakenly. He was dealing with the section when we were dealing with the amendment. He said, and I thought he was correct, that the same arguments applied.
I am sorry; that is right.
Whereas he says—if I understand him correctly—that, in the amendment we were dealing with the optional basis of assessment and, in the section, with the notional basis of assessment——
It is a pity the amendments and the sections do not have the same numbers. Section 17 deals with the notional basis of assessment of farming profits for the year 1975-76 and extends the period during which a farmer may exercise his option——
His option to?
——to elect for a notional basis.
That is what section of the 1974 Act?
Section 20 of the 1974 Act deals with the optional basis. Section 21 deals with the notional basis.
The purpose of the section is, as the Minister says, to extend the annual allowance in respect of farm buildings so that relief is given in respect of expenditure incurred between April 6th, 1971, and April 6th, 1974. I do not want to labour this but I do not think. I should let it pass without making the point. The Minister will recall that when he dealt with this matter in his budget statement he referred to the fact that farm buildings can in certain circumstances become quickly obsolescent, and used other similar phrases. What I want to draw to his attention is that he heard that argument and those words in this House from this side in the debate on the 1974 Act. We put forward that argument very strongly. Again the Minister resisted it and a good deal of time was spent on it. He is now introducing the allowance. I think he argued quite strongly against it even in principle—making a restrospective allowance in this case—on the grounds that farmers had not been liable to tax at the time. We pointed out to him that there were other arguments to be taken into account. He did not listen and a good deal of time was taken up trying to convince him, without success. He and his colleagues went in and voted the other way.
I suppose we should rejoice at the conversion or repentance of one sinner. Nevertheless one cannot help pointing out the fact that a good deal of time was wasted trying to convince the Minister of the justice and merit of this case. He did not see it then but he obviously now sees the light. I cannot refrain from pointing out that we tried to make him see the light before. The Bill would have been much better, and the reaction of farmers might have been much better had the Bill passed last year—what is now the 1974 Finance Act—been more reasonable and taken more account of the realities of the farming situation.
I would hope that in the light of what has happened the Opposition will realise their own limitations as advocates. I said in the budget debate that the Government, having regard to the difficult years facing farmers generally had decided, exceptionally, to make the existing annual farm buildings allowance retrospective. This is an exceptional relief.
That is what the Minister told us at great length last year— that it was so exceptional he could not do it.
The year 1973 was exceptionally good; 1974 was an exceptionally bad year. Therefore, in my anxiety to be reasonable, taking account of what had happened, I am providing this exceptional relief which is a bonanza that nobody else has ever enjoyed.
The Minister's sentiments are admirable but his foresight lamentable.
Could we revert for a moment to what the Minister had been talking about earlier? With regard to these types of buildings which are used for animal production and which can be said not to be directly involved in agriculture, I want to ask the Minister how pig-fattening plants would fare in that regard. There are a great many such pig-fattening plants throughout the country. The normal method of procedure is that supplies are obtained from small farmer-breeders throughout the country and then concentrated in the feeding house and finished in a more or less industrial way. At the same time, although the enterprise itself may not be directly connected with agriculture, a great many small pig breeders use this as an outlet for their product, young pigs. Could the Minister tell me how businesses like that would fare in the tax exemptions?
If such a plant were on a farm, no matter how small the farm, and was being conducted by a farmer, then it would be treated as a farm asset and get whatever relief would be appropriate to farm buildings. The area of uncertainty about it for somebody who is not seen to be a farmer, who sets up in the manufacture of pigs—I use the word "manufacture" in quotes—is that so far that has not, under the industrial exemptions, been treated as an industrial activity. It is in a suspended area for tax purposes for the time being. There have been some judicial examinations of this and I think it is true to say that the judicial assessment of the situation is not yet complete. One learned judge, as I mentioned earlier, deemed the broiler operation to be an operation of manufacturing food. Perhaps there might be animal lovers who would not describe that activity in that way or, indeed, they might. All I can say at the moment is that it is an area of forensic uncertainty at present and that certainly makes it all the more difficult to treat with it in a final way in this legislation.
With all due respect to their lordships I would have some reservations about their competence in this area. I urge the Minister to consider very carefully the direct link there is between concerns of this kind and small pig breeders. The Minister will probably be aware of the fact that this pig-breeding enterprise is one of the two main activities which keep our smaller farmers in business and not without difficulty under the present Administration. However, it is beyond doubt or question that in small farms generally the main activities are dairying and pig production. For that reason every effort should be made to keep these plants viable.
There is another matter which I would bring to the Minister's attention also. Buildings of this kind may well be used in the future for the finishing of cattle. In fact, the evolution of cattle husbandry at present would seem to indicate that the trend in future will be for more concentrated feeding of young stock and their being finished in a very short time and converted into beef, possibly in semi-industrial undertakings such as this.
Again, the same implications will be involved for the small producer of store animals, whether they be store cattle or store pigs in the future. The cattle operation is further back in evolution but, in each case, since it involves small farm producers, who probably themselves in a great many cases would not yet come within the tax net—although it is beyond doubt that they will come within the tax net in future with the march of inflation—I would ask the Minister to bear in mind the importance of these two types of projects, especially the pig-fattening projects, in their relation to small farmers' pig production.
I assure the Deputy I will certainly do so. I also propose to draw the attention of the National Economic and Social Council to his observations in relation to pig-fattening projects because no doubt these are among some of the matters they will look at in their review of farm taxation.
Question put and agreed to.
SECTION 19.
Question proposed: "That section 19 stand part of the Bill."
Might I just mention one small point? Chapter II—I think there is a printing error—should be Chapter III. It really is a very, very small point but it is the type of thing that could be overlooked on a Stage like this. On page eight you see Chapter II and if you look at page 12 section 19, it should be Chapter III. It is a small point but it might cause technical difficulty later on.
I am grateful to the Deputy. I am not sure what legal effect if any, the titles to Chapters have——
It could cause considerable difficulty in future years in citation of it in another section of another Bill.
It might. I notice that the index refers to it correctly as Chapter III.
There is none in the Bill.
I am grateful to the Deputy for the keeness of his observation and also am in trepidation as a result of what he has observed.
The Chair is grateful to Deputy de Valera. While I understand that it has no legal effect, the change will be made.
That is quite true but, as Deputy Colley says, there is the problem of citation.
Chapter III, now that it has been correctly baptised, follows on Financial Resolution No. 10 passed on budget day which is designed to prevent the deferral of tax by the use of devices to circumvent the legislation introduced in 1963 and amended in 1965 which was aimed at securing the adequate taxation of income arising from all property let in the State. The broad scheme of that legislation was that rents under leases for a term not exceeding 50 years, which are known as short leases, were to be chargeable under Schedule D on the profit rent arising under the lease. With the intention of preventing the avoidance of tax by dressing up leases which were really for terms not exceeding 50 years, as ones for terms exceeding 50 years, the legislation included rules for the determination of the duration of leases. Likewise, provisions were included aimed at preventing avoidance of tax on rental income by the device of granting leases wholly or partly in consideration of a premium. In such cases tax was charged on the whole of or portion of the premium. At the same time, provision was made for the spreading of the tax charge on premiums over a number of years depending upon the terms of the lease.
A scheme has been evolved under which payment of large amounts of tax can be deferred for many years by dressing up leases to take undue advantage of the provisions mentioned. The evolvers of the scheme anticipated that the Revenue Commissioners would be likely to take countervailing action and I am glad that the evolvers of the scheme will not be disappointed. The scheme is operated by the leasing of premises from a subsidiary company to a parent company, so that a large premium becomes immediately deductible for tax purposes because the terms of the lease are such as to make it possible to terminate it on one month's notice, while the same premium because it is expressed to be payable in instalments over a period of perhaps, 40 years is chargeable to tax in the hands of the other company over a long period of years by reference to the instalments paid.
What can be achieved by this device may be illustrated by an example of a subsidiary company leasing factory premises to its parent company for 49 years at a premium of £195,000 and an annual rent of £500. The premium can be made payable in instalments and the lease made terminable at one month's notice subject to conditions. The effect of such a scheme taking advantage of the existing provisions is to secure a tax saving in the first year of £96,750.
The provisions included in sections 19 to 22 of this Bill will close this loophole and will apply to leases granted after the 15th January, 1975, which was, of course, budget day, the day on which the appropriate resolution was passed. The legislation will also prevent the carry-forward to 1975-76 and subsequent years of any "loss" caused by the deduction of a large premium in such cases under the previous rules.
Section 19 tightens up the existing definition of premium in section 80 (1) of the Income Tax Act, 1967, by extending it to include a payment to a person connected with the immediate or superior lessor. It also brings in new provisions for determining the duration of leases to ensure that an artificial break clause in the lease will not cause the lease to be regarded as a short lease or an ostensibly short lease which is extendible to be regarded as a long lease.
What did the Minister mean when he said that the people who had evolved this system had anticipated action by the Revenue Commissioners?
I know they advised people that, whereas if they were to embark on this scheme, it was likely the Revenue Commissioners would know what they were doing and would take action to avoid their bending the law in this particular way.
To the Minister's knowledge, have people embarked on such a scheme?
Not, I understand, to the knowledge of the Revenue Commissioners but, if there were such a scheme, it would have come under notice because it would have involved the presentation of documents in the Stamping Office, and so on. It is not known that any such operation has been engaged in.
Obviously, as far as we are concerned, we fully support any effort to prevent action of this kind. There is, however, always a danger in taking action of this kind that one may go further than intended and for that reason I should like to know a little more, if I could, about the manner in which the insertions to be put into section 80 of the Income Tax Act of 1967, as set out here, differ from or change the existing provisions of section 80. The Minister referred very briefly to what the effect was. One of the things he mentioned was not allowing an artificial break in the tenancy to change the character of the lease from being a long lease to a short lease or vice versa. Could the Minister be more specific as to what the additional changes are or what provisions, if any, are being deleted from section 80?
In relation to the Deputy's opening remarks, he will recall I have said on a number of occasions that if people deliberately bend the law they have no cause for complaint if the Legislature straightens it again.
But I would not like people who are not doing it to be affected. That is my concern.
Fair enough, but the best thing to do, if somebody bends the law, is to straighten it so that it is beyond being bent. If a person can fabricate leaseholds and arrange them so as to get a tax concession of, say, £100,000, in respect of the first year, this is obviously something which the Legislature never intended and the law must be strengthened to prevent that kind of thing occurring. We have no information that it has occurred but, if it has been done, it has been done by somebody too clever by half.
Paragraph (b) substitutes a new subsection (2) for the existing subsection (2) of section 80 of the Income Tax Act, 1967. The new subsection is divided into two paragraphs, (a) and (b). The existing subsection (2) of section 80 provides for the automatic measurement of the duration of a lease by reference to either a lessor's or a lessee's break clause. It was designed to protect against the dressing-up of short leases as long ones, which would have resulted in the reduction or avoidance of the tax which would otherwise be due from the recipient of a premium. It is not effective, however, to prevent long leases from being dressed up as short leases with the object of giving the payer of the premium immediate relief for the whole or the greater part of the premium without adversely affecting the recipient. The existing subsection also provides that if any of the terms of a lease—whether relating to forfeiture or any other matter—or any other circumstances render it unlikely that the lease will continue beyond a date falling before the expiration of the term of the lease the lease is not to be treated as having been granted for a longer term than one ending on that date. These provisions will now be replaced by those set out in the new subsection (2) being inserted by this section.
Can the Minister assure us that the changes being made will operate to prevent only the kind of tax avoidance scheme which he outlined and that it will not operate to the detriment of genuine cases?
I cannot see, quite frankly, how it could operate to the detriment of genuine cases. It is a financial avoidance scheme. It will not in any way add to the burden of ordinary leaseholders under ordinary arrangements which have not got built-in artificial arrangements for the purpose of tax avoidance.
The Minister will appreciate that the original section 80 of the 1967 Act was intended to give relief in genuine cases. There is a possibility of abuse, which he is trying to deal with, and we fully support him in that. I should like to be assured, in so far as I can be by the Minister at this stage, that the amendment of section 80 as proposed in this section will not operate to the detriment of those who genuinely were getting the benefit of section 80 of the 1967 Act and were intended to get such benefit.
The two elements we are directing this instrument against are where there is an artificial break clause which allows for, say severance of a lease at the whim almost of someone or other and also in cases where there is an exceptionally high premium. Unless those two artificial situations are involved nobody will be in any way penalised by this but, if people are involved, they can only be involved for the purpose of avoiding taxation.
If there were what would be deemed an artificial break, but not an exceptionally high premium, then this amendment would not affect the case.
It could.
I am somewhat afraid of the situation whereby what is termed an artificial break might, in fact, be a genuine provision. But since I am not in a position to produce specific cases and, indeed, the Minister is not in a position to produce a specific case of this abuse, perhaps the whole thing is theoretical at the moment and we may have to wait until something arises when I take it the Minister's attitude will be that, if a genuine case were being adversely affected by this, he will make efforts to remedy the situation so arising to benefit the genuine case.
Yes, certainly.
(Dublin Central): There are cases of such leases in operation since Christmas, January or February. Will they be affected by this Bill?
Yes, this Bill comes into operation as from the date of the financial resolution, 15th January last.
(Dublin Central): If there are such leases previous to that, will they be affected?
No. I should say they will not be allowed to carry forward the benefit. If the people do not like it, they have a severance clause and they can exercise this severance clause immediately. To that extent if they fabricated an arrangement beforehand and if they cannot carry forward the benefit by reason of this legislation they can adjust their affairs but, as I said earlier, we have no case where this has occurred.
(Dublin Central): It has an element of retrospective legislation?
No, it is simply a method of carrying forward an artificial benefit. It is a case where you have a massive premium which can be paid in instalments so as to get tax relief spread over many years.
Both ways.
If they do not like this and if they want to make an arrangement they can say, "OK here is a month's notice, this is the end of this lease." That puts an end to the matter.
Could I direct the Minister's attention to subsection (5)? It is difficult to cite this because it is a section being put into another section. I am referring to what is in inverted commas in subsection (5) on page 13, lines 9 to 15 inclusive. I would like to ask the Minister to have a look particularly at the last few words. It reads:
Where an inspector has reason to believe that a person has information relevant to the ascertainment of the duration of a lease in accordance with the preceding provisions of this section, the inspector may by notice in writing require him to give, within a time specified in the notice, such information on the matters specified in the notice as is in his possession.
I would ask the Minister to have a look at the wording of the phrase "on the matters specified in the notice as is in his possession". It seems that if it stopped at the word "information"—"the inspector may by notice in writing require him to give, within the time specified in the notice, such information"—that would be achieving what we are trying to achieve. There is a snag with regard to construction but when you want to say "on the matters specified in the notice as is in his possession" that is not necessarily related to what is referred to above—that is the "information relevant to the ascertainment of the duration of a lease". It may be said that it is by implication, but it is not specifically related and it is certainly theoretically possible that the inspector could specify in the notice that he wants information in regard to (a), (b) and (c). Paragraphs (a) and (b) may relate to the ascertainment of the duration of the lease but (c) may not and as this is worded it seems that he is not obliged to confine his notice to that. I think the subsection ought to make it clear that the inspector's notice seeking information must be confined in that direction and that the only obligation there is on the recipient to give information is in relation to the particular matter being dealt with in the provisions preceding this clause. I am not asking the Minister to pronounce on it now; I am just asking him to have it looked at between now and the next Stage.
I agree with Deputy Colley that the objective can extend only so far as the information is relevant to the ascertainment of the duration of a lease. There is case law which states what are the limitations of the powers of the Revenue Commissioners in cases where information is sought. If the Revenue Commissioners were to seek information which extended beyond what was relevant to the ascertainment of the duration of the lease under this section, the courts would uphold any refusal by a taxpayer to furnish that information. The added words may be unnecessary.
No. There is a reason but it is something we cannot work out across the floor of the House here. You have to get down to the drafting of it before you see why it is necessary but it seems to me that it might be drafted slightly differently and achieve the same result without any risk at all.
If these words are necessary, they are necessary by way of limitation. In other words, the person from whom the information is sought need not give any information other than what is specified in the notice, and if the notice did not seek full information because the inspector had not extended his inquiries far enough, that would operate to the advantage of the potential taxpayer. I will certainly have a look at this in the light of what the Deputy has said.
Question put and agreed to.
SECTION 20.
Question proposed: "That section 20 stand part of the Bill."
As indicated already in relation to this scheme of tax deferral, there is an existing provision entitling the lessor in the case where the premium is paid by instalments to opt for assessment as if each instalment of the premium were payment of rent. This provision is open to abuse in the way in which I have described, where a scheme of the type mentioned is drawn up by having the instalments spread over a period of 40 or so years. Accordingly, the option is being withdrawn.
Will the Minister give us an indication of the kind of hardship that would be considered by the Revenue Commissioners to be undue hardship, thereby entitling the taxpayer to pay by instalments over a period not exceeding eight years?
If the payment of tax on the first premium was to cause hardship or a serious loss in the short period to a taxpayer, the Revenue Commissioners might be disposed to allow payment by instalments as, for instance, in respect of estate duty, which they allow to be spread over a period of eight years. The facts of every case would have to be looked at. The Revenue Commissioners would take everything into account, including the circumstances of the payer.
I do not want to hold up the House unnecessarily—I can check this point in the Income Tax Act, 1967—but the Minister may be able to tell me more quickly. With regard to the new subsection (6) proposed to be inserted, does the existing subsection (6) contain the provision about undue hardship and is the change otherwise?
I have the same trouble in looking for the actual section as the Deputy at the moment but I can enlighten him to this extent. By substituting a new section for the existing section 83 (6) of the Income Tax Act, 1967, in effect it repeals the provision allowing the lessor to opt for assessment on instalments of premiums as they arise. Instead it provides the spreading arrangement of eight years. The absolute limit of eight years is important since to relate the instalments of tax to instalments of the premium would allow continuation in a somewhat different form of the abuse it is sought to terminate. As I mentioned earlier the estate duty law provided for a maximum period of eight years for the payment of instalments. It is of interest that a similar period operates in Britain where they also found it necessary to introduce similar legislation.
I do not think that is the answer to my question. The old subsection (6) does not contain any reference to undue hardship. There is a new provision being introduced now. The question I am raising is: Does the Minister contemplate cases of undue hardship and is that why he has introduced this provision? It is not quite clear how undue hardship would arise in this case. The example the Minister gave was where the Revenue Commissioners felt that the person would be suffering undue hardship by paying in one year the full tax on the premium which he had received in that year. On the face of it that would not be causing undue hardship. One can visualise that it might happen. However, since there is special provision made for undue hardship I wonder if that is what has been contemplated and if so in what circumstances?
Quite frankly it does not cause hardship but it is as well to anticipate the possibility if not the probability that hardship could arise.
It is not the normal kind of provision, I am sure the Minister will agree. Normally undue hardship is not anticipated. It makes me wonder if there is something anticipated which we do not know about.
Perhaps it has to do with all the other Bills the Minister has before the House.
It is simply a reflection of my generosity and reasonableness and my anxiety to avoid hardship or any situation which could generate hardship. As I said, we are not even aware that such a creature as we are now providing against has been created; but in case it has and somebody had a special case, as the Deputy mentioned earlier, we are putting it in. The Deputy himself anticipates that there could be some difficulty.
I am afraid I am not convinced by the Minister having seen his unwillingness to provide for known hardship which will ensue from some provisions. I am not convinced by him providing for hardship which he cannot even anticipate.
I think Deputy Colley suspects the Minister.
It shows how much the Deputy misjudges me.
In regard to paragraph (c), line 44, can I take it that the word "consideration" means consideration other than money?
Yes.
That presumably would be measured on the basis of the general approach used for tax purposes of its open market value, whatever the particular consideration was.
And all other relevant considerations and the multiplication of different factors which must be taken into account in some valuations. They would all be relevant. Indeed it would lead to duplication and be the cause of discussion.
One further point. I am sure there is a good reason for this but on the face of it it looks very peculiar. I refer to the proposed new subsection (8) which reads:
Where subparagraph (iii) of section 80 (2) (a) applies, the premium or an appropriate part of the premium, payable for or in connection with any lease mentioned in that subparagraph may be treated as having been required under any other lease.
I am sure there is a good reason for this. Could the Minister tell us what it is? I refer to the provision whereby a premium required under one lease can be treated as having been required under another lease.
Of course, the Deputy will be aware that there are many cases where leases import the terms of another lease. In so doing they form part of the second lease.
I can appreciate that where they import them but I do not think that was what was visualised here. It "may be treated", which presumably means by the Revenue Commissioners, "as having been required under any other lease" rather than having been imported legally.
This is the premium payable for or in connection with any lease so it would only be payable for or in connection with that lease if it so provided, even though it might so provide that it was related to yet another lease.
If I understand the Minister correctly what he is saying is if where one lease in effect imports another lease that is a situation one can contemplate. I do not think that is what the subsection says. I think in effect what it says is that the Revenue Commissioners may treat a premium that was required under lease A as having been required under lease B if they wish to do so. I think that is what it means.
It makes provision for dealing with premiums where more than one lease is involved and it enables a premium, ostensibly payable for one lease, to be attributed to another if it correctly belongs to that other lease. Perhaps an example will help to clarify the situation.
Assuming that A grants a one-year lease of a factory to B for a premium of £10,000 at a rent of £10 and under the terms of the lease B's wife has the right to a lease of the same factory for a further period of 55 years without a premium at a rent of £10 per annum. As B's wife is likely to exercise her right to lease the premises, the duration of the lease will be treated as a lease for 56 years and the premium regarded as payable under a lease of that duration. Consequently no portion of the premiums will be chargeable on A and no relief in respect of the premium will be deductible in computing B's profits.
I can see that. The thing that worries me slightly is that subsection (8) enables that to be done but it also enables a great deal more to be done. It does not confine it in that way. However, I will not pursue the matter any further. If there are problems they will no doubt be brought to the attention of the courts if not to the Revenue Commissioners in due course.
I think it is necessary to broaden it in the way we have because we should accept that there is no limit to the ingenuity of people when it comes to tax avoidance. The example that I have chosen could, I am sure, be reconstructed in several other ways which might have a similar effect.
Question put and agreed to.
SECTION 21.
I move amendment No. 4:
In page 13, line 50, to delete "may" and substitute "shall".
Perhaps I should inform Deputy Colley that I would be disposed to accept his amendment.
That certainly helps. The object, as the Minister will have gathered, is to ensure that a person who would be likely to be affected by a determination by the inspector will be given notice, is so far as we can ensure it.
Amendment agreed to.
I move amendment No. 5:
In page 13, line 54, to delete "to whom such notice is given" and substitute "whose liability to tax may be affected by such determination.".
I do not know if the Minister wants to make a similar observation on this amendment as he did on the previous one. I will short-circuit my remarks if he does.
No.
This section deals with appeals against determinations made by the inspector. Subsection (2) to which this amendment applies provides that any person to whom a notice is given by the inspector may, within 21 days after the date on which it is given, object to the proposed determination by giving notice in writing and pursue an appeal. This amendment is designed to say that any person whose liability to tax may be affected by such a determination can give notice. In other words, if the inspector has not given the person notice, that should not preclude him from being able to give notice and take part in an appeal procedure.
It is conceivable that an inspector might, through inadvertence or otherwise, fail to give notice to a person and if he does that should not preclude such a person from exercising his right of appeal, the right of appeal under subsection (2) which is conferred on persons to whom notice is given. It seems that the acceptance of this amendment will ensure that a person, whether given notice or not, if his liability to tax may be affected by the determination, will be enabled to give notice and pursue his appeal in that way.
I should like to point out to the Deputy that as a consequence of his amendment which I have just accepted it is now a statutory obligation to give notice. It is not now a discretionary matter. That should help to avoid the situation he has in mind.
The only way a person could know of the inspector's determination would be by receipt of a notice of determination. The amendment would therefore, not be appropriate. It is assumed the amendment arises from a concern about the possibility of an affected person not being notified, therefore being excluded from the appeal procedure. The question is extremely unlikely to arise but if by any chance such a situation should arise care would be taken to ensure that such a person was not deprived of an opportunity to appeal in connection with his own liability. That situation being so the amendment is unnecessary.
The Minister said that the only way a person could know that a determination was taking place was if he received a notice from the inspector. I am not sure if that is correct. Somebody could receive a notice of the inspector's determination and could inform somebody else, whose tax might be affected, either wittingly or unwittingly. In that way a person could become aware of a determination by the inspector without having been notified by the inspector.
I accept what the Minister says that his acceptance of the previous amendment does place a statutory obligation on the inspector to give notice. Nevertheless, despite the statutory obligation, it is possible for the inspector through inadvertence or otherwise to fail to give the notice. The Minister said that if a person is affected and has not received a notice care would be taken to see he was able to exercise his rights. Can the Minister point out under what provision can such a person exercise his rights?
The Deputy may be assured that if a person affected by such a determination was not given the right of appeal because, for some reason or another, he had not received notice, the courts in exercising their obligation to ensure natural justice would confer that right of appeal, even if the Revenue Commissioners, contrary to the usual practice, refused it. When one considers that any notice of determination must determine the liability of a particular person then the notice must be addressed to that person. It is very difficult to visualise a situation in which a person affected by such notice and named in such notice would not receive notice of the determination. If that extraordinary event were to happen and a person to be detrimentally affected such person would have a natural right of appeal. If the Revenue Commissioners did not give it of their own volition the courts would not be long about giving such a person such a right and, no doubt, charging the cost of any application against the Revenue Commissioners.
It is probably true that such a person could exercise his rights on the basis of natural justice by going to the courts but I do not think we ought to compel him to go to the courts to exercise his rights of natural justice if we can avoid it. I do not want to anticipate this too much but if one looks ahead at further subsections one sees that the proceedings having taken place certain determinations are made which cannot be called into question thereafter. This is what worries me. If a person is affected and has not received a notice I cannot see why the Minister should object to allowing such a person to give notice in writing of his intention to appeal. Is there anything lost by accepting this?
Put it this way, we are not dealing here with ordinary "Joe Soaps" in their everyday observations, we are dealing with people who are highly sophisticated and whose capacity to conceal their existence knows no limitations. Of course the lease would normally identify the persons paying or receiving the premiums. There may be concealed connected persons along the line. The named persons may be the persons who are liable to be taxed as far as the Revenue Commissioners are concerned. Others may be affected because of some relationship which is not disclosed. I do not want to build anything into the legislation which would allow a loophole to any remote person who was not immediately identifiable. The fact that there is now, as a result of the Deputy's previous amendment, a statutory obligation on the Revenue Commissioners to give notice ensures this section cannot operate to the disadvantage of any person. That seems to be the objective Deputy Colley has in mind. I am satisfied that the arrangement of the Act now will ensure that such people will not be disadvantaged in any way.
I do not want to push this matter too far but I am at a loss to understand how people who were trying to conceal their existence from the Revenue Commissioners would benefit by being given a right of appeal if they chose to exercise it. All this would enable them to do would be to give notice so that they could participate in an appeal. If they are trying to conceal their existence from the Revenue Commissioners they will not exercise that. I do not think there is any danger of a loophole being created there, whereas looked at in reverse if such persons can claim that they may be affected and that they are not given a right of appeal this may provide the loophole the Minister is trying to avoid.
They will be given the right of appeal if they identify themselves.
They will not under the section unless they receive notice from the inspector.
They will not be long about trying if they are going to lose out by not exercising that right.
I will withdraw the amendment but I ask the Minister to consider it a little further. He may, in fact, be in danger of creating a loophole where he is trying to close one.
I will certainly look at it. We have a similar objective in mind.
Amendment by leave withdrawn.
Question proposed: "That section 21, as amended, stand part of the Bill."
I want to raise some points on this. I would refer the Minister to subsection (3) of section 21 which reads:
Where notices have been given under subsection (1) and no notice of objection is duly given under subsection (2), the inspector shall make the determination as proposed in his notices and the determination shall not be called in question in any proceedings.
I wonder if that is a sustainable provision? Let us pause for a moment.
The Chair does not want to interrupt the Deputy's train of thought but, perhaps, the Deputy would report progress?
Progress reported: Committee to sit again.