Dáil Éireann debate -
Tuesday, 22 Apr 1975

Vol. 280 No. 1

Finance Bill, 1975: Committee Stage (Resumed).

Question again proposed : "That section 28 stand part of the Bill."

Minister for Finance (Mr. R. Ryan)

As far as I am concerned I am more than anxious to ensure the equity of the tax system. I would be willing to ensure that there is equality of treatment on either side. However, we must take account of the fact that the purpose of charging interest on overdue tax is to provide a disincentive to withholding tax. No case can be made for paying the same rate of interest to people who overpay tax as is charged against people who withhold tax. In one case it is a penalty for withholding tax, it is a disincentive against withholding tax and the other case, while the Exchequer may have the use of moneys advanced by a taxpayer, arises where the taxpayer failed to furnish the information necessary to make a correct assessment. In my view no legitimate case can be made for giving total compensation to some person who has failed to comply with his legal obligations.

I accept the desirability of ensuring that where there is a genuine mistake or where hardship is identified some arrangement should be made which will enable some interest to be paid in respect of the Exchequer's use of the money which the Exchequer received. The law enables interest to be paid where an excess payment is made by the taxpayer pending appeal. If it were possible to work out a system of payment at an appropriate rate of interest rather than a penal rate of interest on overpayments of taxes in other circumstances I would be disposed to consider it. It is not something that can be treated simply because on many occasions on notional tax payments the Exchequer does not receive the money for a long time afterwards. This happens in the case of deductions of tax from dividends. In such cases the Exchequer may not receive the tax in question from the company concerned until a long time after the taxpayer has suffered a notional deduction of tax. Situations can arise where tax deductible from dividends is repayable because the taxpayer in question is not liable for the payment of the tax. These are extremely difficult and complex situations, even though they are frequent, and it is difficult to devise some appropriate form of interest payment to deal with situations of that kind. It certainly could not be dealt with in the way suggested in the amendment.

Of course, as the Chair pointed out, we are not discussing the amendment which has been ruled out of order; we are discussing the section which seeks only to deal with cases in which people are withholding tax from the Exchequer and not cases where the Exchequer has received an overpayment. I have been asked whether I accept the principle that what is sauce for the goose is sauce for the gander. I accept that principle but how one pours the sauce, or what the ingredients of the sauce should be in any given circumstance, is something over which experts will always be in disagreement. However, I would be disposed to look at this but it would not be possible to deal with the problem in the way suggested by the Opposition.

Mr. Colley

I appreciate that what the Minister has said is an advance on his earlier statement. The Minister is now saying that he would be prepared to consider arrangements whereby interest would be paid on overpayments of tax but at a lower rate than the 18 per cent imposed in this section on overdue payments of tax. While it is an advance I have an unworthy suspicion. I understand the Minister to say that this section has the effect of providing that the Revenue Commissions will pay interest at 18 per cent on repayments of tax found to have been overpaid as a result of an appeal where 80 per cent of the due tax was paid before the appeal. For the Minister to say there is no case for applying the same rate of interest to overpaid tax as to overdue tax seems that he is saying that the section is doing something he does not approve of.

The Minister spoke about making arrangements whereby in certain circumstances interest would be paid but at a lower rate, but does he intend to reverse the effect of this section in doing that? The section provides for payment of interest at 18 per cent in limited cases by the Revenue Commissioners but would the arrangements the Minister has in mind reduce that 18 per cent?

Mr. R. Ryan

One would want to look at the whole package and not deal with anything in isolation. Where there is a difference of opinion between a taxpayer and the Revenue Commissioners if the Revenue Commissioners are unsuccessful in their assessment of the situation then one could consider that there has been some "blame attaching to them" by their incorrect assessment. Therefore it could be argued in such a situation that it might be appropriate for them to pay at the higher rate. But I would not even regard that as being necessarily true in all cases. However, if a person overpays tax and there is some fault on the part of that person—because, say, he has not furnished the correct information—that situation cannot be treated as being on all fours with the kind of situation which arises from an overpayment as a result of an appeal: in one case the fault lies with the taxpayer in not furnishing the correct particulars and in the other the claim to refund arises because the Revenue Commissioners, as it were, exceeded their authority or made an assessment in excess of their powers.

Mr. Colley

Does the Minister not consider he is getting into very difficult country once he starts trying to apportion blame to the Revenue Commissioners or to the taxpayer? Is the real question not that of having the use of another person's money, whether it is the Exchequer having the use of the taxpayer's money or the taxpayer having the use of the Exchequer's money? On that basis should not it be measured on the basis of how much interest should be payable?

Mr. R. Ryan

Now we are getting into an argument, which I know I introduced, as to whether the appropriate rate is the going price or what we are doing in this section, that is, providing at the going price plus a penalty in respect of non-payment. The two are separate issues and must be looked at separately. The section deals only with the case of imposition of a penalty, which is the going price plus penalty. Perhaps we could argue on another occasion, if there is an amendment of the law in relation to refund of tax, what should be the appropriate rate of interest on a refund, given that the circumstances which occasioned the refund may be attributable to a variety of causes, some of which would very properly apportion blame to the taxpayer and others would be due to a "misjudgment" on the part of the Revenue Commissioners.

Mr. Colley

Is the Minister correct in what he says, in so far as he says that this section deals only with the question of payment of interest on money withheld by a taxpayer which, in his view, should contain not only the element of interest proportionate to the use of the money but also a form of penalty? In fact the section, according to the Minister, covers also the repayment of tax to a taxpayer who has appealed, has been found to be correct in his appeal and provides for repayment, plus interest, at 18 per cent. Therefore I do not think the Minister is correct in saying that the section deals only with a withholding of tax; it covers also a repayment of tax at 18 per cent. I wonder are the Minister's words before we adjourned coming home to roost? By any chance does the section contain something he did not intend; When he referred to what occurred when I was Minister for Finance and said that to say that the parliamentary draftsmen did not quite carry out the intention of the Minister was a very lame excuse. I wonder is that happening to the Minister on this section? Did he intend to apply a rate of 18 per cent interest to a refund of tax to the taxpayer, because it does not seem to square with what he has just been telling us?

Mr. R. Ryan

Section 31 of the Finance Act, 1964, provides that, where an amount of corporation profits tax is paid on account in a case under appeal and where as a result of the appeal an amount of the tax falls to be repaid, or to be paid where there is an underpayment of tax, the tax overpaid is to be repaid, with interest, at the rate specified in section 14 of the Finance Act, 1962, that is in paragraph 28 (1) (a). Of course tax underpaid carries a similar rate of interest. As the rate of interest so specified is being raised to 1.5 per cent, this rate will apply as from 6th April, 1975, in respect of any tax overpaid or underpaid. Section 419 of the Income Tax Act, 1967, contains, in relation to income tax provisions corresponding to those I have mentioned already, and of course the rate of 1.5 per cent will apply in the same way to any balances of income tax.

Mr. Colley

I am afraid the Minister has not quite dealt with the point I raised. However, I will not pursue that; it might be a little awkward for him. Could the Minister tell us, when he says he would be prepared to consider arrangements whereby interest would be paid on overpayments of tax in particular circumstances, other than on appeal, does he have in mind amendment of this Bill while it is going through the House?

Mr. R. Ryan

I should not like to give that assurance because it is a very complex area. I have merely mentioned a few of them. Deputy Colley acknowledged that it was not done in his day as Minister for Finance, neither was it done in the days when any of his colleagues on that side of the House was Minister. I am not going to accuse him of any want of desire or of any incompetence. I am saying it is an extremely difficult area with which to deal. One would need to look very carefully at the several situations which can arise to ensure that one did not create in the tax legislation a facility intended originally as a disincentive to the withholding of tax which would enable some people to use the system to make a profit for themselves by making overpayments in certain situations, then claiming interest on those overpayments which may be attributable to their own failure to furnish proper accounts in the first instance. It is not a simple field. I wish it was. If it was one could quickly bring in a suitable amendment of the law. But it is a very complex field and we have to guard against any erosion of the money due properly to the Exchequer while, at the same time, I would recognise, observe the obligation to be fair to the taxpayer.

Mr. Colley

May I suggest that it would have been a much simpler operation had the Minister accepted our amendment to make the interest rate 12 per cent per annum instead of 18 per cent, because he would not then have had the fear that people might start deliberately overpaying tax in order to get a rate of interest they could not get anywhere else. In that connection, could I ask whether, under the existing provisions for repayment of tax with interest, after an appeal, that interest is regarded as income subject to income tax or whether it is free of tax.

Mr. R. Ryan

It is tax free.

Mr. Colley

Therefore in circumstances where somebody is going to get a refund, under the existing law he is going to get 18 per cent tax free on his overpayment. That is a return he will find very difficult to get anywhere else. I think the Minister will agree with that. Surely it highlights what is the real problem here? I think the Minister has hinted at the extent of the problem if he were to apply the principle we have been trying to enunciate, that is, there would be no better investment for anybody than to overpay tax and get interest at 18 per cent tax free from the Revenue Commissioners? The Minister would of course, wipe out all the financial institutions in the country were he to do this and would gather all investment money available into the Revenue Commissioners in the form of overpayment of tax. Clearly this is impractical; it cannot be done. But the real problem is that the rate of interest is too high. We tried to tell the Minister that before and he would not listen to us.

However, as I understand it, we now have a situation where this section provides that in circumstances where the taxpayer has appealed and, before the appeal, has paid a sum which turns out to be at least 80 per cent of what he is found to owe in tax, as the Minister pointed out earlier, in order to get a refund at 18 per cent per annum, he has to pay more than 100 per cent. That is the position under this Bill, as I understand it. That seems to be a peculiar situation to say the least, but the peculiarity arises because the Minister has imposed such a high rate of interest in this section—a rate of interest which we have good reason to suspect is higher than in any other country of which he is aware in such circumstances. I suggest that when the Minister is reconsidering this matter— and I understand from what he said that he is undertaking to give further consideration to this whole problem—he also reconsider the rate of interest being charged in this section which is leading to such ridiculous results.

An Leas-Cheann Comhairle

The question is that section 28, as amended, stand part of the Bill.

Mr. Colley

In the light of what the Minister has said and if my understanding is correct, that he is prepared to look at this section again, we will not oppose it. I would ask him if possible to look at it between now and dealing with the Bill in the other House. I realise that it may not be possible to do this because of difficulties but it would be worth trying. I also appreciate that it may be even more difficult to do it in this House. I take it that the Minister intends actively to pursue this and will not wait until it is again raised here.

Mr. R. Ryan

The Deputy may be assured that it will not take me 16 years.

Mr. Colley

In view of what the Minister has just said, perhaps we ought to pursue this a little further. Could he explain precisely what he means by that remark?

Mr. R. Ryan

The Deputy has no sense of humour.

Mr. Colley

Would he care to elaborate a little on that?

Mr. R. Ryan

It does not need elaboration, as the Deputy knows.

Mr. Colley

I am afraid it does. What has emerged is that existing legislation, limited as it is, makes an effort to be fair to the taxpayer. The Minister has refused point blank to be fair to the taxpayer in all the discussion on this section until, during the adjournment he apparently thought about it, came back and said what he did, which was an advance. If we are going to talk about the attitudes of the Minister and of his various predecessors let us put it in perspective. He has refused point blank to do anything to help the taxpayer who has overpaid, whereas he has increased by 50 per cent, to an exorbitant rate, the interest being charged by the Revenue Commissioners. That is the situation in its true perspective.

Mr. Lalor

Has the Minister any intention of elaborating on the statement made by Deputy Colley?

Mr. R. Ryan

I do not think it requires any elaboration. The facts speak for themselves.

Mr. Lalor

At present there is a rate of 12 per cent interest paid on repayments of tax to the taxpayer following appeal. In order to match —not to improve or change—the concession given by the former Minister 12 per cent would need to be raised to 18 per cent. My understanding from what the Minister said is that he is considering this.

Mr. R. Ryan

The Deputy is mis-informed. The higher rate will be paid on refunds.

Mr. Lalor

Under this section?

Mr. R. Ryan

Yes.

Mr. Colley

The Minister told us there is no case for applying 18 per cent to interest on refunds. Therefore, the section is doing something the Minister says there is——

Mr. R. Ryan

I have outlined the circumstances in which it would be inappropriate to pay that rate. Those are circumstances in which the fault lay with the taxpayer.

Mr. Lalor

Is the Minister saying that it could be claimed to be advisable for the taxpayer to make the overpayment on the first assessment and collect his interest? Is the Minister anxious to encourage this?

Mr. R. Ryan

This debate has gone on because I said it would not take me 16 years to consider the matter. The only change in the law which we are now making is providing for a level of interest which will act as a disincentive to people withholding money from the Exchequer. The facts are there to prove that the existing level of interest is inadequate to act as a disincentive to people to withhold tax from the Exchequer.

I pointed out hours ago that the amount of arrears are now 30 times greater than they were ten years ago although the tax income is only five times greater. Profit can now be made by people who withhold tax and use this money for their benefit. The majority of people have no option in this matter because tax is deducted from their wages. We are not interested in collecting interest.

Mr. Colley

The section is doing more than that.

Mr. R. Ryan

That is all that is involved here. We are providing that where a person on appeal proves that he is right and the Revenue Commissioners are wrong, he gets a refund plus interest at this liberal rate.

Mr. Colley

Eighteen per cent tax free?

Mr. R. Ryan

If that rate is deemed to be too high in relation to what the Opposition now consider to be appropriate, how could they justify that when they were in power they introduced the charging of interest, and the differential between the bank rate and the penal rate of interest was 6¼ per cent as against 4½ per cent which we are providing here? I am prepared to accept that in the light of experience they see they were in error to have had such an arrangement. I said that they were at fault in not altering the system, if they considered it to be wrong, and that it would not take me that long to consider the matter. I think that is a very reasonable observation.

Mr. Colley

We had to argue this for a long time before the Minister would consider this matter.

Mr. Lalor

I accept what the Minister says. I concede that it does not take him too long to learn. Deputies on this side of the House do not seem to be able to get their points across to him—as with Deputy Colley last year. Now, 12 months later, he has come back and accepted about 90 per cent of our proposals. It is a great pity he could not agree with us when we made our proposals.

Question put and agreed to.

SECTION 29.

Question proposed: "That section 29 stand part of the Bill."

Mr. R. Ryan

This section, in effect, amends the provisions of section 39 of the Value-Added Tax Act, 1972, and reproduces the amended provision in the income tax part of the Finance Bill, since those provisions relate to the adjustment of capital allowances for income tax and corporation profits tax purposes.

The purpose of section 39 of the Value-Added Tax Act, 1972, as it stands, is to secure that when the cost of any machinery and plant or any other capital expenditure is being taken into account for the purposes of the allowances in respect of capital expenditure available under the Income Tax, 1967, or the Finance Act, 1971, the amount of that expenditure to be taken into account is to be reduced by VAT deductions or repayments claimable under section 12 of the Value-Added Tax Act, 1972, in respect of that expenditure. This treatment is being extended to the new capital allowances provided under the Finance (Taxation of Profits of Certain Mines) Act, 1974, and to the allowance in respect of farm buildings and other works introduced by section 22 of the Finance Act, 1974.

Account will also be taken of VAT repayments which can be claimed under orders made by the Minister under section 20 (3) of the Value-Added Tax Act, 1972. Any such repayment will be deducted in arriving at the amount of allowable expenditure.

Mr. Colley

Could I ask the Minister if the intention under this section is to deal only with capital allowances?

Mr. R. Ryan

Yes.

Mr. Colley

Would a deduction under section 12 of the Value-Added Tax Act, 1972, or under an order under section 20 (3) of that Act relate only to capital allowances?

Mr. R. Ryan

Yes.

Mr. Colley

What I am saying may appear to be out of order, but this is a bit difficult. You will recall that section 3 of the Bill was deleted by reason of an amendment by the Minister, and a new section 33 is proposed to be inserted under amendment No. 16. I do not want to stray too far from this section but there is a very close relationship. In that proposed new section "capital allowance" is to define, amongst other things, as an allowance other than an allowance or deduction to be made in computing profits or gains. May we take it that all of the allowances referred to in section 29 are allowances other than allowances or deductions to be made in computing profits or gains?

Mr. R. Ryan

Yes.

Mr. Colley

That is not clear on the face of the section. Could the Minister elaborate a little further? The section does not appear to be confined to capital allowances.

Mr. R. Ryan

Section 29, as the Deputy will see, quotes a number of sections of other Acts which in themselves contain the appropriate definitions.

Mr. Colley

I am afraid that is not quite right, because some of the matters referred to, for instance, in the Income Tax Act of 1967, are not just capital allowances. Some of them are non-capital allowances. This is why I raise the point.

Mr. R. Ryan

These are related to any expenditure incurred by a person on machinery or plant.

Mr. Colley

I think they refer also to such things as allowances in respect of scientific research, some of which would be capital and some of which would be non-capital. It is reasonably clear in the new section 33 which the Minister proposes to introduce, though we shall have some questions to ask on that; in that case it refers to capital allowances and defines them, but this section does not refer to capital allowances or define them. Therefore, if it refers to allowances under Parts XIII to XVIII of the Income Tax Act, 1967, it must include both capital and non-capital allowances, because both are dealt with in that Act.

Mr. R. Ryan

I would not agree with the Deputy, but I shall certainly look at the point he has made.

Mr. Colley

I shall be raising it again on the other sections, but for the moment we may take it that the intention is that this section will apply only to capital allowances?

Mr. R. Ryan

Yes.

Question put and agreed to.

SECTION 30.

Question proposed: "That section 30 stand part of the Bill."

Mr. R. Ryan

This section provides for the passing on of relief to shareholders where dividends are paid by a company out of patent royalty income exempt from tax under section 34 of the Finance Act, 1973. That section exempts from tax any income derived from patent royalties arising on or after the 6th April, 1973, to individuals or companies resident in the State provided that the work in connection with the devising of the patented invention was carried out in the State. It is now being provided that where such income is exempt in the hands of a company and dividends are paid out of that income, a proportionate part of the relief will be passed on to the shareholders.

Mr. Colley

This section will operate as from the passing of the Act?

Mr. R. Ryan

From April, 1975.

Mr. Colley

The Minister will recall that I raised a question on this on Second Stage. I take it the position is as he thought it was then, that the only case which has come to notice will be covered by this section which is operating only from 1975, and that there are no earlier cases to the knowledge of the Minister?

Mr. R. Ryan

Yes. The only cases that have come to notice are ones where the dividends have not yet been distributed, and, therefore, this relief will apply in relation to any future distribution even if the profit was previously made.

Question put and agreed to.

SECTION 31.

Mr. R. Ryan

I move amendment No. 11:

In page 17, subsection (1), lines 13 and 14, to delete ", and carrying on a trade."

An Leas-Cheann Comhairle

Amendments Nos. 13, 14, 15, 39, 40 and 41 are related and may be taken together.

Mr. Colley

Is the effect of taking them together that it will not be possible to discuss the later ones when we come to them? The discussion will be deemed to be finished when we dispose of them now?

An Leas-Cheann Comhairle

The discussion would take place on them now, and separate decisions could be taken at a later stage.

Mr. Colley

There may be a slight difficulty in dealing with the ones which relate to sections other than section 31. I have no objection to taking together the cognate ones dealing with section 31, but I would have some difficulty in regard to the later ones.

An Leas-Cheann Comhairle

What ones does the Deputy suggest?

Mr. Colley

The ones relating to section 31 are Nos. 11, 13——

An Leas-Cheann Comhairle

All except Nos. 39 and 40?

Mr. Colley

Yes.

An Leas-Cheann Comhairle

We can let Nos. 39, 40 and 41 stand over, and discuss the others together. Is that agreed?

Mr. R. Ryan

Yes. These are minor drafting amendments. A transferee company referred to in paragraph 3 of the Third Schedule cannot be carrying on a trade as defined if it is to qualify for relief pursuant to that paragraph. It would, however, have to be regarded as carrying on such a trade if the words in the definition of "company" mentioned in the first amendment were retained. The purpose of the first amendment is to delete the words in question so as to preserve the transferee company's entitlement to relief by virtue of paragraph 3. The restriction of stock relief to companies carrying on a trade, as defined, in the State will be maintained by the insertion in the definition of "trade" of words to the same effect as the words being deleted from the definition of "company". This insertion is achieved by means of the second amendment.

The third amendment removes unnecessary words in subsection (4) (a) which refer to the computation of a deduction under section 31 on the basis of reducing a company's closing stock value.

Mr. Colley

Did the Minister say "removing unnecessary words"?

Mr. R. Ryan

Yes. That is in subsection (4) (a) which refers to the computation of a deduction under section 31 on the basis of reducing a company's closing stock value.

The fourth amendment makes a change in the proviso to subsection (4) (a), consequential on the third amendment, by substituting for the existing subparagraph (ii) of the proviso a new subparagraph which has the effect of deleting references to closing stock value and a reduction in closing stock value.

Mr. Colley

Can the Minister say whether amendment No. 13, which is the second referred to by him, and which, after the word "trade" imports the words "carried on in the State..." means that a company may be deemed to be carrying on a trade in the State although they are engaged wholly in the export market?

Mr. R. Ryan

Yes. The fact that part of a company's trade is that of exporter and that, consequently, its goods end up elsewhere, does not disqualify the company.

Mr. Colley

The Minister regards these amendments purely as drafting ones?

Mr. R. Ryan

Yes.

Amendment agreed to.

An Leas-Cheann Comhairle

Amendment No. 12 has been ruled out of order.

Mr. R. Ryan

I move amendment No. 13:

In page 17, subsection (1), line 15, after "a trade" to insert "which is carried on in the State and".

Amendment agreed to.

Mr. R. Ryan

I move amendment No. 14:

In page 18, subsection (4) (a), lines 4 to 6, to delete "computed on the basis that the company's closing stock value shall be treated as reduced by".

Amendment agreed to.

Mr. R. Ryan

I move amendment No. 15:

In page 18, subsection (4) (a), lines 13 to 18, to delete paragraph (ii) and to substitute the following paragraph:

"(ii) the company's trading profits to be taken into account in computing a deduction shall be those profits before any deduction is made under this section or the Third Schedule, and".

Amendment agreed to.

Question proposed: "That section 31, as amended, stand part of the Bill."

Mr. R. Ryan

The purpose of this section and the Third Schedule is to grant the tax deferment in respect of increases in the value of trading stock and work in progress announced in this year's budget statement. In general, the deferment will be in respect of corporation profits tax on profits of accounting periods ending in the tax years 1973-74 and 1974-75 and in respect of income tax for the years of assessment 1974-75 and 1975-76, which would be based normally on the profits of the accounting periods mentioned. Broadly speaking, the relief will take the form of a deduction calculated on the amount of the increase in the value of trading stock, including work in progress, in an accounting period, less 20 per cent of trading profits for the period before deduction of capital allowances or losses. The relief will apply to Irish resident companies engaged wholly or mainly in manufacturing, construction or farming or in the sale of machinery and plant, excluding passenger vehicles or goods to persons, companies or individuals, for use by those persons for the purposes of trading activities falling wholly or mainly within these sectors.

Mr. Colley

There are a number of points we wish to raise on this section but before going into those in detail, there are one or two smaller points on which the Minister might enlighten us. For instance, he referred to this section as providing for a deferment of tax. The same phrase is used in the explanatory memorandum. Can the Minister indicate where in the section there is provision for deferment?

Mr. R. Ryan

It is not provided for explicitly nor is it necessary to so provide. Our intention is to have a look at the situation next year in order to see what might be the appropriate tax charged but as of now it provides simply that the tax payable in this year will be calculated subject to these deductions being made from what would otherwise be the liability.

Major de Valera

I take it that the purpose of this section is to provide for relief where the inflation of stock values has threatened the liquidity of a company?

Mr. R. Ryan

We are providing this relief because of the possibility that a number of firms are experiencing this difficulty now but a firm would not have to prove their being in that difficult situation in order to be entitled to this relief.

Major de Valera

In many businesses during the past 18 months there has been an inflation in the value of stocks. That situation would affect profit and would attract tax. I give the Minister full credit for the proposal here being a measure to give relief in such a situation but I am concerned with the word "deferment". I take it that this deferment applies in the current year without strings and without reasons being given?

Mr. R. Ryan

That is right.

Major de Valera

Therefore, am I being over-suspicious when I express concern that the Minister's continual use of the word "deferment" in this connection may mean simply that not only may the situation be brought back, say, next year or the year after, to what it was before this Bill but that the Minister may seek to recover at that time what he is foregoing at present on the grounds that he has given sufficient relief already. It is only fair to the business community that this point be cleared up. If I am wrong the Minister may correct me.

Ruairí Brugha

What is involved here is merely the postponing of a sentence.

Major de Valera

This is a simple provision giving relief according to the formula A(C—O)N as in the Schedule —is that correct? Is this simple relief to be given in this current year on the basis set out in the Third Schedule and without strings so that every company in the State—and the Minister is justified in what he is doing because most people dealing with stocks have precisely this problem——

Mr. Colley

Pardon me, not every company.

Major de Valera

No, a large number of businesses. I do not want to take away from what the Minister is doing. He is trying to help and I do not want to belittle that. Under this Bill these companies will automatically get this substantial relief. I have no quarrel with the Minister. But there could be a new Bill this year altering things forwards or backwards. If the Minister or his successor decided that stability had been attained regarding stock values and that a return to the earlier situation, where you had a simple valuation of stock coming into the element of profit, is desirable, all the Minister would have to do is repeal these provisions. That could be fair and equitable in a situation of stability. Saving the points Deputy Colley wishes to make—I am trying to make the argument simple—so far so good. I think the Minister would find people reasonable in that view but I am worried that this continued use of "deferment" implies a firm intention by the Minister to recoup the relief granted in what appears to be a simple provision.

If that is the Minister's intention, I want to have it absolutely clear. Is the Minister giving a relief in the present year and for such time as those conditions hold and is that relief absolute? Or, is the Minister only deferring collecting the money we are foregoing for an unspecified period and is it on the cards that even next year the Minister may say: "We let you off that tax for a year. We will not ask you to pay 18 per cent on it; we will take it as it is." I do not know if it is one or two years—I think it is two years. It can be an indefinite period in another sense. At the end of the two years does the Minister intend to collect that money? If he does, would it not be desirable to say so explicitly in the Bill because under our law what the Minister says carries no commitment and is not part of the law? That leaves business with some uncertainty. I am referring solely to the Minister's use of the word "deferment".

Mr. R. Ryan

The Deputy asks me whether I think it is on the cards that any Minister for Finance would seek in some future year to collect two years' tax deferred in addition to the then current taxation. I will answer in a straightforward way: I do not think it is on the cards. Unless there is some extraordinary boom in the economy and some fantastic profits being made I could not visualise circumstances in which one could impose that burden. Then the question is: why not say so now?

Major de Valera

No, it is the continued use of the word "deferment". It is not in the section.

Mr. R. Ryan

I agree it is not in the section.

Major de Valera

I can appreciate as an honest indication that the Minister says that it is unlikely.

Mr. R. Ryan

I think it is unlikely. We are operating in a very indefinite field, indefinite not merely in regard to what may happen in connection with profitability in a couple of years' time but also we are dealing with a situation in which the accountancy profession themselves have not made up their minds about the proper way of treating stock, particularly in an inflationary situation. One hopes and one must do one's best to ensure that in the next few years the rate of inflation falls. It is falling elsewhere and it will fall here too, please God, and there will be a totally different approach on the part of many people who this year sought this particular concession. They might want the whole arrangement to be treated in a different way within a year or two. I would not attach too much importance to the use of the word "defer". I use that word simply because I want to make it clear that we want to take another look at this situation in the light of experience as to how this works and see the ability of business to pay a fair share of tax in a couple of years' time. But I cannot see it being on the cards.

Major de Valera

On this section, if the Minister did intend to use the word "defer", this provides for two years but would the Minister not have to bring in positive legislation to recover the money after the two years?

Mr. R. Ryan

Yes.

Major de Valera

I think he would. There is that safeguard.

Mr. R. Ryan

I would expect cries of "retrospection" if that were to be done.

Major de Valera

No doubt you will raise them when you are over here.

Mr. R. Ryan

We shall not be there then.

Mr. Colley

I am still a little concerned about this. The explanatory memorandum issued with the Bill contains the word "deferment". It says:

Section 31 provides for deferment of the payment of income tax and corporation profits tax....

On the second stage I referred to deferment and said I could not find anything in the section which indicated deferment. Yet the Minister, speaking on the section tonight again used the word "deferment". I am concerned about this for two reasons. First, as indicated by Deputy de Valera—quite rightly, I believe—it is important that there should be a degree of certainty about what is being done. It is one thing to say that it may be necessary in due course to take other steps because of the effect of inflation on accounting, but at least in relation to what is being done in this section and the effect of it there should be a degree of certainty. The Minister has indicated—correctly, I believe—that in practical terms for the Revenue Commissioners to take back this money after two years is not really on. Still, I think it should be made quite clear that there is no intention of doing that particularly as it does not seem to be possible. From the point of view of certainty for the businesses that will benefit under this section I think the word "deferment" should not be used.

There is another reason why I am concerned with it. The Minister will note that the section refers to deductions under this section which may be made. The Minister knows the income tax Acts are full of sections referring to deductions being made in certain circumstances. If it is the view of the Minister and the Revenue Commissioners that where a section provides for a deduction it is possible to interpret that as meaning a deferment— where it can be interpreted as meaning it can be deducted this year or next year but where we are entitled on that construction to say it was only temporary—that kind of interpretation of the word "deduction" would be totally foreign to its meaning in the context of the income tax Acts. It would introduce a totally new concept that would be undesirable and would lead to great uncertainty not alone in relation to this section but to the whole income tax code.

Therefore, I am somewhat mystified as to why the explanatory memorandum and the Minister have used the word "deferment". It does not seem appropriate either to the wording of the section or the Minister's intention as indicated here. Will the Minister tell us now that the word "deferment" in the context of this section is a misnomer, that deferment does not arise in relation to this section, that deductions are provided for two years and that that is the end of the matter? Will the Minister tell us that is the position?

Mr. R. Ryan

That is the position. The word "deferment" will not be quotable in a court of law. The reason I have put it in is that there is such argument going on in the business world, and in the accountancy profession in particular, as to the proper way to approach the question of valuing stock and at this stage it would be wrong to prejudice whatever thinking there might be. It is better to have a full assessment of the best way to assess what are real profits rather than for us to write in something into a Bill that would colour people's thinking on the matter. The Deputy is right in what he has said. There is a deduction for two years and it would be a brave man who would seek to have it recovered.

Mr. Colley

Therefore, can we forget the word "deferment" in relation to this section?

Mr. R. Ryan

I am not prepared to say. Anything may happen in the future.

Major de Valera

What the Minister is saying is a matter of considerable interest to business people. The Minister has said this is for two years and that is the end of it, that the word "deferment" does not imply that the relief given will be taken back after two years. That is the net point of the Minister's reply. This matter is of particular interest to business people and to companies who are affected by this provision and it is important that they have the assurance. It is important that they realise there is no ulterior intention as the Minister has pointed out and, of course, we accept that.

Ruairí Brugha

The Minister has referred to trading stock. I presume he meant manufacturing goods, construction operations, farming and the sale of machinery or plant. Has the Minister had any representations regarding wholesale or retail stock in this connection?

Mr. R. Ryan

I have received many representations. Any stock that is related to the activities of manufacture, agriculture and construction would qualify for relief. If a person is a supplier to these industries he will qualify for the relief.

Ruairí Brugha

What is the position with regard to the wholesale and retail end of the business?

Mr. R. Ryan

The question of the point in the supply line would not matter at all. If a person is a supplier to any of these activities he will qualify.

Ruairí Brugha

The point I have in mind is that any trading concern carrying substantial stocks has to meet the inflationary increase and this is quite considerable. Would a wholesale or a retail concern be considered if they ran into difficulties because of inflation or the lack of cash flow?

Mr. R. Ryan

There are many concerns engaged in the wholesale and retail trade who are not seriously affected. It depends on the kind of goods they are selling. If a person has a rapid turnover and can get total compensation for a price increase in a short period, it is difficult to make a case for giving him this concession. In relation to the specific question put by the Deputy, I cannot recall any particular case being brought to my notice. However, if any specific case is brought to my notice, where a special problem arises because of the nature of the business and because of current difficulties, I will be prepared to look at it.

Mr. T.J. Fitzpatrick

(Dublin Central): It will serve little purpose if the concession is given at the manufacturing end and not at the distributive end. I can see the point raised by Deputy Brugha. There are cases where it could apply.

Mr. Colley

The point raised by Deputy Brugha and Deputy Fitzpatrick is the major one arising on this section. The relief proposed to be given is valuable in that it goes a step along the road in meeting the very acute problems of many businesses at the moment. In fact, the problems are so acute that many companies are very close to being forced to close down and, consequently, any relief in such cases is welcome.

The Minister will recall that on an earlier amendment we tabled we sought the waiver of corporation profits tax and he relied rather heavily on this section to resist our amendment. We pointed out at that time that there are many businesses, particularly on the wholesale level, who will not get relief under this section and who are in an acute situation because of liquidity problems.

The Minister received representations in regard to this matter from the Consultative Committee of Accountancy Bodies in Ireland. They consist of the Institute of Chartered Accountants in Ireland, the Association of Certified Accountants and the Institute of Cost and Management Accountants. I have a copy of the representations made to the Minister and, with the permission of the Chair, I should like to quote from that communication. It makes a great deal of sense and it is from people who are more familiar with the business situation in Ireland than anybody else, probably including the Revenue Commissioners. With regard to this section, they state:

The liquidity problems caused by inflation are as great in the case of many companies carrying on trades outside the scope of section 31 of the Bill as they are for companies for whom relief is proposed. The liquidity problems at the wholesale and retail levels are reflected in sluggish demand for manufactured goods. In order to maintain the full flow from the manufacturing stage to the consumption stage, it is essential that wholesalers and retailers should have sufficient financial resources to maintain an adequate supply of stock. The committee is aware that many wholesaling and retailing costings are reducing the physical quantities of stocks held because of liquidity considerations. This places increasing burdens on the manufacturing sector——

That is the point that was being made earlier: if you affect one sector in the chain you will affect all of them. To some extent the section recognises that—that you cannot just assist manufacturers and leave it at that: even though you assist them they may suffer if the rest of the chain is suffering. The representations then went on:

The committee submits that there are very strong grounds for extending the relief to all companies with the object of maintaining stimulated demand on the manufacturing section. The committee considers that the relief should be extended on the lines suggested above on the grounds of the equity of the tax system, apart from the demand situation. Profits calculated for tax purposes on the basis of historical costs tend to be substantially over-stated in times of rapidly rising prices. If stock relief on the lines proposed in the Bill were extended to all trades it would in many cases only go part of the way towards releasing taxable profits to a realistic level. In present circumstances to select certain types of trading organisations for the relief and exclude them does not in the committee's view reflect differences in the effects of inflation on the calculation of taxes.

I suggest there is a great deal of sense in what is stated there. From the demand point of view it is demonstrable that a number of firms are just as much in need of this relief as those who will get it. I do not think the Minister will quarrel with that statement; I will be surprised if he does.

From the point of view of equity as represented in these representations, there is a case for saying that the problems arising from inflation in regard to the production of unreal and artificial levels of profits apply across the board and if one is trying to deal with that one should apply the relief across the board. That is a logical case which I would urge on the Minister, the case for stimulating the economy and the maintenance of employment. With unemployment as it is, what is needed is to give what stimulation we can and not to leave any stone unturned in that direction. We are leaving many stones unturned if we accept this section as drafted. As I have said, it is quite clearly demonstrable that there are firms who would not come within the terms of this section who, (a), need the relief as much as those who will get it; and (b), if the relief is of any use at all and they get it, it will have an effect on employment and the stimulation of the economy.

I do not think the Minister can contest either of these basic propositions, and if that is so he should consider very seriously the representations made to him and the arguments we are making from this side. The Minister may say with some justice that there are certain businesses who will not suffer from this problem or if there are they are in such a comfortable position that they do not need assistance. I would say two things in regard to that. The first is that he could try to devise a method of giving the relief which would exclude such companies. But if he finds it totally impossible to do that, then I would say to him that the cost of giving relief to people who do not need it would be far outweighed by the benefits in terms of employment and of general stimulation of the economy by giving it across the board if that is the only way open to him, which I do not accept. If it is, I believe the cost of doing it—by "cost" I do not mean merely in terms of money to the Exchequer but the general cost involved of giving relief that is not required—is justified. The problem is too acute. It is not one that we can pass over by saying: "We cannot allow any of this relief because so-and-so who does not need the relief will get it." The problem is much bigger than that. It goes to the root of our whole economic situation today. Even if this relief is given right across the board it will not solve our economic problems but it is a step on the road to keeping a number of businesses alive, to survive hopefully until things improve. It is a step towards maintaining some of the employment that still exists. We cannot entirely ignore the representations involved in that and if we are to ignore these representations this section must be widened in its scope.

Major de Valera

I reinforce everything Deputy Colley has said and the principles on which he has enunciated them. I shall put three different points to the Minister as a particular support. When we are dealing with the first element, I want to clear the ground as to what the relief is. The first consideration is the ground on which you can discriminate here. If you are to give this relief to some companies and not to others which have heretofore been all treated under the one heading, some justification is required for that.

Deputy Colley mentioned elements of fairness. I want to invert that and to draw attention to the danger of discrimination. If the ground for leaving out some companies is that they do not need this relief we are going down a road already travelled much too far with the Prices Commission through which the State is intervening to decide who will be the beneficiary in business from the State and who will not. It is a very short road from deciding who is to be the beneficiary to deciding who is to be treated as "the rest" and who is to be penalised. It is a slippery slope that is already there in the Prices Commission's reports. The tendency to slip in a direction like that is only too clear.

On a matter of principle, I have not the slightest doubt that the Revenue Commissioners or any other Department dealing with it would act absolutely conscientiously in these matters, but a principle we have always sought to maintain in our law is that the opportunities for discrimination will not be there. It is one of the glories of our public service that it is absolutely free of any taints, that it has the reputation, deservedly, of integrity. We should not move in a direction in legislation that, so to speak, would give an incline.

I am making this point purely as a point of principle to reinforce Deputy Colley. As a legislator, I consider that selectivity is dangerous because it can mean either preference or discrimination. I am making no imputations. This is the danger. If that element is taken into account, is it not desirable that we do not bring in any fragmentation of the group to which the present provisions apply? To get down to specifics would cloud the principle I am trying to adumbrate.

There is another factor which I would like the Minister to take into account. There is a chain from the primary source to the consumer. At various points of that chain there will have been an accumulation of stocks at a customary level. For the purpose of our argument we will assume that that chain is contained within the State. A state of equilibrium has been attained where the primary manufacturer is turning out his product at a certain rate. That is taken by the secondary manufacturer at a certain rate. It is taken by the wholesaler at a certain rate. It is finally sold by the retailer at a certain rate. In a stable situation that flow will be fairly uniform, giving stability right along the line. If that is perturbed at the wholesaler's or retailer's level by eating into stocks, the effect will be that the flow from the manufacturing end is retarded. For instance, a retailer or wholesaler carrying large stocks and selling off at a certain rate may suddenly decide, because of a liquidity problem, to liquidate his stocks to keep his bank balance right. He calls on his reserves like the camel on his hump and he buys nothing for the bank to replace his stocks during that period. The result is that the secondary manufacturer first and the primary manufacturers behind him will experience a slowing in delivery. It decreases business at the manufacturing end and this puts jobs in jeopardy because most jobs are normally in the manufacturing area. Let us take a hypothetical case. Suppose there is a retail shop carrying clothing. It will be backed up by wholesalers who are carrying stocks at a certain level. The consumer demand may remain exactly the same but if the retailer starts calling on his stocks to supply the consumer the manufacturer for the garments, and behind him the manufacturers of the materials that go into the garments, will find that they are not selling and then the people who are making those things will be in danger of unemployment.

Quite frankly, I am not clear as to who is getting relief here. My reading of the section and the definition of "trade" in section 31 does not convey enough certainty to me to say exactly what it covers so what I have said is to be taken as an example. I would ask the Minister to consider those two points as emphasising two aspects of what Deputy Colley has said. Would it not be simpler in the long run, administratively and every other way, to do the straightforward thing and apply it if there are exceptions?

Mr. R. Ryan

Nothing would be simpler and nothing would make a Finance Minister more popular than the abolition of taxes but we have at all times to strike a balance between resources, the demands which are made upon resources, and particular difficulties which some sections of the community may have in meeting their existing tax liability. We made that assessment this year and we considered that the areas which seemed to be most affected were manufacturing industry, the construction industry and certain sectors of agriculture. We could, of course, do as the Opposition suggest and give general company tax relief but there would then be a situation in which financial institutions, banking institutions, hire purchase companies and the lot would qualify for tax relief.

Major de Valera

What is the stock of a banking institution?

Mr. R. Ryan

Now Deputy de Valera says we should confine it to stock reliefs only but that is a limitation in itself. Is a company with stock any more deserving of assistance than, say, some service activity which might be in difficulties? We must draw the line somewhere. I think we were right in identifying the sectors of manufacturing industry, the construction industry and agriculture as deserving of special relief. We have given that relief. It is quite significant when you consider that the total corporation profits tax is £28 million a year and £12 million relief per annum has been given for the next two years in this business sector. That shows that there is a fair measure of relief for the people who are most affected.

In case anybody feels I was misleading the House I should like to say that, when I was asked by Deputy Brugha if I had received any repretations in relation to the wholesale companies, I thought he was wondering whether I had received any specific complaints about any particular sector of the wholesale industry. I have not. I have certainly received the representations to which Deputy Colley referred. There is one thing to be said in favour of the accountancy profession, that is, that they are very skilled indeed in making a case. A Minister for Finance must not look merely at the general theoretical case which any professional group can be past masters at presenting. The Minister for Finance oftentimes is not in possession of specific information because profitability, income, tax liability of individuals and companies are confidential and known only to the Revenue Commissioners. There are cases where people can identify their pains and their aches to the Minister for Finance and then he may look at them. Looking at the whole economy and those areas which seem to me to be most in need of help, we have given them that help. The help we have given can only be given in the way in which we have given it. We have given it to the manufacturing industry, to agriculture and to the construction industry, or to suppliers to those industries.

Mr. T.J. Fitzpatrick

(Dublin Central): Suppliers to those industries? Does that mean wholesale suppliers in the building trade? Are they covered?

Mr. R. Ryan

Yes, if they are supplying the industry, but the test must be the use to which the person supplied is putting the goods. We could not administratively work any system which allowed a whole chain of distribution without identifying the end to which the goods were ultimately put.

Mr. T.J. Fitzpatrick

(Dublin Central): How far down the chain is the Minister going beyond the manufacturing level?

Mr. R. Ryan

It is either manufacturing industry, agriculture or construction, or the suppliers to those industries, but they would have to be the direct suppliers.

Mr. T.J. Fitzpatrick

(Dublin Central): Suppliers to manufacturing industry? That is different. That is all right.

Mr. R. Ryan

Suppliers to them but not the other companies. I accept that there is considerable merit in what has been argued about other companies. We are not saying that we have excluded all areas of difficulty. We are sure we have not, but we have given a very wide measure of relief. I do not think we would be justified in extending it more liberally because to do so would, quite frankly, reduce the resources which the Exchequer would then have. In reality, what some firms need this year is not a tax relief, because they may not have made profits either last year or the year before. If you have not got a tax liaibility, tax relief is of no use to you. A cash injection from the State or from some other source is what is needed specifically

Mr. Colley

We will be coming to that point.

Mr. R. Ryan

If we reduce the resources of the State, to that extent we limit the capacity of the State to offer assistance. I do not think that would be justified. It is known that inflation is affecting the public sector most seriously and that revenue buoyancy no longer exists. In that situation we have to be very careful, indeed, as we go about giving tax reliefs. We must relate them to areas of greatest need and not run the risk of giving tax concessions in areas where they may be unnecessary. I understand Deputy Colley's argument. He says we should not be looking for perfection and, if a few people get away with a bonanza, so what?

Mr. Colley

If you cannot devise a way of excluding them.

Mr. R. Ryan

Yes, if you get the economy moving again. The sad reality for us in Ireland is that we have a very vulnerable economy affected by the performance of the world economy more than any other individual country in Europe. We are a small island. We are exposed to all the winds and all the currents which move around us. Even if we were to provide all the benefits and concessions which the Opposition suggest we should, we would not necessarily generate a better market for our goods. It is the market that matters, the market demands. The market has shrunk and, therefore, the possibility of sales has shrunk. We cannot get away from these unpleasant forces. We may endeavour to persuade others who are more powerful than we are to reflate. Something of that kind is already occurring. The precise timing and extent of the beneficial consequences are very difficult to determine. In the meantime, we are providing quite significant reliefs for the sectors most affected by this slump, which, I think, is now at the bottom of the trough. Anything and everything which we in Government can do by way of tax reliefs, or indeed by way of financial assistance, to help companies to overcome this temporary difficulty we will do, but we will have to trim any aids we give according to needs.

Major de Valera

The Minister said he hoped we were at the bottom of the trough. Is that not the very time when it would be better to keep the flow from the factories going and not encourage retailers and wholesalers to liquidate stocks and slow down the flow? I take it the Minister will accept the argument that, if the same incentive is not given to the retailers and the wholesalers to maintain their stocks, these stocks will be eaten into. I do not know how important that factor is, but it seems to be a factor to be taken into account. Surely by taking that attitude the Minister is defeating his own purpose to some extent.

Mr. R. Ryan

Nothing will generate more activity in the distributive trade better than demand. If demand improves you may be certain that retailers and wholesalers will very rapidly build up their stocks again. At the moment, because of a drop in consumer demand, they tend to be well stocked and if demand improves this situation will change rapidly. In the distributive trade there is a very rapid response to trends. I do not think that by some sophisticated tax relief we could generate as much activity as any improvement in demand would generate. Once there is an improvement in demand we can be quite certain that the stocks will be rolling again.

Ruairí Brugha

I appreciate the areas to which this is being restricted but, if the commissioners find what would describe as hard cases, where employment is likely to be affected the application of this section might possibly be considered. As the Minister rightly says, there is no point in talking about companies which are not making a profit because they could not benefit under this anyway. A rapid increase in the cost of stocks to whole salers and retailers may be affecting some categories which may be worth preserving if only for the sake of the continuity of employment rather than that those employees should be drawing pay-related benefit or unemployment relief.

Mr. R. Ryan

I will certainly keep a very careful watch on the whole business sector.

Mr. T.J. Fitzpatrick

(Dublin Central): The Minister will get very little benefit from the concession since it is going right down through the chain of the wholesalers, whatever about the retailers. The wholesalers are keeping much larger stocks. should like to know from the Minister what the position will be with regard to timber importers and people like that. How will they be fixed?

Mr. R. Ryan

They will tend to be suppliers to the construction industry and they will, therefore, get the benefit.

Mr. Colley

If they are wholly or mainly engaged in that trade.

Mr. R. Ryan

Timber importers are, I think, wholly or mainly engaged in the supply of timber to certain industries.

Mr. T.J. Fitzpatrick

(Dublin Central): Inflation is influencing the situation and, as we all know, inflation is running at a very high level. In many companies profits are derived from inflation. These are what I would describe as false profits and to meet this situation some more sophisticated type of accountancy will have to be adopted. Whether that will be acceptable to the Revenue Commissioners I do not know. By and large, this is not really a trading at all. However, this will be another day's work.

The Minister should seriously consider applying this to wholesalers. I would not go along with the suggestion that it should be applied right across the board to all manufacturers and wholesalers. The section is designed to meet a certain type of situation and look after a certain section of industry which is struggling to keep going. We must, of course, come to the help of those caught up in such a situation. The concession should not, however, be given to companies that are making a profit, have a good cash flow and no problems with regard to the sale of their products.

There are wholesalers who carry astronomical stocks in which there is no quick turnover. They carry a considerable variety and there may be a turnover only once in 12 months. That is the type of wholesaler I have in mind. If he is not helped, he will reduce his variety and that may not be to the benefit of the trade. I know what the Minister is trying to avoid but I fear the section will not have the effect he seeks unless he gives the benefit at the wholesale level. If it were possible that the manufacturing sector would pass on some of the benefit from the point of view of credit to the wholesale sector, that would be all right but I do not believe manufacturers will extend their credit to any great extent and the only option open to the wholesaler then will be to reduce his stocks. I appeal to the Minister to consider that aspect. This provision will serve no useful purpose unless it also covers the wholesaler.

Mr. R. Ryan

We will keep a watch on the situation and, should the need arise, we will amend the law.

Mr. Colley

This needs to be pursued a little further. The Minister spoke earlier about our general economic situation. I would not quarrel with a good deal of what he said but I suggest this section is largely irrelevant because, although it recognises there is a problem and attempts to do something about it, the real question is will the section give some relief to those sectors of the economy which need it. The Minister has made the point that blanket relief would give relief to those who do not need it. That is a valid point but is that not precisely what he is doing in a small sector of the economy? On the definition of trade, for instance, we find it will apply to the manufacturer of goods. There is no restriction. The manufacturer of goods will get this relief. There may not be many manufacturers of goods who do not need relief, but there are some. Then there is the carrying out of construction operations within the meaning of section 17 of the Finance Act, 1970; one can assume that the great majority here need assistance, but there may be some who do not need it Whether they need it or not they will get it under this section. Again, in regard to farming, the great majority need assistance, but there may be some who do not; they will all get it under this section. The Minister has actually been forced into the situation he was decrying in relation to what we put forward. The Minister has been forced to adopt a relatively blunt instrument. I do not fault him for that because I can see the difficulties with which he is faced but, since he himself was forced into that position, the validity of the criticism he made of this side of the House that relief may be given to those who do not need it is considerably reduced.

I mentioned earlier that there were sectors of the economy in as great need of relief as those being relieved by this section, sectors which are not covered in the section, and I suggested the Minister would not controvert that statement. He did not controvert it because he knows just as well as I do that there are sectors that could come into this category. One is the wholesale sector referred to by Deputy Fitzpatrick. Some in that sector will be covered but some will not. A great many of them will not. A great many wholesaling firms are in the gravest difficulty because of shortage of cash, shortage of cash contributed to by a number of factors—in particular, by the rapid increase in the price of the goods they stock, by the necessity in some cases, because of prospective shortages, of carrying much larger stocks than usual, by the falling demand for their stocks which means that the holding of larger stocks is aggravated still further by the fall in demand, and the very high price of money which they needed to finance these stocks, plus the fact that they are obliged to pay value-added tax every two months while they have to extend credit to their customers for three, four and more months.

All of these and other factors are combining to leave a number of wholesalers in a most precarious position with the consequent danger to their employees and the consequent reduction in their demands from manufacturers. All manufacturers are being given relief under this section. We tried to make the point earlier that there is not much value in giving relief to one link in the chain if by reason of failing to give it to another link the link not getting the relief collapses, and the link which you are purporting to give relief to, if it does not collapse, will get no benefit from the relief. That should be self-evident and is a very strong argument for urging the Minister to extend the scope of this section.

The Minister said, for instance in response to what Deputy Fitzpatrick said, that a sharp eye will be kept on the situation. I want to put two points to him in regard to that. First, as I see it, the section does not give any power to extend the categories who would benefit from it by order. Therefore, if he decided, having kept a sharp eye on the situation, that there were other categories which should get relief it would be necessary to introduce legislation to give that benefit. That does not inspire too much confidence in the keeping of a sharp eye on the situation and moving quickly to give relief where it seems to be needed.

The other aspect of this is that, having presumably looked at the situation with a sharp eye, the Minister has come up with this section. However, it is clear to anybody who looks at the situation, even without a very sharp eye, that there are sectors, which are not included in this relief. For those reasons I believe it is necessary to go a little further and for the Minister to show a more genuine readiness to extend the scope of the relief, where it can be clearly demonstrated that the need is at least as great as it is in the case where relief is being given. I do not think the Minister is giving himself power under this section to do that where it is demonstrated. He ought to consider very seriously taking that power under this section.

I believe it may well be that by limiting the scope of the relief under this section, in the way it is being limited, as Deputy Fitzpatrick said, the benefit expected to accrue, not just the individual firms concerned but our whole economy, may be either lost or substantially lost because the line is not extended along the chain in order to be really effective. Here we are talking about, to a great extent, the maintenance of employment and keeping in being firms which might otherwise go out of business. If the Minister is correct in his assessment that we are at the bottom of a trough, then as Deputy de Valera said, it is true that this is the time to give the relief if only to keep those firms in being until the situation improves.

Very often, if such firms go out of business, not alone do you have the consequent unemployment but they are not replaced that easily and a good deal of expertise and knowledge goes out of circulation altogether. If we are to benefit, if there is an up-swing in the economy in the future, we cannot afford to allow such firms to go out of business because we are prepared to give relief to one sector and not to another. I believe if it can be demonstrated that the need in some sector of the economy is the same as it is in those sectors covered by this section then the relief should be given and the Minister should have power to give it. I believe the case for different sectors can be made and vincingly. They are not covered by this section and they should be covered by it if we are really serious in what we are trying to do.

I very strongly urge the Minister to reconsider this situation. If he cannot extend the scope of this section on its face—I can see some difficulties in definition and so on—he should at least take power to apply this relief to other sectors where the kind of criteria that he applies in arriving at those sectors mentioned in the section apply. There is no case, either in economics or in equity for refusing to extend that relief to sectors which need it as much as those which are getting it under the section but are not included. I strongly urge the Minister, if he cannot extend the scope of the section, at least to amend it by taking that necessary power to give the relief where it is needed and where it is demonstrated it is needed.

Mr. R. Ryan

I do not think it would be appropriate at all to give a Minister for Finance permissive power to absolve people from tax liability. If the case can arise where a tax concession is warranted then I believe that should be specifically identified in legislation and put beyond the whim of a Minister. Tax, I suppose, is one of the most serious things which Parliament is called on to deal with and I believe the responsibility should lie with Parliament and not with anybody else. We have identified, and I think the House recognises this, the most sensitive areas deserving relief. I have said if any other particular sector appears to merit the same attention, that I would be disposed to consider giving that relief.

Mr. Colley

The Minister would have to bring in legislation.

Mr. R. Ryan

Yes, and I believe that is the correct way to do it so that the House might have an opportunity of saying whether or not they considered this absolution from tax liability was merited. It is just as involved to give the Minister power to impose tax as it is to give him power to waive it. The Revenue Commissioners are the people who have the obligation, under the law, of collecting tax. They are given that power and they are an independent body because of the desirability of keeping the working of the tax machine away from the discretion of a Minister.

This is an area in which I think discretion should not operate. Something would want to be justified and I think at the present time, having regard to the constraints which I mentioned earlier, I would not be warranted in seeking any further extension of this particular relief, which is very generous and has been acknowledged by the business community, by and large, as being generous and helpful in the present situation.

Mr. Colley

I certainly agree with the general proposition put forward by the Minister and he will not I expressed a preference for expressing on the face of the section the sectors of the economy to benefit and if that could not be done that the next best course was to take the power to extend it. That power, as far as I am concerned, can be vested in the Revenue Commissioners. Ideally, the criteria involved should be laid down.

While it is impressive to hear the Minister put forward the argument he did, the fact is in another Bill, which he has before the House, there is written into it the power for the Revenue Commissioners to waive all of the tax arising under that Bill in particular circumstances without any criteria being laid down. Therefore, there is a certain lack of consistency in the Minister's approach. We are really concerned with finding a way to give this relief to sectors which need it, and some sectors need it at present, and to ensure that the jobs involved are saved.

It is not beyond the wit of the Minister and his advisers to find a way to do this. This section does not do it for all the sectors which need it. There are a few ways of doing this but to pass this section as it stands in practice means that no other sector of the economy no matter what its need will get this benefit. The Minister knows that to go through with such legislation in practical terms means we are writing off their chances of getting any such relief unless it is provided for in this section. That may not be the theoretical position but it is the practical position. I urge the Minister—I am not asking him to do it now—to give serious consideration to my argument. I ask him to consider in the passage of this Bill between here and the Seanad making some amendment in this section to meet my argument.

I should like to refer the Minister to subsection (4) (a) (i) of the proviso which states:

In no case shall the amount of the deduction as so computed exceed the amount of the company's trading profits for that period.

Reference was made earlier to the fact that this relief was of no use to companies which were not making a profit. This proviso states that if a company is making an extremely small profit the relief they will get will be limited to the amount of that profit. I question the principle involved in this. I put it to the Minister that if a company is in need of this relief and would get it but for the fact that it has a minimal profit for that company to be able to say they know they will get this relief and can see their way ahead for the next two years whereby they can build up their profit enough to make the proposition viable should be sufficient. If that company could say they could carry forward the reliefs, it could make all the difference between making a profit in two years time worth their while to continuing as against the decision to close down now. I suggest to the Minister that to be able to carry forward the relief could be of considerable help to companies to whom he is trying to extend some relief under this section. In some circumstances it could make all the difference between the decision to continue in business or to close down.

It may be argued that in two years time hopefully the economic climate would be such that this relief would not be necessary but we should not forget that companies have to make decisions now in relation to what will happen in two or three years' time. If companies knew this could be carried forward the decisions they will make now in relation to the future could be vitally important. To say the companies cannot get the benefit unless they are making adequate profits at present may be the wrong approach to the question of giving relief to companies in difficulty. It seems to be contradictory to say they will be given that relief now provided the profits are big enough to benefit from it.

Mr. R. Ryan

It would be wrong to allow companies to generate an artificial loss situation at present to be used as a set-off against a tax liability in future years and that is the effect of Deputy Colley's suggestion.

Mr. Colley

Why artificial?

Mr. R. Ryan

The Deputy says they should be entitled to set off this deduction without the limit which is contained in the proviso for the purpose of using any excess deduction at this stage to be carried forward against tax liability in future years. I regard that as carrying forward an artificial loss situation.

Mr. Colley

Supposing it is not artificial but genuine.

Mr. R. Ryan

At the moment we are concerned with the current situation, with the problems created because of a world slump of unprecedented dimension and impact. We are not proposing at this stage to deal with the situation when, if all the forecasts are right, a significant growth of the world economy and our economy will take place in two years' time. If at that stage special consideration is required, I am sure the Government will give that special consideration to the problem. We are now dealing with the current situation and providing relief for present problems and not for what may happen in two years' time. I would not consider that many businessmen today would be making a decision as to whether they would continue in business on the basis of a tax arrangement which might operate to their benefit in two years' time. It will only operate to their benefit in two years' time if they were making profit. If they were not making profit by then the carry forward of this unused concession would be of no value to them. If they were to be making profit in two years' time, and very few will not be doing it, then the concession suggested by the Deputy would not be justified.

Mr. Colley

I am sorry the Minister does not visualise companies projecting ahead for a period of years and the benefit or otherwise of this relief being perhaps crucial if their projection is of a low profit. I believe that is the position and we cannot do any more than point it out to the Minister.

Ruairí Brugha

Would the tax on depreciation be significant in many companies?

Mr. R. Ryan

We are dealing here with trading profits calculated before depreciation.

Ruairí Brugha

Before depreciation.

Mr. R. Ryan

Yes.

Question put and agreed to.

SECTION 32.

Question proposed: "That section 32 stand part of the Bill."

Mr. R. Ryan

This section corrects an erroneous cross reference in section 41 (7) of the Finance Act, 1974. The reference in question was intended to be section 16, subsection (2).

Mr. Colley

Obviously it will have to be amended. Could the Minister say has any difficulty arisen in the meantime as a result of the incorrect reference?

Mr. R. Ryan

Not that we are aware of.

Question put and agreed to.

NEW SECTION.

An Leas-Cheann Comhairle

Amendment No. 16, in the name of the Minister, and amendment No. 38, with it, forms a composite proposal. Amendments Nos. 16 and 38 would seem to fall to be discussed together. The Chair would like to be quite clear about Deputy Colley's reference previously to amendments Nos. 39 and 40. Does he wish them discussed now or held for discussion later? Would the Minister agree that they ought be discussed now?

Mr. R. Ryan

Yes, that would be acceptable.

Mr. Colley

I am just checking the amendments in question. Could the Chair repeat the suggestion, please?

An Leas-Cheann Comhairle

The original intention was to take amendments Nos. 13, 14, 15, 39, 40 and 41 as being related. At that stage Deputy Colley raised the question of amendments Nos. 39 and 40 being appropriate to section 33. It was agreed at that stage, by permission of the House, to hold those two amendments over and not discuss them. If it is agreed at this stage to discuss them, they can be disposed of now or held over and we can deal with amendments Nos. 16 and 38 now.

Mr. Colley

If the Chair has no objection, I should prefer to deal now with amendments Nos. 16 and 38.

An Leas-Cheann Comhairle

We shall deal now with amendments Nos. 16 and 38 and, at a later stage, deal with amendments Nos. 39 and 40, when we will be referring back to section 33.

Mr. R. Ryan

Very well.

An Leas-Cheann Comhairle

By agreement, then, amendments Nos. 16 and 38 will be discussed together.

Mr. R. Ryan

I move amendment No. 16:

In page 18, to insert the following section before section 33 :

"33.—(1) In the Income Tax Acts, save where the context otherwise requires, `capital allowance' means any allowance (other than an allowance or deduction to be made in computing profits or gains) under—

(a) Parts XIII to XVIII of the Income Tax Act, 1967,

(b) section 22 of the Finance Act, 1971,

(c) the Finance (Taxation of Profits of Certain Mines) Act, 1974, or

(d) section 22 of the Finance Act, 1974,

and `capital allowances' shall be construed accordingly.

(2) Part II of the First Schedule shall have effect for the purpose of supplementing this section."

The purpose of this amendment, to which Financial Resolution No. 7 relates, is to substitute a new section in place of section 33 of the Bill. Sections 3 and 33 of the Bill are concerned with bringing up to date the definitions of capital allowances in various places in the Income Tax Acts, by including in the definitions references to the new capital allowances introduced in recent years.

The new section to be inserted by the amendment will provide a single, updated definition of capital allowance which will then apply throughout the Income Tax Acts. The existing definitions in different parts of the Acts will be deleted by the new Part II to be inserted in the First Schedule by a later amendment. In most cases the extension of the list of capital allowances gives relief, but in two instances the extension could result in the cutting down of relief. For this reason a Financial Resolution is necessary. The two instances where the extension of the list might result in the cutting down of relief are as follows: section 236 of the Income Tax Act, 1967, where capital allowances are to be deducted in computing nett relevant earnings for purposes of determining the maximum allowable premium in the case of premiums paid by self-employed persons under contracts to secure retirement annuities in old age; section 218 of the Income Tax Act, 1967. That section is in Part XI of the 1967 Act which deals with the taxation of co-operative societies and provides for the apportionment of capital allowances in such cases by reference to chargeable and exempted profits. Only the amount apportioned to the chargeable profits may be set against those profits. Extension of the list of capital allowances is contained in section 218 so as to include the new capital allowances and involves apportionment of these allowances.

I am not certain whether you wish me to deal with amendment No. 38 as well at this stage.

An Leas-Cheann Comhairle

Yes. Amendment No. 38 forms a composite proposal with amendment No. 16.

Mr. Colley

In theory it is perhaps a composite proposal. But I think, from a practical point of view, it adds in a great deal more material. Therefore, it might be easier for discussion to take them separately. I am willing to take them together but, from a practical point of view, we might do better to deal with them separately.

Mr. R. Ryan

Perhaps we could deal with amendment No. 16 at present. When we have that out of the way we can see whether we should deal with amendment No. 38 before proceeding to the next section.

An Leas-Cheann Comhairle

By agreement of the House, then, we shall confine the debate on amendment No. 16 at present.

Mr. Colley

The Minister will appreciate that what he has just told us is somewhat complex. I think we had better take it bit by bit. First of all, I might take the first item he mentioned as being a reduction of relief. He referred to a change in regard to the assessment of allowances for the purpose of qualifying insurance premiums. There are two questions I want to ask the Minister with regard to that. First, could he explain precisely what change is proposed. Secondly—this is the question I raised in regard to the amendment to delete section 3 and I asked why certain existing reliefs in regard to qualifying insurance premiums were being taken away—I understood the Minister, at that time, to say they were not being taken away. But he is now telling us that they are, which is what I thought at the time. I should like to know precisely what is the change involved in relation to qualifying insurance premiums.

Mr. R. Ryan

Section 236 of the Income Tax Act, 1967, relates to the relief which is given in respect of premiums paid by self-employed persons under contracts to secure retirement annuities in old age. The amount of premium qualifying for relief is limited to 15 per cent of the taxpayer's net relevant earnings after the capital allowances listed in section 236, subsection (3), have been deducted. The allowances are those in respect of capital expenditure on plant and machinery, industrial buildings, scientific research, mining development allowances and so on. Does that help the Deputy?

Mr. Colley

Not quite. What I want to know is what is the change; in what way is it being changed from the existing position and why?

Mr. R. Ryan

We are bringing in the new capital allowances which we have in the 1974 Act.

Mr. Colley

I am afraid we may be at cross purposes at present. Section 236 of the Income Tax Act, 1967, specifies the nature and amount of relief for qualifying premiums. I understood the Minister to say that one of the effects of amendment No. 16 is to reduce the reliefs provided under section 236 of the 1967 Act. I am not clear what way the relief is reduced and why.

Mr. R. Ryan

We are adding the following allowances : the 20 per cent investment allowance for plant and machinery provided for use in the designated areas, section 22 of the Finance Act, 1971, the capital allowance provided for persons mining scheduled minerals, the Finance (Taxation of Profits of Certain Mines) Act, 1974 and allowance in respect of farm buildings and other works, section 22 of the Finance Act, 1974. It is most unlikely that any person would be affected by the Finance (Taxation of Profits of Certain Mines) Act, but if the capital allowances are put into one comprehensive section, we must include all capital allowances, including those that might not be used because the terms of the new provision affect only individuals. The people involved tend to be self-employed and would be unlikely to be affected by capital expenditure on mining minerals. Prior to 1974-75 the limit on qualifying premiums was only 10 per cent of net relevant earnings or £750, whichever was the lesser. Since last year's Finance Act the limit is 15 per cent or £1,500.

Mr. Colley

The Minister told us what is being added. He said that the relief under section 236 of the 1967 Act was being restricted. Telling us what has been added does not indicate the extent of the restriction of relief.

Mr. R. Ryan

If a self-employed individual claims these allowances, then this section will become relevant.

Mr. Colley

Did the Minister not say that the effect of this amendment— a new section to be inserted—is in general giving relief but in two instances restricting relief? The first instance was in relation to the qualifying premiums under section 236 of the 1967 Act. In what way is the relief under that section being restricted?

Mr. R. Ryan

The net relevant earnings will be changed by the inclusion of these capital elements.

Mr. Colley

Will they be reduced?

Mr. R. Ryan

Yes.

Mr. Colley

Will there be further deductions before arriving at the net relevant earnings?

Mr. R. Ryan

Yes.

Mr. Colley

Why?

Mr. R. Ryan

Previously the law provided for the deduction of capital allowances before arriving at the net relevant earnings. We are now adding the number of deductions which may be made before the calculation of the net relevant earnings. Accordingly, the net figure may be altered if the deductions arise.

Mr. Colley

The Minister said that the impact of the capital allowances under the Finance (Taxation of Profits of Certain Mines) Act, 1974, is not likely to be great. For example, if we take section 22 of the Finance Act, 1974, which deals with capital allowances in the case of farmers liable to income tax, could not the effect of including that in the capital allowances general definition, and thereby reducing the net relevant earnings for the purpose of calculating qualifying premiums, be of some considerable significance in certain cases? If so, why should this position arise? Why should such a person's position be disimproved, a person who, almost by definition, is self-employed and trying to make provision for his retirement?

Mr. R. Ryan

We are not making any change in principle here. Various capital allowances were always deductible. There are additional capital allowances now. Obviously, the logical thing to do is to make the additional capital allowances also deductible.

Mr. Colley

I accept the logic of that. The Minister said he was restricting the position relating to co-operative societies. Could he indicate the nature of the change being made and the reasons for that change?

Mr. R. Ryan

The existing law provides for the apportionment of capital allowances in such cases by reference to chargeable profits and exempt profits. Once again the capital allowances come into play in making these calculations. If we change the list of capital allowances, obviously the net sums change also.

Mr. Colley

But the principle is the same?

Mr. R. Ryan

Yes.

Mr. Colley

I take it then that the reason why this new section refers to the Income Tax Acts in general is that it is desired to give a completely new definition to the term "capital allowances" which will be applied right across the board in all Income Tax Acts?

Mr. R. Ryan

Yes.

Mr. Colley

Paragraph (a) refers to Parts XIII to XVIII of the Income Tax Act, 1967. In section 236 (3) of the 1967 Act which deals with the qualifying insurance premiums, there is reference to various Parts but the latest one is Part XVI. Why are Parts XVII and XVIII of the Income Tax Act, 1967, being brought in now when they were not brought in in the reference in section 236 of the 1967 Act?

Mr. R. Ryan

The new list of capital allowances will include those in Parts XVII and XVIII—relief for expenditure and training of local staff before commencement of training and special allowances for buildings, plant and machinery used in the production of certain commodities not produced commercially in the State. I am advised that while they are probably not applicable, it was deemed advisable to have a comprehensive list and not to exclude any allowance—and as we are adding on the allowances that were introduced in 1971 and in 1974, it is deemed appropriate to include these as well.

Mr. Colley

I can appreciate why the 1971 and 1974 allowances have to be added in, but it is not so clear to me why the allowances which were not brought in in the 1967 Act, which, as the Minister knows, is the whole basic law in income tax, are included. In that Act the tax allowances in Parts XVII and XVIII were not brought in, and apparently it was not thought necessary. I have wondered why it is necessary to bring them in now and whether any consequence could flow from this that might be undesirable, if in fact the only reason for bringing them in is to make it look tidy.

Mr. R. Ryan

We are endeavouring to deal comprehensively with all capital allowances. These capital allowances exist.

Mr. Colley

Yes, but they were specifically excluded, for instance, from section 236 which was defining the allowances to be deducted in arriving at the relevant net earnings under section 236 of the 1967 Act.

Mr. R. Ryan

Section 236 is a section with limited effect. We are dealing very comprehensively with all capital allowances.

Mr. Colley

The whole thing as defined here will operate in relation to section 236?

Mr. R. Ryan

Yes.

Mr. Colley

Whereas up to now any allowances under Parts XVII and XVIII did not operate in relation to section 236, but they will after this.

Mr. R. Ryan

I might answer the question by asking another : why were they not included in 1967?

Mr. Colley

They were not, and that was a very comprehensive Bill. I think the onus is on the Minister to justify bringing them in now.

Mr. R. Ryan

If we are purporting to deal comprehensively with allowances—and that is our intention—we consider that any capital allowances which exist should be included in this Act. It would seem odd to leave some of them out.

Mr. Colley

I think it is reasonable to assume that there was some reason for leaving them out in the 1967 Act which was the basic, Principal Act, and still is, on income tax. However, they were left out of the assessment under section 236. The Minister is now proposing to put them in, and I would suggest that is not the purpose of the section at all; it is an incidental effect of the section. What is worrying me is that this and other incidental effects have not been adverted to and that we may be doing something here without realising the consequences. Can the Minister assure me that all of these possibilities, like what is happening under section 236, were considered and it was decided that the consequences were either acceptable or desirable? I doubt if the Minister can give me that assurance.

Mr. R. Ryan

I can give the Deputy some further information, that is, that such defects or lack of comprehensiveness as exists in the 1967 Act finds its origin in the 1958 Act, which is the Act that section 236 is codifying. Unless a very good reason can be produced for excluding a particular capital allowance, I think all capital allowances should be brought into a section which is declared to be a comprehensive one; otherwise we are not producing a comprehensive statement of the capital allowances.

Mr. Colley

That is a reasonable approach, provided that one knows the consequences of what one is doing. I am not too sure that the Minister knows. I do not know the consequences, and I am not sure if the Minister's advisers know the consequence.

Mr. R. Ryan

I am advised that the Revenue Commissioners have no recent experience of anyone claiming these capital allowances.

Mr. Colley

Should they be abolished?

Mr. R. Ryan

They are there and companies are entitled to avail of them if they engage in this expenditure. The fact that they have not would appear to indicate that they are not engaged in this type of expenditure. However, I would not like to rule it out without further consideration of the matter.

Mr. Colley

Very well. I hope the Minister knows what he is doing.

Mr. R. Ryan

I am codifying the law.

Mr. Colley

Doing it hopefully without being absolutely certain of the consequences of what he is doing, I would suggest. I would ask a further question of the Minister. In subsection (1) for the proposed new section there is a reference to an allowance or adjustment to be made in computing the profits or gains. In that context is "computing" the equivalent of "charging", that is, could it equally be: "other than an allowance or deduction to be made in charging profits or gains."

Mr. R. Ryan

Other than an allowance or deduction to be made in computing the profits.

Mr. Colley

This is not a trick question. Perhaps I had better develop this a little further.

Mr. R. Ryan

I am not too clear what is worrying the Deputy.

Mr. Colley

Again I would refer the Minister to the Income Tax Act of 1967. Section 244 (3) deals with capital expenditure on scientific research and goes on to provide:

...subject to the provisions of this section, there shall be allowed as a deduction in charging the profits or gains of the trade for the year of assessment...

In the Minister's amendment a capital allowance means any allowance other than an allowance or deduction to be made in computing profits or gains. If that is the equivalent of "in charging profits or gains" it would seem to exclude that allowance referred to in subsection (3) of section 244 of the 1967 Act. What I am trying to find out is whether that kind of allowance—there are others but take that one as an example—that is dealt with in subsection (3) of section 244, the scientific research allowance—is to be deemed to be a capital allowance or is it to be deemed to be excluded by reason of the phrase "other than an allowance or a reduction to be made in computing profits or gains"? Does the Minister follow my point?

Mr. R. Ryan

I hope so, and if not I am sure the Deputy will tell me. If you take an allowance or a deduction into account in computing profits or gains, you take that allowance or deduction into account before measuring profits or gains. If, on the other hand, you have arrived at your profits or gains and then allow it in making a charge against the profits or gains, that is after the event. In one case you are computing, as it were, before you calculate the profits, in the other case, you charge it against the profits which have already been calculated.

Mr. Colley

Could one take it from that that the scientific research allowance would be a capital allowance as defined in this amendment?

Mr. R. Ryan

Yes.

Mr. Colley

I take it that similar allowances referred to in other places would be in the same category?

Mr. R. Ryan

Yes.

Mr. Colley

I am speaking now from recollections but I think there are references to allowances which are treated similarly in the 1967 Act except that these are not for capital expenditure. I expect that all such allowances are excluded from this definition by reason of the fact that this refers to a capital allowance.

Mr. R. Ryan

Yes.

An Leas-Cheann Comhairle

Is amendment No. 16 agreed?

Mr. R. Ryan

Shall we take No. 38 now? This is consequential on the definition of capital allowances.

Mr. Colley

Are there any comments on amendment No. 38 that the Minister may wish to make?

Mr. R. Ryan

The amendment is consequential on a new section and this provides the comprehensive definition of capital allowances for the purpose of the Income Tax Acts. The amendments contained in the proposed Part II of the First Schedule are simply amendments which are consequential on the new definition. I do not know whether the Deputy wishes me to spell them out.

Mr. Colley

Not if they are totally consequential on the new definition.

Mr. R. Ryan

I assure the Deputy that they are.

Amendment agreed to.

An Leas-Cheann Comhairle

Acceptance of this amendment involves the deletion of section 33 and the insertion of a new section.

Amendment No. 17 has been ruled out of order. Amendments Nos. 18 and 19 are related and may be taken together with separate decisions if necessary.

Mr. Colley

There are somewhat different points involved in the two amendments.

An Leas-Cheann Comhairle

In that case, they may be discussed separately.

NEW SECTION.

Mr. Colley

I move amendment No. 18:

In page 18, to insert a new section before section 34 as follows:

"34—Section 59 (1) of the Finance Act, 1974 is hereby amended by the substitution of `reasonably require' for `think necessary'."

This amendment relates to the Finance Act, 1974 and it proposes that in subsection (1) of section 59 of that Act the words "reasonably require" be substituted for the words "think necessary". Subsection (1) to which this relates is short and perhaps I may read it:

The Revenue Commissioners or such officer as the Revenue Commissioners may appoint may by notice in writing require any person to furnish them within such time as they may direct (not being less than twenty-eight days) with such particulars as they think necessary for the purposes of sections 57, 58 and 60.

My amendment proposes to enable the Revenue Commissioners to serve a notice in writing requiring any person to furnish them within such time as they direct, not being less than 28 days, with such particulars as they reasonably require for the purposes of sections 57, 58 and 60. The practical effect for many people of the acceptance of this amendment might be nil or almost nil but for other people it could be of extreme importance because the section as drafted enables the Revenue Commissioners or any officer they may appoint to seek such information as they think, or as he thinks, necessary for the purposes of the section I have referred to.

On the face of it, that would appear to apply no limitation on the particulars which may be sought other than some connection which, in some cases might be very tenuous, with the matters dealt with in sections 57, 58 and 60. On the other hand, acceptance of the amendment would not inhibit the Revenue Commissioners from obtaining any information that would be required for the purpose of carrying out their work. There is a significance in the phrase "reasonably require" as against "think necessary": because the information and the particulars sought by the Revenue Commissioners must be such as they reasonably require for the purposes of these other sections there is built in some criteria whereas the section as drafted has no such criteria. This means that in a very unreasonable case where the Revenue Commissioners or an officer appointed by them acted very unreasonably, it would be possible for an aggrieved taxpayer to have a remedy by applying to the court and establishing that the information sought was not reasonably required. If it were reasonably required the taxpayer, by definition, would be bound to furnish it but unless this amendment was accepted there would appear to be virtually no limitation on the information which may be sought. That is wrong in principle as well as in practice. Therefore, the Minister should not have any difficulty in accepting the amendment, an amendment to the same effect as one tabled to the Bill that was before the House last year but which was not reached because of the manner in which portion of the Committee and subsequent Stages of that Bill were dealt with. The acceptance of this amendment would not inhibit the Revenue Commissioners in any way but would establish some form of protection for a taxpayer against unreasonable demands for taxation.

Mr. R. Ryan

This matter was discussed at some length in the other House. I pointed out there that the Revenue Commissioners, like any other arm of the State, must act reasonably at all times and that if they fail to act reasonably they are amenable to the courts. The mere fact that they can be challenged in the courts is ample protection for the citizen. In this connection I might refer to a case in England where a person was aggrieved by receiving a notice from the Commissioners of Inland Revenue. This notice would be similar to one served here under the 1974 Act.

It might be worthwhile to put on the record of the House what the British court said. Incidentally, as I pointed out in the Seanad also, I should observe that the legislation in Britain which deals with requiring certain people to make disclosures about the transfer of moneys abroad for tax avoidance purposes was introduced in 1936. Somebody said that what we were proposing was a fascist move and I pointed out in the Seanad that the persons who introduced this provision in English law had declared war against nazism and fascism and was unlikely to bring in something which was fascist in nature. It is not fascist; it is simply providing an absolutely necessary weapon to counter tax avoidance by the transfer of assets abroad. Those who endeavour to avoid tax by transferring assets abroad are not simple people; they will go to any lengths to conceal their activities from the Revenue Commissioners and if they succeed it is not merely the Revenue Commissioners or the Exchequer that is the victim but the general body of taxpayers who because of the avoidance action of the well-to-do are left carrying a larger burden themselves. The State has a clear obligation to counter tax avoidance activities.

However, the English case is pertinent and I mention the name of the case so that anybody who wishes to pursue the matter further may do so. It is the case of Clinch v. the Inland Revenue Commissioners, 1973, All England Reports, Page 977. The plaintiff asked the court to rule that a notice served on him was invalid and one of the questions addressed to itself by the court was: Has the plaintiff established that the commissioners have exercised their discretion unreasonably? The Inland Revenue contended that the notice could only be attacked for unreasonableness if the degree of unreasonableness was such that no reasonable person could consider the notice necessary for the purposes of the Act. The plaintiff contended that the court was entitled to interfere if it could be shown that, viewed objectively, the authority were acting unreasonably, albeit that they were acting within the four corners of the authority conferred on them. In the course of the judgement, the judge said: "The particulars are sought of the intermediary"—who was the plaintiff in the case in question—"in order that he may be used as a stepping stone towards obtaining the more detailed information required by the Commissioners to enable them to decide whether or not, in their opinion, tax has been unlawfully evaded. The information which they require is such as to give them a shrewd idea of the relationship between a taxpayer and a foreign company, partnership, trust or settlement. Accordingly, if the particulars sought went substantially beyond that which was required for this purpose so that they could be properly described as unduly oppressive or burdensome, I have no doubt that a court would be entitled to intervene and declare the notice invalid. One of the vital functions of the courts is to protect the individual from any abuse of power by the executive."

In the event, the judge held in favour of the Inland Revenue. He accepted in principle that a notice could well be inordinately burdensome or oppressive and therefore invalid but that was not the case in the instance involved in that case which would be similar to the kind of instance that could arise if the Revenue Commissioners used the powers given to them under the 1974 Act. Those powers may only be reasonably used and if a taxpayer, or a person to whom the notice is addressed, is of opinion that they are being unreasonably used, then a right exists to take the matter before the courts to see if the courts would have a different view. It is, therefore, clear that the Revenue Commissioners in acting under this section and in looking for the information will do so when they think it necessary and if they consider that it is proper that they should investigate a case they may serve the required notice. I have no reason to anticipate that the Revenue Commissioners will act unreasonably. In fact, the law assumes that the State and its agents will act in a reasonable way in using any powers given to them. As Deputy Colley knows, it is open to anybody who feels that the bounds of reason have been exceeded to challenge any act which appears to be unreasonable. One does not need to use the words that Deputy Colley suggests in his amendment in order to ensure that reasonableness will at all times prevail so far as the conduct of this State is concerned.

Mr. Colley

May I ask the Mini-in regard to the case he quoted whether the relevant portion of the English Act was similar to this? Does it contain the phrase : "such particulars as they think necessary"? That was the phrase in question.

Mr. R. Ryan

Yes.

Mr. Colley

I venture to suggest that what the Minister has said in regard to a requirement that the Revenue Commissioners would not act unreasonably in general, is true and the case that he quotes is true of the general position but, with all due respect, that, I think, is not really the point of this amendment which is that if you have the phrase: "such particulars as they think necessary" and the court is asked to interpret whether the commissioners acted reasonably or not, the court will establish a certain level of responsibility which I suggest would be different from what would be established if the section were to read "such particulars as they reasonably require". There is a slight difference in the meaning and I think there would be a difference in the interpretation by the courts arising out of these words. I suggest that the Minister does not want, or should not want to have the Revenue Commissioners acting unreasonably, or unreasonably to require certain particulars; that he wants them to act reasonably. Therefore, he should not have any difficulty in agreeing that the phrase "they reasonably require" be inserted. If I understood him correctly earlier he was saying in effect that it does not make any difference whether you put in "reasonably require" or "they think necessary", that you get the same standards applied by the courts. I am not sure that is so; indeed, I have grave doubts that it is so and I would hope that the Minister would not want any interpretation other than that which would be taken from the insertion of the phrase "reasonably required".

That does not inhibit the Revenue Commissioners in any way in carrying out their duties under this part of the Act. It should meet the requirements of anybody in the House that the courts would not interpret it in a way that would hinder the Revenue Commissioners but it does establish some criterion, some level on which an aggrieved taxpayer can stand and can apply to the court and get a greater degree of protection than is implied in relying on the general obligation of the Revenue Commissioners to act reasonably and within reason. But interpreted in the light of the Oireachtas having enacted a phrase "such information as they require" or "as an officer requires", I suggest there is a difference. I hope the Minister will be able to agree that the acceptance of my amendment would provide a slight degree of protection without inhibiting the Revenue Commissioners. On the other hand, if his argument is that it makes no difference, I suggest he might accept it anyway because he is not losing anything. Even if it is unnecessary I am sure some people would be reassured if that amendment were made.

Debate adjourned.