I do not think I have anything to add to what I was talking about 12 hours ago.
Capital Gains Tax Bill, 1974: Committee Stage (Resumed).
Question again proposed: "That section 47 stand part of the Bill."
Perhaps I could assist the Minister. He was dealing with a point I had raised on subsection (9) in regard to a forfeited deposit of purchase money. The subsection provides that where a deposit of purchase money on sale is forfeited, that money is to be deemed to be disposal and acquisition and subject to capital gains tax. I questioned whether this was consistent with other provisions in the Bill to which the Minister had referred from time to time, specifically the provision that a disposal of money or currency is not subject to capital gains tax.
The Minister was arguing there was more involved here than money, that there were rights under contract, rights to property normally. I suggest that when the deposit is forfeited the question of right to property has ceased because the contract has been terminated and the deposit has then been forfeited. What is involved is simply a money transaction. So far we have been dealing with the person who received the forfeited deposit but I want the Minister to say what is the position of the person who loses the deposit: is he entitled to claim the amount of the deposit so lost as an allowable loss?
No. The position is that the person to whom the money is forfeited has made a gain out of the property because he has sold to another person the right to acquire the property. The person who forfeits has no capital asset on which he has suffered a loss. The right is extinguished through its non-exercise. He has no capital asset and, therefore, has no loss to set off but the other person has a property on which a gain has been made and, therefore, has had a capital gain.
(Dublin Central): In an earlier section the Minister said he would not allow cash deals as allowable losses but I do not think the Revenue Commissioners can have it both ways. In one section it is maintained that a cash transaction will not be an allowable loss and then we come to another section where there is a cash transaction. How often have we seen a deposit placed on a property at auctions and so forth and a person fails to raise the necessary money to carry through the deal? This is strictly a cash transaction but the Minister builds it into a capital gain under this section, while at the other end a man who loses his deposit —he could have other property—will not be allowed to claim it as a capital loss. I do not think the Minister is consistent. It is a cash transaction. The Minister has stated that cash transactions are not allowable losses, yet we come to this section where a man takes an option and puts a deposit on property, if he fails to raise the necessary money to go through with the deal, the Minister says the deposit is a capital gain. There is no consistency between the two previous sections and this one, but to make matters worse the Minister is not allowing a chargeable loss to a man that may already have one or two properties and who borrows from the bank to put a deposit on a new property for which he fails to raise the necessary cash. Surely there is a case there for an allowable loss.
While I agree that a person who makes any profit out of an option should pay tax, I felt yesterday that in this discussion there was a certain amount of bitterness or hatred against people who might be in this option market or who might be involved in a speculation. There are many people who sell shares. If they can buy them at a lower rate they can sell them at a profit and if they cannot buy them at a lower rate they must pay a higher rate and lose. It is a risk.
However, on this question of options, say there are 11 properties in a deal. If a property manager said tomorrow morning: "I am going to buy them" those involved would all look for treble the price, but if he gets an option on, say, half or one-third of them and goes along to the remainder and says: "Your property is worth £X as it is. Developed it is worth £2X, which I am willing to give you", if ten people agree and one refuses, the one person who refuses may be blackmailing the property manager and holding out for, say, six times the amount. Therefore he cannot go ahead with the development. If he has paid 10 per cent of £1 million, he has paid £100,000 on it.
All these people who get £10,000 each pay income tax on it, but the man who pays £100,000, the man who is needed to get all these people together, if he sells all his options, he pays tax on it; if he develops the property he pays capital gains on it, or if it is a company they pay normal tax plus corporation profits tax. If a person takes this risk I cannot see why he is not allowed on it, whether he is an individual or sets up a £100 company to do it. If he puts in the money and loses it it should be chargeable as a loss. If this is a company that is in a capital gains position, does the Minister intend that they should get no allowance for the losses on options on such properties as I have spoken about?
Furthermore, if you are a trading company, you pay tax in the normal way and you are not in for a capital gain, but in a straightforward business, if you buy the property with the intention of developing it and fail to develop it, are you allowed tax on your losses on the option? I agree with the section in so far as it deals with people who are just in and out, but there are people who are legitimately in the business, and areas would not be developed without them. Dublin city is crying out for development of flats rather than business properties. It would be a retrograde step if a person who was prepared to buy property in a package deal and then develop it was prevented from doing so.
Subsection (5) deals with the situation Deputy Belton describes. The abandonment of the type of options he is talking about could give rise to capital gains or capital losses, which of course, would be allowed.
(Dublin Central): I do not think that covers what Deputy Belton is talking about as regards taking the option and losing it, that you cannot offset it against a capital gain.
If a man pays £100,000 on a property worth £1 million and one person refuses to deal with him, the development cannot take place. He pays £100,000 reasonably hoping that he will get planning permission. Supposing the planning permission is refused, are the Government going to charge tax in such a situation? Is that the position?
I think the Deputy is depicting a scene in which a person loses £100,000 because he does not exercise the option. The reason why he does not exercise the option is irrelevant here, whether it is planning permission or because he changes his mind or anything else. He is abandoning the option here and he has a loss in the situation depicted, and this would be an allowable loss.
Fair enough.
(Dublin Central): According to this section, it is not an allowable loss against future capital gains. The Minister is talking about a trading account for the year whereby it can be written off, but a future capital gain is not allowed.
Deputy Belton is talking about a person who engages in property development. Such a person will presumably be engaging in similar activities in the future and so will be able to use losses in one situation against another.
Does the Minister mean that if the person described by Deputy Belton sustained a loss of this kind for some reason or another, he could charge it against a capital gain he might make in some other area?
Yes.
Where is that provided?
Subsection (5) (b) says that if:
an option to acquire assets exercisable by a person intending to use them, if acquired, for the purposes of a trade carried on by him,
is disposed of or abandoned, then—
(i) if the option is abandoned, the abandonment shall, notwithstanding subsection (3), constitute the disposal of an asset (namely, of the option), and
(ii) paragraph 9 of Schedule 1 (restriction of allowable expenditure for wasting asset) shall not apply . . .
Therefore, the full loss will apply.
He can charge his loss against another capital gain?
Yes.
(Dublin Central): What about subsection (9)?
Subsection (9) deals with forfeited profits.
Is the provision in regard to abandonment not that the person who benefits as a result of the abandonment, who makes a gain, becomes liable to capital gains tax but the person who loses cannot claim that as a loss? I understood that was the position under the section. That is why I asked the Minister where it was provided. I am not sure, on the face of it, that subsection (5) (b) does precisely what the Minister says.
Subsection (5) deals with assets which are acquired for the purpose of a trade. In such a case the loss could be used—it would be allowable. But if it is not for the purpose of a trade that a person forfeits a deposit, then such a person would not have a loss which would be allowable.
In the case described by Deputy Belton, if that is not the person's trade—the development of property—and if the loss occurs as described by Deputy Belton, is it not true that he is not allowed to claim that loss as an allowable loss against other capital gains?
If the person is not operating as a property developer but is simply in once only—or even for a period he might be a property developer and then abandon it—if it is only an occasional operation rather than a trade, then the loss on a forfeited deposit would not be allowable.
On what principle do you apply that?
In one case the person is engaged in the trade and acquiring an asset for the purpose of business. In the other case the person is not engaged in a business operation but in a once only or occasional enterprise.
But if he were engaged in an occasional enterprise would he not also be charged for a capital gain?
Yes.
Why would he not get the benefit of a loss on an occasional transaction as he would otherwise?
If he gets it in one case why not in another?
It is very easy, indeed, to fabricate losses by arrangement. Persons could arrange with other persons in their confidence to have a contract under which losses would be fabricated and deposits forfeited by agreement. It would be impossible to police developments of that kind.
So we do injustice because we cannot police?
No. If a person is in this accidental or occasional situation which subsection (9) visualises, such a person is unlikely to be in a recurring capital gains situation.
I agree in the case of fabrication. What the Minister is talking about is where somebody who has a loss transfers it to somebody else. But if an individual has a genuine loss in an occasional transaction, since if he had made a gain he would be chargeable, he should be able to charge a loss.
Is that not the general principle on which the Minister has been proceeding—that if there was a chargeable gain there could be an allowable loss or, alternatively, the transaction was taken out of that category altogether?
I do not see how it could be fabricated where the person was going to make himself liable for a capital gain.
He could sell his loss.
One side would have to pay while the other side——
I understand the difficulties of collection and policing but here, again, I should like to urge on the Minister the importance of working on the principle and not trying to close every conceivable loophole because you will leave some big gap in any case. This is the sure way to do it.
First, there is a principle in this Act that capital gains are to be taxed and I think there is universal acquiescence in that but the Minister has emphasised that, as the obverse of the coin, allowable capital losses will be set off against capital gains. I leave it to my colleagues to deal with actual details, Deputy Belton, Deputy Dockrell or Deputy Fitzpatrick, and I shall try to deal with the legal principles because we are making law. If that is the principle of the legislation, it is important to apply it universally. That raises the first practical difficulty which we understand, the difficulty of the Revenue Commissioners when they are up against people indulging in planned avoidance of the provisions and the difficulty of policing. Policing difficulties restrict all of us in the community whether it is policing for the Revenue or for crime. The next principle one would rule is that there be fairness in the restriction. Every effort must be made to see that no person is penalised or no group penalised or put at a disadvantage more than another.
I see that principle being infringed here as I have mentioned on earlier sections. Here, for anti-avoidance purposes a situation will develop where some genuine people will be penalised in that they will be liable for gains but will not get the equity available to others under a provision which will be exploited by the people on whom the Minister is concentrating. The genuine people will be penalised as against others.
To encourage the friendliness and usefulness of the discussion we have had I want to tell a story that once happened in the old days. It will illustrate the futility of trying to foresee everything and block every outlet.
In the county of Dublin 50 or 100 years ago, it was the custom in a certain town for the boys and girls on Hallowe'en night to go around with a stalk of cabbage and bang the doors. There was a cranky old dame in one house who was utterly determined that no one would bang her door and she went to all the trouble of having the door taken off and brought beside her at the hob. She sat there guarding the door and said: "They won't bang my door tonight" but what happened? One of the girls, the least expected of anyone, quietly came in and said: "Goodnight, Maggie; aren't there terrible noises around?" Suddenly out came the cabbage stalk and banged the door and out she went. The door was banged all the same. The Minister and the Revenue Commissioners can never block or prevent everything and the more the Minister goes on with this, the more his door is going to be banged and this is what I have been fighting on all these sections. I know that the Minister has not got unduly irritated by my insistence but it is an awfully important point.
What is really activating the Minister here, it seems to me, is not any particular desire to penalise anybody. In answer to Deputy Belton, he has brought out the dangers, but I am going to ask him on the principle: can he not face this without going to the extent of making an exception in the general principle of the Act of allowing losses where a person is in principle chargeable for gains? I will even concede that certain very clear cases might force something like this but not, I think, where bona fide and genuine business or transactions are concerned. That is my plea to the Minister.
Secondly, on the section as a whole, the Minister will recall that I said last night, and say again, that this is a necessary section as it goes, and Deputy Colley, I think, joined with me in that, but we have to look at its provisions and try to make it a better section than it is in the Bill. I want to be assured that it is not revenue-getting that is involved here. Here is a question which we have not asked the Minister very much so far on the Bill and I refrained from asking it but the type of thing envisaged here may involve very big monetary transactions and I do not completely accept that this section is merely included to be explicit on action and prevent abuse. I have a feeling that revenue considerations may come into this. In other words, it is definitely a taxation section and the Minister hopes to get a significant contribution, and particularly what I might call an economic contribution, from this.
To explain what I mean, and I do not wish to appear to be making a Second Reading speech, certain taxes give a high return and are easy to administer—PAYE, for instance. Here the cost of collecting has been virtually handed over to the private citizen and it is not difficult to police it and it has a very high content of return. Something the same could be said about VAT. A capital gains tax can be a less remunerative tax, for tax it is, however dressed up in social conscience, and none better than the Minister to give it a very good look from that point of view. It is taxation, however dressed up, and the Revenue Commissioners are obviously concerned with enforcement because in this whole capital section in the end the assessment is placed on the taxpayer and the sanctions are there to see that he pays.
Leaving aside that aspect however, I should like to know how much in relation to this section the revenue element comes in. If it is a case, and this is the crunch, that it is anticipated that considerable sums will come in under this head and although nobody wants to say it explicitly, the allowing of losses would decrease the contribution or leave it too uncertain, that is a policy matter and should be stated positively. Note my "ifs". The Minister will understand that there are no imputations in this. I am merely trying to dissect the problems which have arisen on this section.
What I am saying is that there are three problems on the section, which we all agree should be in the Bill in one form or another. The first is— and I ask the Minister to answer this general policy question first—why can we not continue to apply the general principle of setting off allowable losses against allowable gains in this area? If there are specific cases where it is necessary to modify that principle, the Minister should say specifically what they are. The Minister would shorten our discussion and help us greatly if he could do so policy-wise and, in fact, answer the question.
Secondly—we know that there is a lot of anti-avoidance in this section, that that is nearly the purpose of the section—would he say—I am only guessing when I put the question but I am still entitled to ask it and to get an answer—is there a significant revenue element here and, if so, would the allowance for losses significantly influence the position? Let us have the answers to these questions before we get lost in further discussion.
The Minister gave me answers regarding trade in companies and their appeals against tax and yesterday Deputy de Valera asked me to go into the details on this. I was puzzled yesterday to hear three lawyers chatting about lessee and lessor; I could not get into my head what they were talking about.
I endeavoured to return to the principle of that.
I understand the position but I did not get involved in the discussion because I would need to be practising in a solicitor's office daily to argue the matter fully. I accept some of what the Minister has stated. A person who buys property is in it to make a capital gain and he is willing to pay 26 per cent tax but if he loses, and he can lose for many reasons other than his own bad judgment, he should be able to use that loss against a capital gain in the future. If of 11 people involved in a scheme one does not come across with the result that the scheme has to be abandoned and there is a loss of £100,000 the Minister has said if a person who suffers that loss is in for the first time, is a gambler, he does not see why he should get an allowance. I do to an extent. It is usual that such a person gets options for a sizeable amount and he must be backed by a strong company. While the options are being prepared, it must be remembered that planning permission for the development of the area has not been sought or obtained from the planning authority. The planning authority may then say they want a road to go through the property because of the provision of Government offices there.
When the planning authority place a CPO on the property the person is stuck with a loss of £100,000. He will get some of it back with the houses up the middle but he will get none of it back from the development on either side. This loss has occurred through no fault of that person; it has occurred because the planning authority interfered. That person, who was willing to pay capital gains tax, is then faced with a capital loss. If a local authority held up the passing of plans, that person could be put into an unprofitable position, a position he did not foresee and for which he is not allowed anything. I accept that the Minister is endeavouring to stop the fly-by-night individual but the person I have spoken of is not catered for. The person who sells his 10 per cent after paying the Minister his tax and then loses that 10 per cent afterwards should be allowed something on it. I can understand how this works with a trading company.
(Dublin Central): I am confused as to what the Minister said in regard to trading companies. I should like to give an example. Mr. A. has an hotel and he buys a site from Mr. B. for £8,000 to build another hotel. Mr. B. owns a public house apart from the site. Mr. A. fails to find the rest of the money and loses his deposit of £8,000. That person then sells his hotel. As I see it, he cannot write off that loss of £8,000 against the capital gain of £20,000 which he makes on the sale of the hotel. If Mr. B. sells the site that he has taken the £8,000 for and makes a capital gain of £20,000 the £8,000 will be added to the £20,000 and become a £28,000 capital gain. Is that the correct interpretation?
If a person has acquired an hotel for the purpose of carrying on the business of the hotel, then subsection (5) will apply.
(Dublin Central): I am thinking of the £8,000 he lost by taking an option on a site for the purpose of building another hotel.
Subsection (5) applies.
(Dublin Central): After selling his first hotel and making a capital gain of £20,000, can he write off the £8,000 as a capital loss?
He can.
(Dublin Central): If Mr. B. sells his pub, will the £8,000 be added to the capital gain on that sale?
Yes. As far as a business is concerned subsection (5) applies and losses are allowable.
(Dublin Central): But not in the same year. The hotel I am referring to could be sold a year or two later and could the loss then be carried forward against his capital gain?
Yes, but not backwards. So far as the non-trade transactions are concerned it is most unlikely that there will be any hardship by reason of the operation of this section. I cannot say what the revenue element is; we do not know. We do not know the number of transactions of this kind here because there has been no obligation to bring this to the notice of the Revenue Commissioners hitherto. As ordinary men of the world, we know these transactions occur.
I asked if it was an anticipated revenue return but I accept the answer of the Minister.
In so far as it will be operated to discourage avoidance it means there will be a revenue return. There could be a situation in which a person has a capital gain of £5,000 and he could arrange with ten other people a scheme under which ten deposits of £500 each would be forfeited to ten others. Those £500 lots of themselves would not be taxable because they would be below the limit and who can say whether or not money passing in that situation on paper would not be handed back in more casual locations and would not come to the notice of the Revenue Commissioners? There could be a situation then of having ten fabricated losses being used to prevent a charge on a gain of £5,000.
Surely when losses are claimed to be set off against a transaction, the Revenue Commissioners would not accept a suspect case like that without some investigation.
That may be the position but one might generate these over a number of years in anticipation of gains in such a way as not to make the evidence readily available to the Revenue Commissioners. I will look at the points made here to see if we can tackle this matter in some other way. The genuine case where there is not a fabrication of losses and which is not designed primarily as an avoidance device might deserve different treatment if hardship were caused. I doubt very much if there would be hardship in many of the cases that have been described, but neither would I want any element of significant hardship. "Hardship" is an emotive word and it is a condition that is difficult to calculate. People seldom talk about taxes without using the word "punitive" and they seldom talk of a loss without calling it a hardship. It is not necessarily something that causes all that much pain or disturbance. However, I should like some time to think about the points that were raised and if it is possible to have a different way of treating these issues, I will be disposed to consider it for Report Stage.
Where a person loses money either because of bad judgment or through no fault of his own he is not allowed to offset the loss, but if he did another deal and made a profit, would he be allowed to offset the loss against that profit?
(Dublin Central): He might be in the trade for the first time.
These are matters of degree and an assessment must be made in each case.
I am involved in this so far as a trading company is concerned. The capital gains aspect does not worry me. I am discussing the case of a person who is caught and I cannot understand why he cannot claim in future. I can visualise where a person who might be in business on a small scale could lose and have no way of getting the money back. If that person makes a gain of £2,000, he will have to pay capital gains tax but if he loses £5,000 he does not get any allowance for that. It seems unfair.
I should like to ask the Minister some questions with regard to the option situation and how it might apply to an ailing industry. There are many such industries at the present time. Perhaps I might take the example of the textile firm of Martin Mahony, Blarney, in my constituency. This firm is in serious financial difficulties——
I am sure the Deputy will appreciate that in tax matters we should not refer to individual concerns.
I am merely taking it as an example.
I trust the Deputy is not availing of this opportunity to bring up this matter.
That is not my intention. I am merely referring to an example where there were approximately 260 people employed. The local representatives who are concerned for the preservation of the jobs naturally are trying to interest people who may not have been involved in business prior to this. Jobs must be protected. The textile industry has not got any help from the Government——
The Deputy will have to refer to the section under discussion. He is introducing extraneous matter.
Perhaps the Chair will allow me to develop the point.
The Deputy will not be allowed to proceed on these lines.
I am anxious to develop the option situation. If we succeed in getting somebody to take an option in all or part of such an industry——
I am afraid the Deputy is availing of this opportunity to refer to a specific industrial problem in his constituency and I am specifically ruling that out of order. The Deputy must not refer to the matter again. He must refer his remarks specifically to the section under discussion or else resume his seat.
May I refer to the broader issues——
The Deputy must refer to section 47 of the Capital Gains Tax Bill—nothing else.
Perhaps the Minister would clarify the situation where somebody succeeds in getting a person who has not already been in business to take an option in all or part of such an industry. It is probably a gambling option so far as that person is concerned because he may not be able to get adequate finance from other sources——
The Deputy is seeking to circumvent the ruling of the Chair. If he persists, I shall ask him to leave the House.
On a point of order, the Chair may be somewhat more suspicious than is necessary——
The Chair is satisfied about what the Deputy is up to.
I suggest the Deputy has a valid point in relation to this section and to the inducement of people in taking options. The section provides that in such circumstances if they lose or abandon the option they cannot claim this as an allowable loss and, therefore, there is no inducement.
Subsection (5) would apply——
I am afraid it would not and this is why I am making the point.
They would be acquiring assets intending to use them for the purpose of a trade. I assume that is what Deputy Fitzgerald is talking about. I do not think he is assuming they would acquire the asset in order to dispose of it.
If the person for some reason cannot take up the option afterwards because of inadequate finance, what becomes of the option? Should not special cognisance be taken of such an individual who may be in a position to save the jobs of many people? We have many ailing industries and, perhaps, some person might decide he could make a success of a business. He may take an option but may not be able to get the necessary funds. In that situation does he lose or is there any attraction for him to go in and help our economy, help save jobs in an area like Blarney which has been neglected by the Government?
The Deputy knows it is not in order to make specific references.
It is not customary to mention specific names and the only error Deputy Fitzgerald made was to mention the name of a firm. I submit I am quite entitled to make the point being made provided I refer to the matter in general terms. If I say: "Consider the case of a firm"et cetera that is within the terms of the section and I submit I am perfectly in order. In my own time I fear I have on occasion been a little unreasonable with the Chair. I further submit that, if we pursue argument on this, the publicity will be greater than ever.
I should like to get back to the section. It was probably wrong to mention the firm. Let us all agree on that, but the Minister has made an answer to us on the proviso in subsection (5) which is the subsection I now want to talk about. Am I in order in dealing with a hypothetical general case of a company or an asset—I shall leave out the word company, though it is a company in this particular case—which is in danger of going? Forget the reasons for it. If somebody is prepared to take an option but may be discouraged, or find it not good business, or too dangerous, am I entitled to discuss that?
That is what I wanted to know. Furthermore, if the Minister gives me reasons why he will not do something, since there are social matters involved, am I entitled to raise social considerations with regard to the maintenance of employment and things of that nature? Is that in order?
Yes, general matters.
We want to keep in order.
The Deputy knows that a Member can be quite at liberty to discuss the section and its subsections without going into specifics or mentioning the names of particular individuals.
I am sorry if I introduced a specific case but I am emotionally upset about the situation. The case I mentioned was merely an example of something about which I am only too well aware as I am only too well aware of what the consequences may be for the area.
The Deputy should not continue to refer now to specific matters.
Let me generalise. In such industries surely adequate protection should be provided for the encouragement of John Murphy, who has never before been in business but proposes to engage in business for the first time, possibly making a success of it with obvious benefits to the area in which the industry is situated and benefits to the economy generally. If John Murphy loses the option, if he loses the money, what happens then? If the receiver gets £10,000 what is the position in regard to that £10,000? Is it charged to capital gains or is it a capital loss? Could it be claimed as a capital loss?
I have said that subsection (5) provides it can be claimed as a capital loss by the person who suffers it.
(Dublin Central): Not the first time in business.
For the purposes of a trade carried on by him.
But he never did any trading before.
The subsection provides for that eventuality. The terminology used is ". . . . intending to use them, if acquired, for the purposes of a trade carried on by him".
If he is established intending to use them for the purposes of a trade carried on by him, there is no problem.
No.
There is, I think, another interpretation. The terminology " . . . intending to use them . . . for the purposes of a trade carried on by him" can be interpreted as a trade he carries on at present.
I shall have a look at it again and, if it is necessary, I will make clearer what the intention is; in other words, it will be seen to be a case of genuine trading intentions.
The Minister has referred to subsection (5) on a number of occasions and I would like some further clarification on the subsection. The subsection refers to two kinds of options:
(a) an option to subscribe for shares in a company, or
(b) an option to acquire assets exercisable by a person intending to use them, if acquired, for the purposes of a trade carried on by him.
The section then goes on to say that if an option of either kind is disposed of or abandoned certain things will happen. If it is abandoned "the abandonment shall, nothwithstanding subsection (3), constitute the disposal of an asset (namely, of the option). . . ". The Schedule provides that restriction of allowable expenditure for wasting assets shall not apply and accordingly subsection (4) shall not apply to such an option as is mentioned in paragraph (a). Perhaps that is clear to the Minister but it is certainly not clear to me because the subsection is dealing with two kinds of assets. It provides that, in the event of an option of either kind being abandoned, then so and so shall happen but it does not say what happens if it is disposed of. Furthermore, it seems to apply some parts of the subsection and previous subsections to one kind of option and not to the other. Whatever the intention is, what is purported to be achieved in this is anything but clear. I would, in particular, like the Minister to spell out precisely where the question of the loss resulting from the abandonment of an option is treated as an allowable loss. It says here if the option is abandoned the abandonment shall, notwithstanding subsection (3), constitute the disposal of an asset . . . " would the Minister pursue that a little further and spell out precisely how that produces the situation of an allowable loss because the next part says that the allowable expenditure in respect of a wasting asset does not apply while the next part seems to apply only to shares.
Subsection (3) provides:
The exercise or abandonment of an option by the person for the time being entitled to exercise it shall not constitute the disposal of an asset by that person . . .
That is why, in relation to assets acquired for the purposes of a trade, it is provided that, notwithstanding that subsection, it will constitute a disposal.
Is the Minister saying, in effect, that because it is a disposal then, if a loss arises, it is an allowable loss?
All the consequences of a disposal then apply without having to be specifically spelled out again.
I am afraid I am a little bit confused now about this point. Let us take the case that we were taking. There have been strangers, without naming names or giving indications, who have come along in this country in recent years and who have promoted industrial activity because they had capital resources or who were motivated by social reasons or, perhaps, if one wants to be cynical, the reasons that motivated them were personal reasons but that motivation caused them to do good. It is not unknown that such a person has been willing to come in and take a company or a business which was failing, revive it and deal with it. This is the case that I want to focus on. On the point we are currently discussing I am not quite clear how this section applies to him if he proceeds to deal with it by way of option. He may want to deal with it by way of option to gain time or to resolve uncertainties and to keep things going.
I can think of a case in this city of many, many years ago. I will not indicate it but it cannot possibly cause any emotions now. It was a case where somebody of the nature described, a very well-known citizen, did come and revive in this kind of way at least one industry that I have in mind which today is still flourishing as a result of that intervention.
I would like to know how this affects the encouragement to people. I think that is the net point which Deputy Fitzgerald could have made in order on this section. There is a further point but, perhaps, until the Minister answers that one I will reserve it.
The Chair would point out and Deputies will appreciate that it is an old ruling of this House that a citizen's or firm's affairs would not be discussed in the House.
We are not discussing——
No. The Chair is just taking the opportunity of explaining the background to the ruling.
I hope I did not offend in what I said.
I agree completely. It is still relevant from the point of view of encouragement. For instance, let me be more specific. I may wish to take an option on some assets—I am saying "assets" now— for time but also for social reasons and I am faced with the fact that I may be liable for a gain but I am going to take a certain risk and I will not be in a position to set off an allowable loss. I think that is the net point. I am not going outside the rules of order when I say that that is a disincentive. We have on other sections discussed social reasons. I have not even mentioned the social reasons. I am leaving it as abstract as that. I am asking the Minister does he take the point or what is his answer? He has mentioned subsection (5) as his answer. When I get that answer, I will come on to the technical point.
The Chair is just explaining, not in regard to Deputy de Valera's point at all, but in regard to the ruling as it applied in Deputy Fitzgerald's case. That is all.
I accept that completely and I hope I made clear our attitude in regard to that.
Deputy de Valera is now entering into the very field in which he says discretion should be left to the Revenue Commissioners to deal with it.
Yes.
In fact, they will have to deal with such cases——
Quite.
——notwithstanding all the details that exist in the Bill. He says, of course, a person may acquire an option to purchase some property or to maintain some business for what he calls social reasons. There is an element of business in it——
There is, of course.
——an element of trade, even if there is not a profit. A person may acquire a trade knowing it will make losses. The fact that he did it for social and humanitarian reasons would not disqualify him from the relief in respect of a trade. Here we are going into an area of trying to analyse motivation and trying to calculate whether or not a man is sensible to be engaging in certain transactions. Quite clearly, we cannot legislate for those situations. The Revenue Commissioners would look at the facts of every case. They would not deny a man his right to claim a capital loss merely because from a business point of view they may consider his original investment to be an imprudent one even if motivated by the best possible charitable reasons.
Now the Minister is, so to speak, accepting some of the points I made earlier. What we want to avoid here is the tying up. This section might unduly tie the Revenue Commissioners. The powers that are given them in certain provisions are necessary, as we said at the beginning of the discussion on this section, but I would like to feel that the Revenue Commissioners were not tied. In this case the specific nature of the proposed legislation does tie the Revenue Commissioners. Of course, I agree with the Minister that we cannot legislate for motivation. What we must do is have regard to the general consequences of our legislation both social and taxwise.
The Minister is shoving an open door with me when he talks about relying on the judgment and discretion of the Revenue Commissioners.
Then he has to provide for that.
He has to provide for that. I would like him to look at subsection (5) from the point of view of the Revenue Commissioners in the context in which I am talking. Paragraph (b), to which Deputy Colley referred, says:
an option to acquire assets exercisable by a person intending to use them, if acquired for the purposes of a trade carried on by him.
In the case I have visualised, again taking it in the abstract, a person, he might be one of our citizens who has done well abroad or somebody who has come here and become naturalised—I am thinking of a very famous person in the oil world who was a great benefactor of this country years ago—comes in and is not carrying on a trade or business in that sense and he certainly will not acquire the assets for the purposes of a trade carried on by him. If, for instance, Deputy Fitzpatrick is running a business making glass marbles and he gets into difficulty and I am somebody who has capital; perhaps I was fortunate in diamond mining in South Africa, although I cannot think of anything more remote from possibility than that; this man has the capital and has returned to this country. He is probably motivated by personal reasons. He is ready to save that industry and the employment in it. He has to act immediately. This is very often a consideration in options. It is a genuine device for taking quick action where the whole commitment cannot be effected in the time. This person may be engaged in business plus philantrophy. He will intervene in this in a way that cannot possibly be captured by the phrase "purpose of a trade carried on by him". This man probably never saw a glass marble since the day he played with them in an Irish schoolyard. He will not be acquiring this business for the purpose of a trade carried on by him. Therefore, I fail to see that subsection (5) will cover him.
The Minister said he will look at an amendment but he is getting to an amendment which brings in a double question of intention. This subsection talks about a person intending to use the options. If the Minister is to cover the kind of case highlighted by Deputy Fitzgerald and now by Deputy de Valera he will also have to provide by way of an amendment not only for his intention in regard to the use of the assets but for his intention to carry on a trade.
It is not quite legislation for motivation but it is getting very close to it, the thing the Minister said could not be done. It is legislating for intention. The more I look at subsection (5) the more unintelligible I find it. There are a number of other difficulties involved in it as well but I do not want to pursue them at the moment and perhaps take away the Minister's thoughts from what Deputy de Valera said.
As Deputy Colley said, I said I will have a look at it. I can accept there can be such situations but we all know how impossible it is to try to draw up a Bill to treat every known tax difficulty and every hypothetical one as well. There is no reason why we would not anticipate in the future, if some hardship case was thrown up or some case in which a philanthrophist was being unfairly dealt with, that we would not amend the law. I would much prefer to think that we were legislating now in a perfect way so that further amendment was not necessary. I have indicated my readiness to have a look at this as long as we can be assured that any provision in relation to future conduct will not be available for use in a way which would lead to abuse. Obviously, if an option is not exercised the query then arises as to why it was not exercised. This goes to the very root perhaps of the original intention, particularly if the person had not been engaging in the marble trade beforehand. I will certainly look at it. I am anxious to assist a genuine case such as that illustrated by Deputies de Valera and Fitzpatrick.
I am sure the Minister appreciates that it is not to tie the Revenue Commissioners by law here but to give them power and discretion. That is what motivated me in raising the last point. I would be absolutely satisfied with cases like that provided they were not tied hand and foot. I would fear the section would do that.
I want to again refer the Minister to subsection (5). I have been trying to make some sense of it. I am trying to simplify it as it appears. It states that where an option is of the kind specified and it is disposed of or abandoned then under (1) if the option is abandoned, (2) paragraph 9 of Schedule 1 and so on shall not apply. Would the Minister tell me if it is intended that paragraph (i) will apply only in the case of abandonment and that paragraph (ii) is intended to apply in the case of disposal or abandonment? On the face of it, it does not appear to be drafted that way, but is that the intention of it?
The first one says an abandonment is a disposal. As it is a disposal paragraph 9 shall not apply.
That is what I thought at first.
I think the point Deputy Colley is making is why use the words "disposed of or abandoned" if it only relates to abandonment?
Subsection (4) treats of the disposal of a transfer. This appears to be purporting to treat disposal or abandonment although subparagraphs (i) and (ii) appear to be relating only to abandonment.
I think the Deputy may be raising a drafting point. I do not think it is very much more.
I was taking this in stages. If the Minister goes on to look at the proviso he will see the matter becomes even more complex. It goes on to say: "Provided that the provisions of this subsection do not apply in the case of such an option as is mentioned in paragraph (a)," unless it is of a particular kind. Paragraph (a) provides for an option to subscribe for shares in a company. Subsection (4) deals with a disposal by way of transfer of an option binding the grantor to sell or buy shares or securities which have a quoted market value. This proviso goes on to say that what has been said already will not apply, although you would think it was saying it would apply, to options to subscribe for shares in companies unless it is a certain kind of option.
The more I look at this the more I think this subsection is virtually inapplicable because so many convulutions come about to try to cover all sorts of things. I am certain it could be drafted more simply. It is a crucial subsection having regard to the point raised by various Deputies, including Deputy Belton. The Minister relied on it to assure him that the kind of case the Deputy was talking about would not be affected. It transpired that the kind of case the Deputy was talking about would be affected in certain circumstances. Then the Minister relied on subsection (5) in regard to a person acquiring assets for the purpose of a trade carried on by him, but we have established that that is not sufficient. The Minister has agreed that that would have to be amended to meet the kind of cases we are talking about.
The whole subsection in my view is so drafted as to make it almost unintelligible. Instead of putting things in and then taking them out, it must be possible to start from scratch and draft it in some way that would be simpler and more to the point and on which we could rely. It is quite a crucial section. Since the Minister will have to do some redrafting I take it he will have it looked at from scratch.
I can give the Deputy that guarantee.
Thank you. I want to come back to subsection (9). Apart from the points raised earlier, I want to ask the Minister about another point. In the case of a deposit being forfeited under, say, an ordinary contract for sale of property, as I understand it the provision at the moment is that the would-be vendor who receives the forfeited deposit becomes liable to capital gains tax on that, whereas the would-be purchaser who loses the deposit is not allowed the deposit which is lost as an allowable loss.
In the case of the person becoming liable to capital gains tax—in other words, the would-be vendor—will he be allowed as a deduction from the amount of the forfeited deposit the expenses which he has incurred and, in particular, the interest which he has incurred? I presume he will not because I think the interest is precluded under Schedule 3. In the normal way as the Minister well knows—I think it is true to say that in law—the vendor is not entitled to the deposit as a forfeited deposit unless he can show that it represents liquidated and ascertained damages which he has suffered. In other words, he can show that is the measure of his loss. If he shows that is the measure of his loss should he, in fact, be subject to capital gains tax on this? I think the Minister will agree that legally he is not entitled to the deposit unless he can show it is a measure of his loss.
Clearly we have to treat forfeited deposits in a similar way to options or else all options would become forfeited deposits. I would not go all the way with Deputy Colley in relation to deposits in contracts for sale. A great deal will depend on the provisions of each particular contract. Of course they can vary. There might be an absolute forfeiture——
That is not enforceable, as the Minister knows.
——irrespective of whether the vendor suffered any loss. Compensation for damages would not involve an element of capital gains if it was no more than compensation for expenses which had been incurred. Supposing compensation included an element of the higher price which the vendor would have received if the original sale had taken place than the price which the vendor received when the subsequent sale took place, in such a case the vendor would obviously enjoy a greater gain by the enforcement of the provisions of the first contract than he would enjoy if the first contract had not existed at all. To that extent there would be a gain element over and above the compensation for expenses actually incurred.
I agree.
Deputy Colley raised the point as to whether the total amount of the forfeited deposit has to be taken into account. It seems to me that a case can be argued, and no doubt it will be argued, that the only element which should be taken into account is the element of net price gain as distinct from compensation for costs actually incurred.
That is the right principle but I am not so sure that is what the subsection says. In fairness to the Minister he was thinking on his feet. I suggest he came up with the right conclusion but I do not think that is what the subsection provides.
I will look at that. It is very difficult to relate one provision to another but, having regard to the other sections, I think the compensation for costs-incurred element may be deductible and, if it is not, we will certainly have a look at it.
(Dublin Central): It would be very unfair to charge capital gains where a man loses the sale of his property. Somebody takes an option on it and perhaps two months later he gets a lower price for it. He would still be charged on the deposit, would he not? It would be a capital gain.
Supposing the original price was £5,000 and the person sold the property for £4,000 ultimately. If there was a deposit of £1,250 on the first sale and that was forfeited, clearly £1,000 would be attributable to the difference between the first and the second price. He has received his £5,000 anyway because he got £4,000 plus £1,000 for the original forfeited deposit plus another £250.
(Dublin Central): At 26 per cent he may not make up the loss.
Remember we are not dealing here with the total consideration. We are not taxing the total consideration. We are only taxing the element which contains a capital gain.
Hopefully that is what we are doing.
Since the Minister will be looking at the section I will just draw attention to two points. The phrase "as it applies" is a common one.
Where is it?
Subsection (9). ". . . .as it applies in relation to the consideration for an option which binds the grantor to sell and which is not exercised". Would the Minister have a look at the word "as" in that context? Subsection (1) provides that an option is a disposal. Subsection (2) deals with the case of exercise. Subsection (3) talks of exercise or abandonment. Subsection (5) talks of disposed of or abandoned, and so on. The phrase ". . . . which is not exercised" seems to be based on what I might call the residue after positive legislation. It is a question of drafting and expressing the Minister's intention in words. Perhaps the wording of that subsection should be attended to.
I will re-examine it.
I do not want to delay the House or the Minister. I do not expect an answer to that now.
Earlier on we discussed the principle involved here of charging a capital gain on a forfeited deposit or in the type of situation described by Deputy Belton in which there was an option on property which had to be abandoned. The person who received the benefit from that was liable for capital gains tax but, on the other hand, the losses incurred in such cases were not to be allowed, subject to what has been said, as allowable losses. I am not quite clear on what precisely was the Minister's attitude to this question. I wonder could he clarify his approach to the problem raised. It seems to me that what is involved here is not merely a question of drafting or anything else; it is a question of principle in the way one approaches it.
A person who has acquired a forfeited deposit has certainly made a gain. Nobody can dispute that. You may say a person who has forfeited a deposit has made a loss, but in respect of the person who has forfeited the deposit there is no asset upon which the loss has arisen. The person who makes the gain makes it in relation to an asset which he retains. The other person has put money down——
I wonder is the Minister quite correct in that?
Of which he will get the advantage if certain circumstances arose.
Surely the question of a loss can arise only when there has been a disposal and an ascertained loss? If one has disposed of an asset and ascertained one's loss, then one does not have the asset. Therefore, one has one's loss but it is not related to an asset which one holds. I do not see the logic of what the Minister is saying.
In simple terms, would not the forfeiture, in itself, be a disposal of the asset in which there is a loss from one point of view anyway?
He is not happy about losing anyway.
No, but it is a disposal of the asset because, in a sense, he had a certain ownership of that asset from the moment of the option. Let us take the example of an option to purchase land. In a sense, that very option is an interest in land; it is an interest; it is an interest in the asset. It can be argued either from the point of view of the vendor or purchaser that there is no interest. There is a very definite interest on both sides. There is a very definite disposal within the meaning of this Bill. The very fact that I contract with somebody else to purchase land, or a house, gives me an interest in that land or house. Certatinly, it would be an interest within the meaning of practically all legislation and, in certain cases, would be an interest for tax purposes. It is an interest; I have acquired an interest by taking that option. The vendor has disposed of an interest in so doing.
Let us go back to the definitions. "Asset" in this case is not confined to being the realty. Take the house— and I am speaking about a definite case now—here is a house; I am going to sell the house to say, Deputy Belton. I do it by an option—even if one calls a forfeiture an option—which is really what the deposit procedure is. But, suppose I do it formally by an option. I give Deputy Belton an option to buy the house. I have disposed of an interest in that house and Deputy Belton has acquired an interest in it.
Let us take section 7. One must not think of the house as being the asset here only. The Minister's argument, if I understand him correctly, might be all right if one did that. But we must be consistent and use the same term throughout. Section 7 says:
All forms of property shall be assets for the purposes of this Act whether situated in the State or not, including—
(a) options, debts and incorporeal property generally,
(b) any currency, other than Irish currency and sterling, and
(c) any form of property created by the person disposing of it, or otherwise becoming owned without being acquired.
Therefore, clearly the case I cited here is the passing of an interest. I would go even further, in the normal case, where there is a sale of land, where there is an ordinary selling contract, where there is a forfeiture clause, and say that that certainly passes as an interest. Again, I am speaking of principle and I should like the Minister to bear that in mind.
An option is a wasting asset.
So is a contract.
So is a contract. It wastes into nothing if not exercised. To take the transaction between Deputy de Valera and Deputy Belton, Deputy de Valera visualises himself as giving a right to Deputy Belton to acquire some asset or other which he, Deputy de Valera, holds. If Deputy Belton does not exercise that right it wastes away into nothing.
Quite.
Therefore, though he may have suffered a cash loss, at the moment of suffering it he has suffered it on a non-existent asset as far as he is concerned. On the other hand, Deputy de Valera has made a gain on an asset which he still retains, unaffected, undiminished, with no part of it disposed of at the very time that he makes the gain.
He may not have made a net gain; he may have made a loss. Suppose Deputy Belton did not take that house and forfeited his deposit to me, he might have done so for a very good and simple reason. Supposing some intervention had occurred, as Deputy Belton says, such as planning permission. Supposing Deputy Belton contracted with me to buy a house. That house had certain amenities which Deputy Belton would like to have and then, say, a circumstance such as planning permission or a drop in the market intervened in the matter. There are circumstances where losses can occur. The Minister's argument that I had made a net profit because I got the deposit does not stand up on an analysis of that nature; even the Valuation Office would not accept that.
I do not want to delay the House by pursuing this. I do not want to put the Minister to the trouble of chasing all sorts of hypothetical cases. What I am saying is this. Let us get back to simplicity, get away from worrying about anti-avoidance. Do not tie up the Revenue Commissioners by attempting to legislate for everything. Give them scope to exercise their good judgment.
Certainly I do not want to be put in the position of having to chase both Deputy de Valera and Deputy Belton in respect of capital gains on hypothetical cases or otherwise.
Unfortunately under this section it would appear as if the Minister would be chasing them for capital gains but not allowing them any capital losses. I think the Minister ought to pause and think when he finds himself, with all due respect, having to argue in such a thin way to justify on this section a breach of two principles laid down in the Bill and to which he has referred repeatedly. They are both breached in this section. One of them is that a transaction which is a transfer of cash, whether in Irish or other currency, is not subject to capital gains tax and is not to be allowed to create an allowable loss. That is one principle. The other one is that any transaction which is subject to capital gains tax can give rise to an allowable loss. They are two principles laid down in the Bill to which the Minister has referred repeatedly. Both are breached in this section. That fact alone should give the Minister food for thought.
The only way the Minister can even attempt to deny the breach of these things is to produce a totally artificial interpretation of people having losses but not related to particular property, whereas they have gains on a particular property. The Minister knows in his heart that that is a very thin argument which does not stand up to analysis.
There is something wrong with a section which obliges the Minister to breach these two principles laid down in the Bill. Having regard to the consequences of what is being done in the section, I am trying to ascertain what is the Minister's attitude in principle to it, as distinct from the actual drafting and what may emerge from amendments. Does he accept, where a transaction may produce a capital gain and thereby be subject to tax that, if it produces a capital loss it should be an allowable loss?
We are dealing here with capital and the losses must relate to capital disposed of and gains must relate to capital disposed of.
That is not right. The Minister specifically provides in some sections for the collection of capital gains tax on transactions where a gain accrues, but a person does not acquire any property or asset.
Options and deposits are special and obviously are distinct from non-wasting assets. The options and the circumstances which lead to forfeiture of deposits are changing all the time.
The Minister is really saying that options are contracts. If that is his thinking, he had better rethink subsection (7). Under this Bill we are trying to have things both ways, and, of course, that is the one sure way of ensuring that we will not have it at all. I understand the anti-avoidance problems and I will not repeat all I said on this. The Minister is putting an interpretation on "capital" which is not in the Bill. I pointed out that there was a trap here because we could think of assets in terms only of tangible assets. When we talk about "capital" we are falling into the trap of implicity defining capital in a restrictive sense. That will lead us into all kinds of legal traps before we are finished. Again I want to emphasise that we should keep this simple. If we give discretion to the Revenue Commisisoners we will avoid all these traps.
We have had a very full debate on this section and I will be looking at it again in the light of what has been said here.
I appreciate that but a number of points were raised where redrafting is necessary. I am trying to ascertain the Minister's attitude on the principle as well as the drafting problems. I am not trying to be difficult but, in my opinion, it is important that we know this. Does the Minister accept that we should endeavour to provide that a transaction, which may give rise to a chargeable gain, can also give rise to an allowable loss? Does he further accept that a transaction which does not give rise to a chargeable gain, because it is in money, should not give rise to an allowable loss?
We are dealing here with more than money transactions. We are dealing with the sale of rights, including wasting rights. I have discussed the principle as I see it and I will consider what has been argued here and see if we can produce a better section.
Does the Minister realise that he is getting himself into black knots in this section? As an anti-avoidance measure, probably all that would be achieved here is injustice to the genuine cases. From what the Minister said I take it that he intends looking at the section and introducing amendments to clarify it. I am also taking it that he will also look at the principle involved. If we agree to this section it will be on that understanding. If the Minister finds he is unable to redraft the section so as to accept the principle we were adumbrating in regard to genuine cases, we would feel it necessary to introduce an amendment on the next Stage, to achieve it.
The word "capital" is not defined in the Bill. "Capital gains" is defined in a way that it is not quite clear what they are, except as one goes from section to section.
Strangely enough nobody ever bothered to define "income".
They do not have to pay tax at all.
In mental energy we are all paying a tax on this Bill, the Minister no less than anybody else.
Question put and agreed to.
SECTION 48.
Question proposed: "That section 48 stand part of the Bill."
There are some points I want to raise on this section. There is a provision in the section which reads:
The situation of any such assets are as specified in this section shall, except as otherwise provided by section 4, be determined in accordance with the following provisions . . .
Why is it necessary, having regard to section 4, which is fairly complex, to lay down other apparently alternative provisions here? Subparagraph (b) reads:
subject to the following provisions of this section, the situation of rights or interests (otherwise than by way of security) in or over tangible movable property is that of the tangible movable property.
I take it that what is intended to be conveyed there is the situation of tangible movable property at the date of disposal, which is the crucial time in determining this. It does not quite say that but I presume that is what the phrase means.
Yes.
It would be helpful if the Minister could give an example of the kind of thing envisaged in paragraph (b). In regard to paragraph (e), the Minister will note that it states:
subject to paragraph (d), registered shares or securities are situated where they are registered and, if registered in more than one register, where the principal register is situated.
On the face of it, that makes sense, but in the light of it may I refer the Minister to paragraph (h):
patents, trade marks and designs are situated where they are registered, and if registered in more than one register, where each register is situated and copyright, franchises, rights and licences to use any copyright material, patent, trade mark or design are situated in the State if they, or any rights derived from them, are exercisable in the State.
What is the effect of that provision if the register is situate in the State? It would appear to constitute a considerable difficulty in dealing with these items. Paragraph (f) deals with a ship or aircraft. Are they deemed to be either wasting assets or tangible movable property? Paragraph (h) provides that patents and so forth are situate where they are registered. The Minister will probably agree that rights in regard to trade marks are frequently exercisable not only in the State but outside it, at the very least in Northern Ireland and sometimes further afield.
In that situation what is the position that will arise where it is exercisable in practice both in the State and outside it, which would very often include many countries in western Europe? What is stated is that they are deemed to be located in the State but sometimes the right, while exercisable in the State, may be a minor part of what is really involved—the major part could be exercisable outside the State. Does that provide any problem in the matter of assessment of capital gains tax or losses—I do not mean in theory but in practice?
I hope I can deal with all the specific questions that have been asked. In regard to paragraps (b) I will take, for example, a picture. The location is, of course, the place in which the picture is located. On paragraph (h) I was asked why it is treated differently to paragraph (e) which states the position in regard to registered shares and securities, that they are situate where they are registered and if registered in more than one register, "where the principal register is situated".
The Deputy will appreciate that patents, trade marks and designs may be registered in a number of countries and have separate capital values in the different countries. Obviously, if a patent is registered here the right to use the patent or trade mark or design is limited to our jurisdiction or Northern Ireland or possibly some other area depending on the patent or trade mark laws of other countries. Whichever country, it has a sale value.
If the same patent or trade mark or design is registered elsewhere the fact of its registration elsewhere means there is a separate right to use it elsewhere. The mere fact that it is registered in Ireland does not mean that the person acquiring it in Ireland would acquire the trade mark, patent or design in some other jurisdiction. Each one has to be separately assessed. Though the patent may be a similar one, it is the right to use it that gives it the marketable value.
So that in theory it is one register here and in other countries for the purposes of the Act but we would be concerned only with the registration in Ireland and the value of that?
No. Paragraph (h) states:
patents, trade marks and designs are situated where they are registered, and if registered in more than one register, where each register is situated and copyright, franchises, rights and licences to use any copyright material, patent, trade mark or design are situated in the State if they, or any rights derived from them, are exercisable in the State, and
(Dublin Central): If one had a patent right in this country and opened a factory in America, or even joined with a company in America and were given a licence, is it something like that we are getting at? If one moved to America and registered there is that type of situation caught here?
That is a capital asset held abroad by a person resident in Ireland. He has a capital asset abroad, he is the owner of the right abroad. If I am resident in Ireland and I sell to somebody the right to use the patent——
(Dublin Central): Under licence?
Yes, then I remain the owner of that in the other jurisdiction. Paragraph (f) refers to a ship or an aircraft. A ship presumably has a lifespan of less than 50 years.
An aircraft, I hope, would but I am not so sure about a ship.
Perhaps not, but ships are invariably used as plant and machinery of a business and so would be dealt with in that way. Of course one might have a luxury yacht which would not be plant or machinery used for the purpose of a trade. I am not at all certain how a yacht could be treated but you would have to look at each case to see the purpose for which the object was being used.
Presumably it would be a tangible movable asset, not necessarily a wasting asset.
The same can be said, I suppose, for a train, if I am disposed to buy one; it is a tangible movable asset, but invariably it is regarded as plant and machinery.
This section gives us again the type of problem I can foresee growing up on this. Here we start a section with the words: "except as otherwise provided in section 4". I go to section 4 and I read that its provisions are "subject to any exceptions in this Act". So which is which?
Subsections (6) and (7) which deal with gains accruing on the disposal of exploration or exploration rights are the subsections which are relevant to section 48.
Subsection (7) refers to "gains accruing to a person who is neither resident nor ordinarily resident in the State on the disposal of such assets . . . " I shall follow the Minister's train of thought in a moment, I want to raise the relevancy of subsection (1) of section 4 which reads:
Subject to any exceptions in this Act, a person shall be chargeable to capital gains tax in respect of chargeable gains accruing to him in a year of assessment for which he is resident or ordinarily resident in the State.
I do not want to be carping about this, but this is one of the traps, that you make two provisions mutually subject to each other; and if you do so, what is the consequence? The Minister would be quite right if there was no relevancy in this, but I want to show that there is. Do not let us get lost as to whether it is a subsection or not. That gets into another area of interpretation. We shall have to bring all the canons of interpretation down here before we finish this Bill.
In section 4 you read: "Subject to any exceptions in this Act" and then you read in this section: "except as otherwise provided by section 4". Naturally one asks oneself which is the cart and which is the horse. However, subsection (2) goes on to say: "subject to any such exceptions". Therefore, the exceptions in subsection (1) of section 4 are carried on into and qualify subsection (2). In subsection (2) there are three paragraphs (a), (b) and (c). Quite clearly paragraph (a) relating to land in the State, raises no problem; paragraph (b) in relation to minerals in the State, in so far as they are tangible assets, raise no problems, that is the minerals themselves, but paragraph (b) in toto reads:
Minerals in the State or any rights, interests or other assets in relation to mining or minerals or the searching for minerals;
Consider the wording there: "Minerals in the State or any rights, interests or other assets". I shall not delay the Minister by giving the reference to all the sections, including the section defining assets, as I have done already, section 7 and so forth. Come to section 48, the section we are discussing. It excepts as otherwise provided in section 4, and presumably excepts as provided in subsection (2) of section 4. If it excepts as provided in subsection (2) of section 4, then what difficulties can arise on paragraph (e) of section 48 and, indeed, (d), because I am thinking of the rights of oil exploration. Incidentally, even in the section itself, subsection (8) (b) says:
"designated area" has the meaning assigned to it by section 1 of the Continental Shelf Act, 1968.
Therefore, clearly, in contemplation of the drafting of this Bill the oil in the Continental Shelf and in our coastal waters comes within the purview of this legislation.
To continue my point, here you will have the tangible asset situate under the provisions of paragraph (a) or (b), that is, the actual mineral or oil, but associated with this in that very complex financial structure and all the coming and going with leases, options, contracts and so on, these interests— I am using the word for short—may come into the category of registered shares or securities. In that case what rules? In other words, I am posing to the Minister the question of taking paragraph (b) of subsection (2) of section 4, on the one hand, and paragraph (e) and possibly (d) of section 48, on the other hand. Is there a latent possibility of contradiction and complication here? I might go to refer to paragraph (g) which reads:
The situation of goodwill as a trade, business or professional asset is at the place where the trade, business or profession is carried on.
Fundamentally, what the Minister is up against is that intentionally section 4 is dealing with the person; section 48 is primarily intended to deal with the asset. That is where the dilemma arises. Section 44 is intended to determine the location or situation of the person and section 48 deals with the location of the individual. Section 48 attempts to prescribe, I use the word "prescribe" although it is not exactly a precise definition. The difficulties are portrayed by the words used in the following provision. Normally, if you meant this to be positive legislation you would say "shall be" but the difficulties are disclosed and the cat is let out of the bag by the phrase "be determined in accordance with the following provisions" instead of the definite "shall be". I appreciate the reasons for that. Yet, it is legislation and "be determined" will be given some measure of mandatory sanction. When a court comes to these paragraphs and compares them with the clearly mandatory provisions of section 4, conflict could arise. It is significant that the wording in section 4 is "shall be". Such a possible conflict could be the most fruitful cause of extensive legislation for the State. You are now in an area where very big interests are involved and I should like to warn the Minister— when I say "warn" I mean——
Alert.
That is the word I want. I want to keep this discussion on a friendly plane and I hope, despite the time we are taking that we are helping the Minister a little. The primary purpose of this legislation would be construed as taxation but legislation as a whole often has to be looked to in the courts. Here, you are entering an area—I have mentioned oil specifically—where very big interests may be involved from the point of view of the Minister's colleague in another Department and the Government as a whole in dealing with what promises to be one of the greatest preoccupations of our Government's for the foreseeable time. There is that factor on the one hand and the challenging of the legislation on the other which might well involve the State in very great legal and administrative expense not only here but in other jurisdictions. Therefore, the greatest care and attention should be given to possibilities arising from uncertainties of the kind I have mentioned.
I should like to make my point more specifically. Subsection (2) of section 4 says:
Subject to any such exceptions, a person who is neither resident nor ordinarily resident in the State shall be chargeable to capital gains tax for a year of assessment in respect of chargeable gains accruing to him in that years on the disposal of——
That deals with the person. Subsections (d) and (e) locate the very interests that are special there.
What I am really saying to the Minister is that I should like to alert him to the possible dangers of defining the location of the interest or the asset on the one hand and legislating accordingly, and defining the location of the persons chargeable in respect of this asset on the other hand.
To pursue the point more closely I would have to put myself in a hypothetical case—which I do not want to do—and then examine the Bill as if it were law from the point of view of counsel seeking to advise a client on a particular aspect which the client raises. The difficulties I fear can arise in two ways, either when a substantial client consults his lawyers and counsel approaches this Bill to advise him, or the State itself is involved in negotiations which require that the State's legal advisers look into the matter in much the same way. When that arises it is a very different situation from that in which we approach a Bill here. When somebody approaches it in a case like that he has a fixed viewpoint. Our difficulty always in regard to legislation is that we do not have a uniform point of view. That is why we were adumbrating principles on the previous section. In most legislation, especially when considerations of anti-avoidance or anything like this arises we do not keep a uniform point of view. But the lawyer who will attack this in the way I have suggested will have a uniform point of view with the result that he will take the whole Act on the point that is mentioned and finecomb it. The Minister who is a lawyer and Deputy Colley who is a lawyer and all of us who deal with the law will appreciate that when one gets something like the contradiction that is between section 4 and section 48 that I have mentioned, it is a very fruitful beginning.
I have expanded on this because I fear it may involve very big interests; even the State itself may be involved and the State would be involved in either case because of the costs of legal actions, either in our jurisdiction or elsewhere, and this is the type of thing that could arise in other jurisdictions. I have given the case of oil and the net point is the attempt to define location of the person chargeable and location of the asset and then the total exception in section 48 and section 4.
For these reasons, I would most urgently and co-operatively press the point on the Minister, and not in the spirit which we may sometimes find here. I really do urge on the Minister to consider whether, if he is in a real dilemma about this, section 48 is necessary at all. It seems to be tidy and neat, but we cannot tell what the double effect of these two sections on the whole Act is. If this thought had occurred earlier, what one should do is take a hypothetical case—I do not want to be specific, to prompt anything—and then sit down as counsel would sit down and see how I can use two things to burst something somewhere else in the Act. That is what I want to alert the Minister to.
I am grateful to the Deputy for doing so. He may be assured that our objective is the same as his and we feel that it is very necessary to have section 48 because without it there would be considerable dispute as to the location of some of the assets. I cannot see that it is contradictory of section 4. What it does is to give the provisions of section 4 in relation to certain assets precedence over section 48, those assets being particularly offshore oil and gas and mineral deposits which are described as being exploration or exploitation rights in the designated area. They are caught very specifically relating to persons so as to ensure that any gain arising out of the disposal of them will be caught. The exceptions to which the Deputy referred in subsections (1) and (2) of section 4 refer of course to all the exceptions and exemptions which are in the Act.
As a whole, yes.
Including the £500 a year, the £2,000 of tangible movable assets, the exemptions given to charities and all the other several exemptions in respect of Government securities.
Have you defined exception in that sense? I know that that is the intention.
It is either chargeable or not chargeable. If we say that a thing is not chargeable, it is an exception.
I accept everything the Minister says and I want to be helpful. I know that that is the intention and that that is what is said but what I am trying to say is, and I am talking purely legally now—I do hope there is no contradiction that could arise but "except as otherwise used"—"except" is the word used in section 48 and you do not define exceptions and exception is not only exception in regard to money. Exception can be construed as excepting provisions of the Act, so one has to be very careful as to the legal meaning of the two words. For instance, the Minister might have a point if he had "save otherwise as provided in section 4," but the very fact that he uses the word "except" in section 4 was what alerted me.
I can understand that argument. If others were confused in relation to the words, we might well put it in in case anybody relates the exception in section 48 to the exceptions which are referred to in section 4, but are not granted by section 4.
If the Minister does that, it does something to meet the point I have made.
I will certainly have a look at it, but the Deputy will accept from me that section 4 does not provide the exceptions which are referred to in the first words of subsections (1) and (2) of section 4.
"Subject to any exceptions in this Act."
Yes.
I do not want to try to suggest more than I have suggested. I only gave the case about oil to give substance to the point I was making——
Because there will be big interests involved there.
It was to give substance to the point I was making and if the Minister does that, it goes some way, while it may not go the whole way, to answer the point.
It seems to be a saving word—"save".
Thank you, and I appreciate that the Minister has listened so sympathetically.
Question put and agreed to.
SECTION 49.
Amendments Nos 41 and 42 are cognate and may be taken together.
I move amendment No. 41:
In page 44, subsection (3) (a), lines 21 to 25, to delete subparagraph (ii) and to substitute the following paragraph:
"(ii) where bargains, other than bargains done at special prices, were recorded in that list for the relevant date, the price at which the bargains were so recorded, or if more than one such price was so recorded, a price halfway between the highest and the lowest of such prices,".
Subsection (3) (a) of section 49 sets out the method used to ascertain market value of quoted shares by reference to the official quotations on the stock exchange list. There are two sets of figures shown on the list, the price at which bargains were last recorded, known as the previous price, and where bargains were recorded on the relevant date, the bargain price. The object of the subsection is to allow the lower of these two values to be taken as it appears in the Bill. Paragraph (a) (ii) of the subsection involves a further calculation outside the bargain price and will take the mean of the bargain price and the previous price. This is a somewhat complex procedure and it is better to confine the calculations in paragraph (a) (ii), to bargain prices only. Thus the amendment will simplify the calculation and there will then be two values to be looked at, the previous price and the bargain price, taking the lower value.
The amendment to paragraph (b) (ii) brings the wording into line with that of paragraph (a) (ii). The same principle of calculation in relation to bargains will therefore apply to both the Irish and the London lists.
Effectively, what is the difference between what is provided in the amendment and what is in the Bill at present?
We are deleting the intervening price as it were, the calculation that was originally required by paragraph (a) (ii) and paragraph (b) (ii). Now we only have to look at the bargain price.
It is only in the amendment one has to look at the two prices and get a half way figure only where more than one price is recorded on the relevant date?
That is correct.
In most cases what would be required would be to get the price at the relevant date or else the previous price and whichever is the lower is the one that will operate?
That is correct.
This only applies in regard to quoted shares or securities?
That is correct.
It is purely a drafting matter but, while essentially the same as that, the balance of the substituted paragraph is different. The phrase "other than bargains at special prices" is at the end of the original and in the amendment it states "other than bargains done at special prices". I presume the interposition of the word "done" is purely meant as an improvement to drafting and that it has no substantive significance?
That is my understanding of it.
Since it is the Minister who has the responsibility I take it that he was fully advised.
I was consulted in relation to the amendment and I am satisfied those words do not make any significant difference.
I was curious at the intervention of the new word and the transposition of the clause.
I am sure it was better grammar or something of that kind.
What is envisaged by, "bargains done at special prices"?
Obviously bargains done at special prices or for special reasons might not reflect the open market value which is that which is determined by the willing seller and any willing buyer but special arrangements could be made for a variety of reasons to transfer shares other than what would be the open market price.
Would they be so recorded?
How does the Minister know if they are recorded because we are talking about quoted securities?
The Minister has informed me that this paragraph applies only in relation to shares or securities listed in the Stock Exchange Official List (Irish). A bargain done at special price can be a bargain recorded but do I take it that unrecorded bargains do not come into the reckoning at all?
That is true but the stock exchange from time to time records and identifies special bargains if prices are fixed by special bargains. They are identified if they are significant, though obviously small transactions are not.
Is the Minister going to tie all special bargains to that? I take it that special bargains would generally be accepted whether in the list or not?
I do not think so unless they are at the ordinary quoted price. If they are at a special price for whatever reason the Revenue Commissioners would have to satisfy themselves as to the market value, is that the position?
That is true. A bargain price may be fixed for a variety of reasons. It is difficult to determine them all. There could be rearrangements, reorganisations and mergers and matters of that nature for some reason or other might put a special price which would not reflect what strangers bargaining in the market might themselves pay but if they are recorded there is no trouble. If they are unrecorded there is no trouble either because they are not within anybody's knowledge.
Amendment agreed to.
I move amendment No. 42.
In page 44, subsection (3) (b), lines 37 to 40, to delete subparagraph (ii) and to insert the following subparagraph:
"(ii) where bargains, other than bargains done at special price were recorded in that list for the relevant date, the price at which the bargains were so recorded, or if more than one such price was so recorded, a price halfway between the highest and the lowest of such prices,".
Amendment agreed to.
I move amendment No. 43:
In page 45, lines 17 to 22, to delete subsection (6).
The taxpayer has a right under paragraph 8 of Schedule 5 to appeal against an assessment to capital gains tax. The basis of valuation of assets would form a valid ground for an appeal, which would be determined in accordance with paragraph 8 of Schedule 5. Section 49 (6) also deals with claims under the Act and where a decision on a claim—not itself an appeal—is disputed by the taxpayer the application of section 432 of the Income Tax Act, 1967, as adapted by paragraph 2 of Schedule 5 to capital gains tax confers on the taxpayer a right of appeal against the decision. The appeal would be heard and determined in the same way as an appeal against an assessment. In view of this there is no need for subsection (6) of section 49 and, accordingly, it is being deleted.
What paragraph in Schedule 5 did the Minister refer to originally?
I referred to paragraph 8 of Schedule 5.
Could the Minister say whether the effect of relying on paragraph 8 of Schedule 5 makes any difference either to the method or grounds of appeal which might be open to the taxpayer as distinct from what would be available under subsection (6)?
No.
I take it there is no doubt that the appeal provided for in paragraph 8 of Schedule 5 would apply in cases envisaged by subsection (6)?
Yes.
Is it purely a tidying-up operation?
Yes. Subsection (6) was superfluous.
Amendment agreed to.
Question proposed: "That section 49, as amended, stand part of the Bill."
Why is the machinery envisaged in subsection (3) confined to the stock exchange here or in Britain and not extended to other stock exchanges?
In subsection (3) we are dealing with the two stock exchanges with which we are most familiar, the rules of which are well known. With regard to the value of shares that may be registered in other stock exchanges, there may be a variety of different ways of presenting those valuations and short of putting in a section to deal with every stock exchange in the world we could not provide for it in the legislation. In looking at the facts of particular cases, the Revenue Commissioners would tend to apply the disciplines and ideas that are used in our stock exchange, subject to whatever qualifications it might be proper to consider in relation to prices on other stock exchanges. The world is becoming more integrated and probably the differences are less than they would have been at another time but it was considered we could not deal adequately in this legislation with the variety of different arrangements, actions and assessments that operate elsewhere.
The Minister has said there may be different methods of valuation in other stock exchanges. Is he merely covering this contingency or is he or the Revenue Commissioners specifically aware of different methods of valuing stocks or shares on other exchanges?
It is not so much a question of valuation as the presentation of valuations and the record of figures. My information is that all stock exchanges do not record the prices and price movements in the same way as do the Irish stock exchange and the London stock exchange.
A further aspect of this matter will arise on a subsequent paragraph which I shall raise later.
The principle of market value has been accepted and it is probably the fairest one for this legislation. Subsection (2) states:
In estimating the market value of any assets no reduction shall be made in the estimate on account of the estimate being made on the assumption that the whole of the assets is to be placed on the market at one and the same time.
I question the necessity of that provision quite apart from wondering about its equity. I am in some difficulty here as I do not want to depart from discussing this Bill. There is a certain homogeneity about this capital legislation. For instance, the market value of a property in a block and the value of that piece of property could be different—first, if it was a simple disposal in its own right and, secondly, if it was a disposal as part of a block. That type of situation arises frequently in this city. I am not saying whether this acts in favour or against the State or an individual but I am pointing out there is a real question of estimating the value of this subsection.
Before Deputy Belton came into the House I mentioned the question of a property in the middle of a block that might become available for development. The purchase of the block could make a big difference to the market value of the property. The same thing could happen with regard to a block of shares. For the moment I am not considering subsection (3) and what follows because I do not wish to be sidetracked from my main point by an extraneous consideration.
In principle, the market value of a block of shares might be very different from the actual value of the shares. For instance, if a block of shares gave virtual control of a substantial interest, a purchaser might be prepared to pay substantially more for the block than the quoted market value of the shares taken individually. Conversely, a person might have a large holding he wanted to get rid of and the fact that he had a purchaser on the spot might prompt him to sell the holding at a smaller price.
I am asking the Minister whether subsection (2) is necessary or desirable. By referring to market value, are we not giving discretion to the Revenue Commissioners who, in turn, fall back on the Valuation Office? We are tying the hands of the Revenue Commissioners with such a provision. I may appear to be too trusting in my attitude but I think I am right to ask why insert a subsection which is not necessary. Are there any loopholes it is designed to block? As an ordinary citizen I would be happy to leave it to the discretion of the Revenue Commissioners to decide in any transaction whether there had been an appreciation or depreciation of value because the asset was or was not part of a larger deal. The Revenue Commissioners would be well able to cope with such a matter without having to look at a section that can put them in difficulty because it removes elasticity.
Though sometimes so regarded, the Revenue Commissioners are not a lot of ogres. People talk about oppression but I have known cases, and so have many other taxpayers, where the inspector was anxious to find an answer in an equitable case but was tied by the provisions of the Act. Do not let us get this complex that the Revenue Commissioners are always grinding the faces of the poor, so to speak. Very often they work the other way. The important thing is the system has worked fairly and equitably and in all my time here I have never heard any really serious complaint levied against the Revenue Commissioners; any complaint there has been against the provisions under which they operate. I would urge the Minister to consider seriously whether subsection (2) is appropriate at all.
The subsection really means that the value to be placed on an asset is that value which would be obtained if a normal transaction, subject to normal conditions and so on, were to take place and it eliminates any abnormal fluctuations in price which might occur if the market were flooded with a vast quantity of similar assets at some particular time resulting in an unusually low price. Deputy de Valera asks is it necessary to have the subsection there at all. I think he has in mind to say that is the kind of reasonable rule reasonable people would assume. One would take a normal price in a normal transaction in normal conditions, and not any abnormal fluctuation, as an estimation of the true value of property.
I am talking about subsection (2) of section 49.
Yes.
I am glad we are agreed on that.
At least we know what we are talking about, but I understood Deputy de Valera to query whether it is required at all.
Yes.
He assumes that the particular rule here is such a reasonable one he could not visualise any valuation other than a reasonable valuation arising out of normal circumstances being taken as the only true valuation. One could have a situation in which people would argue that a price related to a flooded market price rather than to the appropriate one and that would be a wrong assessment and a wrong valuation to make.
I do not quite understand what the Minister means by a flooded market under subsection (2). I purposely said "Forget subsection (3) which brings in shares". There are two points. First, what does the Minister mean by abnormal? He talked about flooded markets. Are fluctuations in the property market normal? Keep to the case I mentioned—the sale of a house or small business premises in a larger block where there is a possibility of development. Quite clearly the price of that particular house will vary according to whether it is going as part of the acquisition of the block or otherwise—to perpetrate a pun, whether it is going with the block or whether it is blocking the block.
There is a case. It is abnormal. Why does the Minister have to legislate for it? Would not the true market value be the circumstances? A small business in a large block can determine the value of the rest of the block. The price that will be given for it will depend on whether the sale is such as to facilitate the acquisition of the block by a developer or whether the acquisition will be a hindrance to the acquisition of the block. Surely that is a market factor and surely it is a factor for which one cannot legislate. In the last analysis, surely the proper value is the price in the open market, if market value means anything. We are talking here about market value. Surely the true test of market value is the actual value in the open market. By the way, a great deal of what I am saying here is in favour of the Revenue and not the reverse. We only have recourse to valuations and other standards of measurement when we do not have the direct test. The property has not come, so to speak, on the open market. That is one case, normal or abnormal.
There is then another case for the Minister to consider. I would be only too happy in the case I have given to leave things to the Revenue Commissioners because they would be able to ask the appropriate question: is this a fiddle or a straightforward deal? If it is a straightforward deal and a genuine market transaction, why does the Minister want to put in something in contradiction of subsection (1), because that is what he is doing here? Subsection (2) will prevent the implementation of subsection (1).
I will give another example. The Minister talked about a flooded market. I can understand the Minister's point but markets become automatically flooded due to economic conditions. Consider what happened to house property some 12 months or so ago. Property was climbing out of all proportion in value on the open market. Property was soaring. Suddenly that stopped and there was a decline. Was the upward spiral the opposite of flooding? Remember, flooding can be positive or negative. I would like to test this. I can think of a house in the suburbs of Dublin that a few years ago went for £7,000 and was sold very recently for £13,000. That is not flooding. Supposing the Government succeed in their avowed objective of providing housing and accommodation and the market value of houses slumps, is that flooding? No.
I am making these points, as on other sections, purely by way of illustration to show that there is substance in them. I believe that the Revenue Commissioners are perfectly capable of implementing subsection (1) through their staff, their assessors, inspectors and so on. The true market value is the test. Subsection (2) can be a contradiction of subsection (1). If the Minister will not accede to my plea to delete that subsection, I would like him to give us some concrete reason as to why he feels the Revenue Commissioners need subsection (2) to implement the Bill because I fail to see that they need it. In fact, I think it will impede them.
Subsection (2) is not directed primarily to land or house property but is also directed to stocks and shares. This illustration might help to indicate what we have in mind: you could have a person with, say, £2 million worth of stock in a particular concern. The normal transaction in the market in relation to that company might be £5,000 to £10,000, even £50,000 a day. With such a pattern, obviously, the price would remain fairly stable but if the whole £2 million were to be put on the market in one day the price would come tumbling down. The number of persons seeking a particular stock at any given time dictates what the pattern will be. Obviously, if there was a sudden flooding of the market with a particular asset, the demand might be normal but if the market was flooded, obviously the price would come down.
What we are saying is that if an estimate has to be made of the market value the estimate must be based on what would be the normal price, not the price if the whole £2 million worth were put on the market in one day. If the owner of the shares were disposing of them for a consideration other than cash one would have to assess their value. The value would be determined, not on the assumption that £2 million was going on the market in one day but on the basis of the normal price of those shares. If it is £X, then two million times £X is the appropriate figure and not, as it might be argued if we had not got the subsection, by the owner of the shares: "If I put the £2 million on the market the value of the shares would be £X minus £Y and that is the figure that we should estimate this at and not the other."
Deputy de Valera might say that it would be unreasonable to argue in that way, and that, therefore, section 49 subsection (1) is sufficient because that says that it is the value which those assets might reasonably be expected to fetch on sale in the open market. The trouble is, what are those assets? Are these assets the £2 million worth of stock or are they the amount which assets of that type if sold in normal quantities might be expected to fetch on the open market? You would certainly have to amend section 49 subsection (1) in order to deal with the situation which I have indicated.
Let me come back to house property that the Deputy was talking of. Of course, if the place is sold on the open market that value would normally be accepted without further ado. It is not common for people to sell land or house property on the open market in a contrived situation. It can happen, I know.
I wonder if it can.
The amounts involved are so massive that it is improbable but it is certainly possible. One would not say that because house property was obtaining a low price because of an economic recession that was not the appropriate market price, that it should be a price related to times when things were better. The person who is putting house property on the open market seldom contrives to create the economic situation which might result in either boom or depression in demand.
What we are dealing with primarily in subsection (2) is that situation in which it could be argued that a person disposing of a very substantial block of assets would by disposing of them on one day receive a smaller price for those assets than would be normal if they were sold piecemeal.
On this question of subsection (2), first of all, it should be noted that it provides only for there being no reduction in an estimate in the circumstances envisaged. It does not say: "nor increase in an estimate". It is only dealing with the possibility of the estimate being reduced on the assumption that the whole of the assets are placed on the market.
Secondly, in general the kind of situation in which this can arise is only where one portion of assets is sold and it is necessary to apportion as between the whole and the part sold and, therefore, one has to estimate the value of all the assets.
I had a suspicion when I read this, and that suspicion has been confirmed very strongly by what the Minister has said, that, basically, this subsection is designed to prevent avoidance in terms of stocks and shares. There is a theoretical case but in practice I cannot find it easy to envisage any other kind of assets where the market could be flooded if one put all of them on the market. It is theoretically possible but in practice stocks and shares are what this is concerned with. If that is so, a specific reference to stocks and shares and confining it to that would probably make this more acceptable and more workable. I am not sure that anything would be lost if that were done. I do not know if Deputy de Valera would agree with me in that approach, whether he might still think it necessary to have subsection (2). It strikes me that in practice stocks and shares are involved here and to confine it to that would make it far more intelligible and acceptable.
There might, of course, be rights in commodities, or something of that nature. Obviously, there is a lot in what Deputy Colley says and, indeed, what I say. I could not visualise many assets other than stocks and shares to which subsection (2) would apply. I have no doubt that many ingenious people would be able to contrive new situations to avoid paying tax if we did not deal with it in the way it is at the moment.
It may be of some interest to Deputies to know that a similar provision has existed in estate duty law since 1910. The legislators were probably simpler people in those days. Yet they had to get around to making some such provision. I am not aware that it has caused any difficulty.
In practice that was used only in relation to stocks and shares.
That is true.
The Minister will recollect that when I started on this section I specifically excluded consideration of subsection (3) onwards because I knew the point which has developed would arise on it. I am glad to have the opportunity of showing that I am willing to go with the Minister some of the way if he can convince me. As Deputy Colley says, this subsection is more appropriate in relation to subsection (3) and could be included in it or after it but that does not quite meet the point I am making here. I still believe it would be better to give discretion to the Revenue Commissioners but I am a little perturbed about what the Minister said as to what policy might be adopted in regard to it.
Before I suggest a compromise I should like to emphasise the importance of subsection (1). I should like to think that the Revenue authorities would approach any transaction in the spirit of the fair and genuine market price at the time. I agree that in relation to stocks and shares a very real problem arises. In relation to stocks and shares, I should like to have included in the appropriate place that no reduction shall be allowed other than at the discretion of the Revenue Commissioners. If you feel something positive has to be done, it should be still left discretionary.
I should like an undertaking given that the whole thing would be administered genuinely in the spirit of subsection (1) and that the genuine market value, whether it is property, shares or anything else, would be the ruling factor. If such a device as the artificial flooding of the market were attempted to be used to defeat subsection (1), I would gladly give the Revenue Commissioners the right to disallow a reduction.
Deputy Colley cannot imagine a case outside stocks and shares arising. The first line of the subsection states: "In estimating the market value of any assets . . . " Take the shop in the block that I have been talking about, which could be developed. The value of that business cannot be arrived at, short of an actual sale, without taking the value of the block, the other assets, into consideration. For valuation purposes it is a question of what are the assets. The word "assets" used in the subsection is really used to apply to two different things at the one time, the particular thing that is being valued and the assets around it which determine the valuation. A valuer will look at this and say that the shop is worth so much if sold by itself. In order to determine what the market value would be the whole block would have to be considered.
I believe I am right in saying that under the subsection the question of the whole block can only come into it if it is owned by the same person.
No. I am talking about estimating the market value. This is not the charging of an asset. This is how the valuation is done.
It is the assets which may be liable to capital gains tax.
It is not the assets of somebody else.
The assets of somebody else are what will determine the market value of the assets in question. The market value is determined by the value of surrounding assets. The word "assets" can be used in the double sense.
This subsection has nothing to do with the block.
I agree that only the assets are involved but the circumstances are there. Subsection (2) states:
In estimating the market value of any assets no reduction shall be made in the estimate on account of the estimate being made on the assumption that the whole of the assets is to be placed on the market at one and the same time.
In order to reach the value of the assets in question you have to know the value of the surrounding assets. It is a question of how you estimate the value. It could be construed that you could not value the block or the environment except by reference to whether that block went as a whole or whether it was sold in pieces like the premises. That is the point.
It is not a question of the chargeability. It is at the base of the valuation. Although the point may be strained to some extent, the fact is that in a case like this, it would be better to have discretion. Therefore, I suggest to the Minister that he should put the subsection lower down and if possible qualify it. The qualification I would like to see in it would be a discretionary one.
Subsection (2) provides that in estimating the market value of any assets no reduction shall be made in the estimate on account of the estimate being made on the assumption that the whole of the assets is to be placed on the market at one and the same time. The value of my shop depends completely on the value of the block. The value of the block depends on whether it is put on the market in part or as a block. With a bit of ingenuity the subsection could be used unfairly to defeat subsection (1). I would ask the Minister to rephrase it in such a way that the Revenue Commissioners will have power but it will not be mandatory on them to exercise that power.
I cannot give the Deputy an assurance that I will seriously contemplate a change in this because if I did it might minimise the assurances I have given about giving serious consideration to other amendments which I may make. I am impressed by the fact that this has stood the test of 65 years without any significant complaint so far as I am aware.
That is a point.
I am also satisfied that there is clarity and that the taxpayers will know where they stand if the subsection remains as it is. The worst that can be said about it is that it might work to the disadvantage of the taxpayer. I do not think that is so. We are not dealing here with cases of actual sales. If actual sales take place, there is no problem.
There could be an actual sale of part of the assets and then one has to determine the apportionment between the part and the whole.
That is true but if the part sold were sold in a normal transaction it would probably be taken as the sale price without further ado. We are dealing primarily with situations in which no sale would take place. There would be no immediate ready reckoner to assist in establishing what the value would be. We simply eliminate from any calculation any disposal of an unusual quantity of assets. On that account I think it ought to stand the way it is.
I will not press the Minister further on the matter but it is no harm that we debated it.
There are some other points I should like to raise on the section. I have referred to the British stock exchange. Subsection (3) refers to " . . . in consequence of special circumstances . . . ". Is what is envisaged in that phrase the same as the reference further down to bargains at special prices?
To what line is the Deputy referring?
Line 14 on page 44. The phrase is " . . . in consequence of special circumstances . . . ." Is what is envisaged in that phrase the same thing as is referred to further on as "bargains at special prices" or is something more than that envisaged?
No. That is what is envisaged.
Could I refer the Minister to paragraphs (a) (i) and (b) (i). Paragraph (a) deals with the valuation of shares or securities listed in the stock exchange official list, Irish. In effect, paragraph (b) refers to the stock exchange list in Britain. A different method of valuation is prescribed in the case of those on the Irish list and those on the British list as illustrated in subparagraph (i). In the case of the Irish ones it is the price shown in that list at which bargains in the shares or securities were last recorded and, in the case of the British stock exchange, it is the lower of the two prices shown in the quotations for the shares of securities on the relevant date plus one-quarter of the difference between those two figures. Could the Minister tell us why there is a difference in approach between the two?
There are differences in the manner in which prices are fixed on the Irish stock exchange, and the stock exchange in Britain. Therefore, it is necessary to provide rules for valuing shares and securities listed in the Irish official list as well as those quoted on the stock exchange daily official list which is how the list is known in Britain. For shares or securities shown on the Irish list the valuation to be taken is the price at which bargains were last recorded. Where shares or securities are listed on both lists on the same date, provision is made for taking the lower relevant valuation. Does that answer the Deputies question?
I do not think it does. I think I know the reason for it but it might be as well if we could get it on the record. I think what the Minister was referring to was a subsequent provision in the Bill and also the amendment which only amends subparagraph (ii) in each case. I was referring to the difference in paragraph (a) (i) and paragraph (b) (i). In the case of paragraph (a) which deals with the valuation of securities listed on the Irish stock exchange, in the circumstances envisaged what is provided is that one takes the price shown in the list at which bargains in the shares or securities were last recorded. When one is dealing with the securities quoted on the British stock exchange the corresponding provision is the lower of the two prices shown in the quotations for the shares or securities on the relevant date plus one quarter of the difference between the two figures.
On the Irish list only the previous price is shown. On the London list there are two quotations and that is why we have to use a different formula.
It is because of the different methods by which they are quoted on two exchanges?
Yes, and it is because there are other quotations on other exchanges. We have not sought to spell out the rules to be applied if stocks are listed elsewhere.
Might I refer the Minister to the last part of paragraph (b) of subsection (3), line 41? It states:
taking the amount under subparagraph (i) if less than under subparagraph (ii) or if no such bargains were recorded for the relevant date, . . . .
If the Minister looks at paragraphs (i) and (ii) of subparagraph (b), he will find that both of them refer to "the relevant date". Therefore, how is it possible to take the amount under paragraph (i) of subparagraph (b) if no such bargain were recorded for the relevant date, considering that both paragraphs (i) and (ii) depend on the relevant date?
In subparagraph (i) it is the lower of the two prices shown. In subparagraph (ii) it is the highest and lowest prices at which oargains were recorded.
Yes but, in each case, it is on the relevant date.
Yes.
Whereas the portion to which I referred refers to the manner in which one values if there is no bargain recorded for the relevant date, but the manner prescribed to do that depends on a quotation on the relevant date.
Even if there were no bargain on a particular day there would still be quotations shown on the list.
(Dublin Central): The previous quotation?
Yes, the previous price.
As far as I can see, the previous quotation arises only in the case of the Irish list. We are dealing with subparagraph (b) which, for convenience, I shall call the British list. There is no provision there for previous quotation.
Nevertheless, there would be prices shown, if there were no bargains on the day in question and they would be the prices of the last transactions. Perhaps we ought to go down to the stock exchange and have a "teach-in".
Does the Minister see the point I am making?
Yes, but I think it is answered by what I am saying, that is that the prices are shown even if transactions did not take place on the relevant date.
Is the Minister saying that the procedure, say, on the London stock exchange is to show a price for all shares or securities quoted on every day whether or not there is a bargain struck, whereas that is not the practice on the Irish stock exchange?
I would not like to be adamant about it.
Because if that is not so, I do not think what the Minister is saying stands up. Anyway, it is not something on which we need spend a great deal of time now. I want to draw the Minister's attention to what, on the face of it, appears to be a somewhat impossible provision, but it may be that it is possible.
The Deputy may be assured that we processed this through our stock exchange advisers but I will bring the Deputy's observations to their attention to ensure that we have the proper jargon to deal with the situation before the Bill goes through in final form.
Further on in subparagraph (3) there is said:
Provided that—
and then there are listed paragraphs (a), (b) and (c). In paragraph (b), line 51, there is reference to a more active market. The provision reads:
(b) this subsection shall not apply to shares or securities for which some other stock exchange affords a more active market;
What I would like to know in this regard is, first, how is it proposed to ascertain that another stock exchange provides a more active market? Secondly, having ascertained it— assuming it is a stock exchange in X somewhere in Europe or in America —how will the securities be valued on the basis of the quotations there?
These provisions are similar to the practice followed for estate duty purposes. If some other stock exchange affords a more active market for the shares or the securities in question, the valuation will be based on the quotations in that stock exchange. If any of the stock exchanges concerned is closed on the relevant date, the market value is to be based on the lower of either the latest previous figure or the earliest subsequent figure on which the stock exchange is open.
Whichever is the lower?
Yes, whichever is the lower. Mining shares come quickly to mind as an example of shares which might be more actively traded in stock exchanges other than the London exchange. The Revenue Commissioners, if they felt that the London price was not the most appropriate one, would raise the question of the price in another exchange. Indeed the taxpayer initially might offer the price on another exchange and there might be no dispute about it. If, of course, there is a dispute and the taxpayer feels disadvantaged by the quotation from the more active exchange, then the matter would go to appeal for decision.
In the event of any dispute as to which was the more appropriate?
Yes.
That is really what I wanted to know. Once it is determined that the other is the more active exchange, then the valuation is arrived at on the basis outlined by the Minister?
That is correct.
The Minister will note that subsection (5) deals with the ascertainment of the market value in relation to unit trusts. At the end of subsection (5) there is a provision reading:
. . . shall mean an amount equal to the buying price (that is the lower price) so published on the relevant date, or if none were published on that date, on the latest date before.
But in paragraph (c) of the proviso to subsection (3), there is a somewhat similar provision in relation to securities on the stock exchange which continues to say:
whichever affords the lower market value.
That does not appear to be provided in subsection (5) and I am wondering if it is a deliberate omission.
The stock exchange price is one which is determined by the forces of the market between two parties deemed to be at arms length. But the unit trust situation is not one in which the price is determined by the inputs of two different persons, one selling and one buying. The price is that which is fixed by the managers of the trust who are inviting, as it were, people to tender at that price.
Yes, but what practical effect does that have? I am thinking of this from the point of view of the taxpayer who, in the case of stocks and shares, can opt, in effect, for whichever of the market values is the lower. He cannot do that in the case of the unit trust quotation. Does the reason the Minister has advanced have relevance from the point of view of the taxpayer who wants, say, to rely on the lower valuation that would have been open to him were this provision the same as in the case of the stock exchange?
The stock exchange gives a very active, regular and independent assessment of valuations. The same cannot be said for unit trusts which are more limited. The buying and selling prices are determined by the managers of the trusts, not by the market forces. One cannot assume that one gets the price which is as closely related to the market value as that which operates in respect of the stock exchange.
Presumably the managers have to fix the price with reference to market demand.
Yes, but there is not the same dynamism in respect of unit trusts calculations as there is on the stock exchange.
(Dublin Central): The explanatory memorandum states that managers must publish the buying price.
The managers fix the price.
The taxpayer seems to have less choice if he has a unit trust holding than if he has a stock exchange holding. However, if the Minister is satisfied that it is necessary so to provide, I will not pursue the matter further. I merely wished to draw attention to the omission in that subsection.
The first line of subsection (7) reads: "If and so far as any such appeal . . . "
We have deleted subsection (6) which provided an appeal, therefore, at least the word "such" should be omitted. I am not sure if any other redrafting would be necessary.
Would the Deputy, by agreement, delete it now?
Yes, if the Minister is satisfied that that is sufficient.
The Chair must point out that we cannot retrace our steps. That amendment will have to be left until Report Stage.
On principle, could I suggest that if the House agrees, this can be done? I think that is a general principle which can be stood over.
I thought it could be done now, especially as it did not change the sentence.
I do not mind if it is done on Report Stage but——
Acting Chairman
I want to clear this point. This is against Standing Orders.
Standing Orders are the rules of the House.
Acting Chairman
We cannot go back once we have started to deal with the section, as amended. It is clear, therefore, that this amendment can only be made on Report Stage.
We could do it then, and only the printing costs would be involved.
It is now being said that no section, even though not disposed of, can be amended because we have disposed of the amendments put down. In other words, there cannot be amendments on this stage, even by agreement of the House. That is a new proposition as far as I am concerned.
Acting Chairman
I am advised that the question is: "That the section, as amended, stand part of the Bill." This rules out amendments at this point.
I will not waste the time of the House arguing this point but, while I accept the ruling of the Chair and am prepared to go ahead on the basis that it will be amended on Report Stage, I am not to be taken as accepting the proposition that this House cannot, if it wishes, amend a section in Committee across the floor. Could the Minister indicate the effect of subsection (8) and give an example of what might be involved?
This subsection ensures that in arriving at the market value in the case of a foreign security coming within the exchange control regulations made under the Exchange Control Act, 1954, allowance is to be given for the part of the premium over the official rate of exchange which, because of the regulations, the owner of the securities would lose on a sale. I will now give an example. If a New York stock exchange sale realises $1,000, the premium would be $150. The resaleable value would be $850. This resale-would be taken instead of $1,000, because that would be the resaleable value.
Would that $850 be taken as the gain for the purpose of the assessment of tax?
Yes, $850.
Question put and agreed to.
SECTION 50.
Question proposed: "That section 50 stand part of the Bill."
This applies capital gains tax to the general taxation laws.
(Dublin Central): That gives the Minister the right to adjust taxes upwards any time he wishes.
That is a power the Minister for Finance does not have.
(Dublin Central): He has it in that section.
Would the Minister have the terms of section (1) of the Provisional Collection of Tax Act, 1927, handy?
Subsection (1) means that capital gains tax will be one of the taxes which, to be changed, would require a financial resolution of Dáil Éireann. Subsection (2) places on the Revenue Commissioners the same responsibilities to account for capital gains tax as already lies on them in respect of other inland revenue duties. The section is necessary because capital gains tax is a new tax being introduced for the first time. As the House is aware, similar provisions already exist in respect of value-added tax by virtue of section 28 of the Value-Added Tax Act, 1972. The Provisional Collection of Taxes Act, 1927, section 1, contains a list of definitions and states that the word "tax" includes duties of customs, duties of excise, income tax and super-tax but no other tax or duty. VAT has already been added to that list, so has turnover tax and to these will be added the capital gains tax.
(Dublin Central): And the wealth tax, when it comes.
Death duties are not in that list.
I am noticing that they are not.
Rightly so, I think, and for that reason inheritance tax and gift tax should not go into it. I do not know about wealth tax. The Minister said the effect of subsection (2) is to give the Revenue Commissioners power to collect the tax.
It imposes on them the responsibility to account for capital gains tax.
(Dublin Central): There is a section which proposes to increase the interest rates on arrears. Does that apply in this Bill as in the Finance Act? I think the figure is 18 per cent.
Yes.
I take it that gains which have arisen up to now in respect of which no payment could have been made until the Bill has been passed would not fall for interest?
The liability arises after assessment and assessment cannot be made until the Bill becomes law.
Speaking from memory, there is a provision in the Wealth Tax Bill that whether you are assessed or not you have to pay within three months of 5th April, 1975, as that Bill stands. I assume the Minister will be amending that.
I have already said I will be amending it.
I take it the same will not apply in this Bill?
There is no need to apply it in that way.
(Dublin Central): Interest is applied when arrears have been outstanding for three months——
If after assessment it has not been paid.
The Minister will be aware that under existing death duty legislation if a return is not made the assessment of duty cannot be made until the return is received by the commissioners in the normal way. If they were aware of it they might be able to make an assessment of their own, but normally speaking they cannot make an assessment until they get an Inland Revenue affidavit from the executors. Notwithstanding that, the interest there is charged by reference to the date of death—on the value of realty from 12 months after the date and on the net value of the personalty, from four months after the date of death, irrespective of the time of assessment. I imply from what the Minister has said that it will be otherwise here and I wonder if that is wise. If a return is not made to enable an assessment to be made, as far as future gains are concerned it would seem one can avoid the payment simply by not making a return. I do not think this should apply to gains that were made before the passing of the Act because nobody could make a return at that time. I am thinking about future gains and drawing a contrast with the existing situation in death duty legislation.
It is so long since I dealt with the relevant section that I am not in a position quickly to answer the questions, but I will try to answer it before the discussion ends. In relation to a capital gain, there is no question of charging interest on it until after the passing of the Bill.
Question put and agreed to.
Section 50 agreed to.
SECTION 51.
I move amendment No. 43a:
In subsection (1), page 45, line 42, to delete "Schedule 4 (specified securities)".
The purpose of this amendment is simply to delete the Fourth Schedule, which is the one containing a long list of exempted stocks and shares, Government securities. We have incorporated the stocks in question in the Bill itself.
Amendment agreed to.
Question proposed: "That section 51, as amended, stand part of the Bill."
Subsection (1) presumably is necessary in order to give the force of law to the Schedules but I am not clear as to what is the effect of subsection (2).
It provides that the technical provisions of Schedules 1, 2 and 3 and the provisions of the Bill fixing the amount of consideration deemed to be given on the disposal or acquisition of an asset are to be treated as having effect before 6th April, 1974, where it is necessary to compute a chargeable gain by reference to events and circumstances before that date.
The subsection, for example, would apply where under paragraph 18 of Schedule 1 a chargeable gain on the disposal of an asset acquired before April 6th, 1974, is computed by apportionment of the gain over the whole period of ownership. It would also apply where for the purpose of paragraph 16 of the same Schedule the amount of the whole gain on the disposal of a block of shares acquired before 6th April, 1974, is compared with the amount of the gain arising by taking the base cost as being equal to the market value of the shares on 6th April, 1974, in order to ascertain the lesser amount to be taken as the chargeable gain.
Why is that not achieved in subsection (1) which gives statutory effect to the various Schedules?
Without subsection (2) we cannot relate the Schedules to events before 6th April, 1974. Subsection (2) relates the Schedules to events prior to that date.
Do the Schedules themselves not deal with the situation arising before 6th April, 1974, and are they not given statutory force by subsection (1)?
This section of this Act is the one that applies the Schedules to events before 6th April, 1974, and we must have a section in the Bill itself which gives effect to the Schedules in relation to these events.
I did not, possibly, hear all the Minister said when he gave the meaning of subsection (2), but it seemed to me, from what I heard of it, to give rise to a problem that may perhaps have been dealt with earlier in the Bill but nonetheless would arise on this subsection in the light of what he said, that where it is necessary to go back before 6th April, 1974, to ascertain a capital gain as between the date of acquisition and the date of disposal, the amount that would be chargeable would be the proportion of the gain that would be deemed to have arisen since 6th April, 1974. Is that correct?
Yes.
As a matter of principle, it seems to me that, in the light of the particular situation that has existed in this country since April, 1974, there may well be many assets which, over a long period since their original acquisition perhaps 20 years ago, have undoubtedly made a gain if they are being disposed of, say, at the present time, but no part of that gain would in reality be referable to the period subsequent to 6th April, 1974. Indeed, there may be many instances where the value of the asset would be much greater at or before 6th April, 1974, than it would be on the date of disposal. In those circumstances, since there is either no gain or a loss since 6th April, 1974, is it fair to charge capital gains tax on a proportion of the total gain since the date of original acquisition which might be as far back as, say, 1953 or 1954? I agree that the further back the date of acquisition the smaller the proportion of the gain that would be sought to be made referable to the period post-6th April, 1974, and therefore the amount cannot be very great proportionate to the value of the asset. Nonetheless, as a matter of equity and in recognition of the depressed state of so many markets in the past 12 months, if the taxpayer could show, as he probably could in a great many cases, that there was no capital gain on the assets between 6th April, 1974, and today, if he sold the asset today, he should not be liable for any capital gains tax, notwithstanding the fact that there may be a substantial capital gain between the date of original acquisition and the date of sale or disposal.
The taxpayer may, of course, elect to take the value as at 6th April, 1974, and if the taxpayer is able to establish that no gain has been made since then or can show a loss since then, then no doubt that would be the date he would take. Therefore, the option is there at the taxpayer's election as to which date he takes, that date or the original date.
I am glad to hear that. Is that option available in all cases?
It is in the Schedules, to which we are coming now.
That does not answer the question. The Schedules, to say the least of it, are complicated. Is it available in all cases where the taxpayer so opts?
Yes, in respect of assets held on 6th April, 1974.
In the case of an asset which was purchased before 6th April, 1974, say a year or two before that, at a round figure of £100 and which fell on the stock exchange to £60 at 1st April, 1974, and recovered in the last four or five months to £80 or £90, is it fair that a person who had to dispose of that asset should have to pay capital gains tax on the increase from 1st April, 1974, despite the fact that a much higher price was paid for the assets?
I think we are getting into details of the Schedules themselves. Might I respectfully suggest that if we get to the small print of the Schedules we shall be able to talk more precisely and relevantly?
While I agree with that, I would make one point before we come to the Schedules. Again we are back to an old problem. This is only one Act in a series of three at least, excluding the income tax and other provisions. The Minister is rather cleverly posing the problem for all taxpayers: the value you would like to put on it for the purpose of one Act at that date will be the opposite to the value you want to put on it for the purpose of the next Act. In other words, if you value anything for the purpose of capital gains on a base date, that value may be favourable from a point of view of this Act, but it may be most unfavourable from the point of view of another Act in the series. Am I right in that?
All values are inter-related and——
For, instance when it comes to death duties under the Acquisitions Tax Bill—as there will be death duties under that legislation— if you value upwards to minimise your gain, you are going to value to be caught on the disposal on death, and in the same way on the wealth tax. The implications of this section are really tied up with the other measures, and it is very difficult to discuss it. Am I right in that point?
Yes, they are inter-related.
If I have an asset and I want to sell it under this Act and I have to go back to find the proper valuation on the 6th April, 1974, or any other base date you care to take, I must have regard to the fact that I am also placing a value on that asset from the point of view of the other Acts. If I take the highest value I can get so as to minimise the capital gain, I am maximising my liability under the other two Acts. Is that the situation?
There will be a strong encouragement to be honest at all times.
I like the way the Minister puts that, and he is right, but, unfortunately, in the words of the song, it is the poor that gets the blame, and it is the honest that will pay the tax anyway. It is the dishonest I am worried about.
I do not think we have really adequately considered the whole question of base valuation. This section raised the basis of valuation. On the previous section we spent a long time discussing market value but in our minds all the way through we were thinking of the value and discussing it mainly in relation to value at the date of disposal and gave very little thought to value by reference to the base date. Perhaps the Minister will say that this arises under the Schedule—possibly it will in detail as it arose elsewhere—but I should like the Minister to say what are the mechanics involved. How can one find the value of assets at a certain date? Already a year will have elapsed and two years will have elapsed before the case becomes really practicable under this Bill.
Deputy O'Malley has already mentioned the question of that date and dates anterior to it. How is it visualised that one will find the value of an asset at the base time? What evidence will be accepted of that value? These are matters vital and substantive to the Bill and I think it is on this section we should discuss them.
This is primarily a matter for the relevant Schedule and, with respect, it does not arise on section 51 except in so far as section 51 applies the whole Schedule but rather than have a general debate on the whole Schedule now, before we pass section 51, I suggest we leave over the detailed argument until we come to the Schedule itself. But, to reply briefly to the Deputy's question, the normal position in relation to valuations of property where valuation is on record, as it is on the stock exchange for instance, is to obtain a certificate of valuation from a reputable valuer. The Revenue Commissioners may or may not accept this. If it is not agreed there are negotiations and usually there is a settlement. If not, the matter must be determined elsewhere.
Having regard to the fact that we shall not have a flood of sudden disposals but we shall have people disposing of their property gradually over a period of years, we do not anticipate any particular difficulty in working this section. Historical valuations are not unusual especially in relation to estate duty where generations are involved sometimes and you may have to go back decades to get valuations, particularly of farm land, as it has been transferred from one generation to another. Obviously, the farther you go back usually the less relevance to current tax liability the historical valuation has.
Without going further into the content of the Schedule it seems that there is something unusual in this section at the end of a Bill. Surely when Schedules are referred to they have effect for the purposes of the Bill. Perhaps I am repeating something said by Deputy Colley when I was not present and if the Minister has answered this point, I do not wish to repeat it. Subsection (1) reads:
Schedule 1 (computation), Schedule 2 (companies and shareholders), Schedule 3 (leases), Schedule 4 (specified securities), Schedule 5 (administration) shall have effect for the purposes of this Act.
Of course they are in the Act for that purpose, not anything else, I presume. Therefore, why do you say "for the purposes of this Act"? If you were to say "for the purposes of this Act only" I could see the point. It would mean you wanted your definitions to be exclusive and not over-intrude into any other area. I could understand the Minister saying that Schedules, especially schedules such as those in this Bill where there is a good deal of substantive legislation, were confined to the purposes of the Bill. If they were not, such substantive enactments as are contained in them would normally be in the body of the legislation. I am fairly certain that in more than one place there is a substantive enactment here in the form of a definition or positive legislation for a contingency. I am puzzled as to why we must say "shall have effect for the purposes of this Act". That they are included at all and referred to in each section should be enough. Does the Minister intend that they shall have effect for the purposes of this Act only? Or is he merely ensuring that the substantive provisions in the Schedule are carried over into the Act? In the latter case I would make the point that both in the drafting and in the presentation of legislation that is no way to do business. We should have substantive legislation in the Bill itself and Schedules should be confined.
We have had legislation by order and by God-knows-what other means but if we are to have a new type of legislation by Schedule we are embarking on further legal confusion and becoming involved in further traps and dangers. Could the Minister tell me what is the purpose of inserting subsection (1) and could he specifically advert to what I have suggested that the purpose could be, that it was intended that the Schedules would be strictly confined to this Act and not be interpreted as general legislation such as the Act itself will be?
They cannot be related to any Act other than this but it is necessary to have this subsection in order to ensure that everything in the Schedules is applicable to this Bill. I agree that there are references to the Schedules from time to time and to particular parts of the Schedules but I would not like to guarantee that everything in the Schedules has already been brought in by reference in another section. This is a safety clause, as it were, to make sure that it is all applicable. It is normal and there are many other examples.
I take it that automatically the Schedule is part of the measure?
There might be a doubt and it is better to make absolutely certain.
We will agree to the section, as amended, standing part, provided we are not precluded in any way from discussing the details of the various schedules referred to in it and applied by it. They are unusually complex, as the Chair will appreciate, running to 33 pages. Could I make the suggestion that some of them are so long, with ten or more pages, that we will get completely bogged down unless we can take them section by section? I appreciate that it is not normal to do this with a Schedule, but could we take each section of each Schedule separately? For example, Part I of Schedule I is so long and covers so many matters that we could not——
I am afraid we cannot, unless by way of a special order of the House, take them otherwise than as Schedules.
Question put and agreed to.
Progress reported; Committee to sit again.