Last night I was explaining that sections 500 and 501 which are mentioned in the second subparagraph to the paragraph are incorporated in the table on page 73 because those sections are in Part XXXV of the Act. Part XXXV is mentioned there and therefore incorporates the sections to which the Deputies refer.
Capital Gains Tax Bill, 1974: Committee Stage (Resumed).
Question again proposed: "That Schedule 5, as amended, be Schedule 5 of the Bill."
Would the Minister comment on the fact that subparagraph (5) appears to import section 70 of the Income Tax Act, 1967, while it is specifically imported in the table?
It is mentioned in the table to the extent that it exists in the Income Tax Act, but subparagraph (5) adds to the provisions in the Income Tax Acts. It must in order to bring in assets, because the Income Tax Act does not involve return of assets.
Agreed.
But we must provide in subparagraph (5) the necessary element which would require a return of partnership assets.
That is correct, but there is a general importation of the relevant portions of the Income Tax Act, which includes section 70. I am getting back to the point Deputy de Valera and I made earlier about specifically mentioning some of the provisions in the tables, while purporting to include them all and then, without prejudice to the generality of those, listing specific ones. In this case the schedule sets out, amongst other things, section 70, and then subparagraph (5) brings in section 70 plus, as the Minister says, the necessary additions in view of the requirements of capital gains tax. But is this not highlighting the point we were making, that it is unnecessary and, indeed, as we both said, probably unwise to single out specific references of this kind when, as happens in subparagraph (5), there has to be a specific reference to section 70?
Nobody can doubt but that we must apply provisions similar to those contained in the existing section 70 of the Income Tax Act, 1967.
Yes.
Nobody can dispute, either, that we must have a provision that would require a return of assets.
Agreed.
Therefore you must mention both, whether you do it by reference in a table——
But the Minister is doing both.
——or by the omnibus section in subparagraph (1).
I do not think the Minister has quite got the point we are making. I do not wish to start the morning in a controversial way by saying the thing is decidedly untidy, but subparagraph (1) of paragraph 3— the provision of income tax relating to the making and delivery of any returns—which I recorded last night in detail applies the relevant portions of the Income Tax Code in toto to the question of returns and information. The sections quoted in the table are covered by that, and we have already raised the interesting question as to why a very relevant section, section 176, was specifically excluded by the Minister by positive amendment. No satisfactory answer has been offered by the Minister. Therefore when a Deputy on this side of the House—I cannot remember whether it was Deputy O'Malley or Deputy Colley— said the circumstance was suspicious, I think he was right and that that is neither a provocative nor an unreasonable statement.
If you exclude section 176, if you positively include sections 94 and 70 in the way they are in this Schedule, and you include sections 501 and 503 and indeed the whole of Part 35 of the Income Tax Act, 1967 in the way it is done in paragraphs 3 and 18, I find it hard to see why if it was necessary explicitly to include section 172 and section 174—which I do not think is necessary in the Table—these have to be put under the heading "Further Income Tax Provisions Applied to Capital Gains Tax". There is very little logic to it; it is untidy; a court assumes that when the Legislature enacts an enactment the form has something to do with reading intention. If the Minister wishes me to substantiate that statement I can do so but I do not want to delay the House with a long legal argument. I cannot see why this type of thing is done. Having deleted section 176, having provided for the two sections I have mentioned you are left with just a few more that could be included in a section and not under the guise of a table.
This brings me to another point. The fact that the Minister last night said that this was for information and suggested that the Schedule was not very much more than an explanatory or administrative table in the Bill is something that does not quite stand up. The Schedule to an Act is substantively part of the Act although I am a little puzzled by section 51 in relation to the Schedule. Section 51 explicitly refers to the Schedule. It says that the Schedule along with the other Schedules will have effect for the purposes of this Act. All Schedules are in that position. If the Minister had said "shall have effect for the purposes of this Act only and no further force and effect" I could understand the import of section 51 but as it stands it is merely a provision to ensure that what is in the Schedule is a substantive law as anywhere else but actually it was quite unnecessary. I quote from Beale's "Cardinal Rules of Legal Interpretation" which says under the heading "Schedules":
"A Schedule in a statute is as much part of a statute and as much an enactment as any other part. If the enacting part and the schedule cannot be made to correspond the latter must yield to the former".
I do not think this question arises here. The Minister tried to make this point last night—that the Schedule only applies for the purposes of the Act—and therefore I think the actual legal position should be on record. My quotation is from the third edition of Beale's "Cardinal Rules Of Legal Interpretation," page 305. The matter is first dealt with as long ago as re Baines in 1840, quoted on the following page. The point is that the Schedule must yield to the body of the Act, but there is nothing in the body of this Bill to contain the expansions that are in the Schedule.
I should just mention a further point in that regard from the same source at page 307 quoting from Lord Watson in the case of the Trustees of the Clyde Navigation v Laird, 1883:
Very little weight is, in my opinion, attachable in any case to the mere title of a Schedule as qualifying the enacting words of a statute.
Let us get away from any smokescreen about what a Schedule is or is not: If there is a conflict, the Schedule is subordinate to the body of the Act. It is as much an element of a statute as anything else. In this Schedule therefore we have a table applying certain statutes. Without going into technicalities and forms of Acts this table is not quite an ordinary table. Normally, a table is either numerical, such as those we have had in an earlier Schedule, a computational table or a table for practical purposes or else it is a table incorporated by means of an enactment. I mean by that a table incorporated by, and referred to either in a section of the Bill itself or in the Schedule itself. But here we have the peculiarity that it does say in regard to this table:
(2) In particular and without prejudice to the generality of subparagraph (1), the provisions of the said Acts specified in the Table to this paragraph shall subject to any necessary modifications, apply in relation to capital gains tax, and sections 500, 501 and 503 of the Income Tax Act, 1967, as applied by this paragraph, shall, for the purposes of this Act, be construed as if in Schedule 15 to the Income Tax Act, 1967, there were included——
So far this complies with the necessity for incorporating the table, but as we pointed out last night that subparagraph is, in the light of the arguments we made on paragraph 3, actually superfluous. There are only four left and there are two other titles to be in it and instead of doing this in tabular form like that I should like the Minister to incorporate them. I could come back to the first table but in this case there is something more than mere drafting convenience. This whole part of the paragraph is presented in an illogical and confused way. I ask the Minister to take the table into account when he is reconsidering this paragraph. I accept that he cannot do now what I requested of him regarding all of the provisions of the two codes, but he might redraft this whole paragraph in such a way as to include what is left of this table.
To make a comparison—paragraph 2, which we did not object to, except to point out that the table was incomplete, is what I might call "clean". It says simply that without prejudice to the generality of subparagraph (1), the provisions of the said Acts specified in the table to this paragraph shall, with all necessary modifications, apply to capital gains. We are told that income tax provisions apply to capital gains. There is no qualification or adjustment of any of these sections or of any section of the income tax code in paragraph 2. Apart from the objection we have raised on subparagraphs (1), (3), (4), (5) and (6) of paragraph 3, the inclusion of the table makes the situation more confused, and one wonders why there must be duplication, especially when one finds that section 94 is mentioned first in the table. It is applied first in the table subject to necessary modifications.
What are we doing with section 94 of the Income Tax Act? We are including without prejudice to the generality of the first paragraph the provisions of section 94 but when we come to paragraph 18 there is a modification of section 94 by the reference to its application with specific reference to paragraph 3.
This is the type of drafting that leads to much controversy and which could result in a good deal of cost to the State in litigation. The fact that a legal argument has developed here in relation to it should be a warning as to what can happen. My only purpose in pressing the Minister on this is to endeavour to have the whole paragraph tidied up and to have dealt with those points which last night the Minister undertook to deal with. An essential part of the tidy-up would be to abandon the idea of a table, to incorporate all the relevant sections of the Income Tax Acts by way of suitable subparagraphs of paragraph 3 so as to make the paragraph easier in its administration, for advisers and for its interpretation in court. I urge this strongly on the Minister as a practical measure.
There is one aspect of this paragraph in particular which I should like the Minister to expand on. I understood him to say that his reading of subparagraph (2) of paragraph 3 was that it imported with necessary modifications the various provisions of the Income Tax Acts relating to returns of information and applied them to capital gains tax and that strictly speaking, therefore, it was not necessary to specify anything in the Bill, that particular items were specified in the table merely as a matter of convenience and of assistance to those perusing the Bill. If that is so why did the Minister delete section 176 from the table? If it was there merely as a help and convenience it would seem to follow that its deletion was unhelpful and inconvenient. Consequently, I am mystified as to the exact purpose of setting out particular sections in the table when on the face of it subparagraph (2) imports all of these provisions and others besides those listed in the table. What was achieved by the deletion of section 176 if the interpretation of subparagraph (2) is as given by the Minister and if the table is not necessary but is there merely for convenience?
I cannot take this any further. We have been debating this paragraph of the Schedule for hours and I cannot see how I can add anything to what I said last night. One would think from listening to the Deputy that for the first time in the history of parliament we were producing a Bill with schedules whereas this is common practice. The 1967 Income Tax Act had no fewer than 19 schedules and I do not know how many tables it contained.
Nobody is objecting to the inclusion of schedules.
Every other Finance Bill contains schedules. It is not uncommon for the annual Finance Bill to contain from three to five schedules. This is a practice that has been followed for decades in this House. It is useful for practitioners to have Bills set out in this way. The schedules are set out in different compartments, each compartment dealing with a different aspect of the law. The one in question here is dealing with returns and information and all matters relating to these aspects as they exist under the income tax code. All returns and information which are relevant and necessary for the operation of the capital gains tax code have been introduced with the necessary modifications. Anything not necessary for that purpose is not mentioned. All this is without prejudice to the generality of the provisions of the Income Tax Acts. I cannot think of any more satisfactory way of doing this.
I would remind the House that this modus operandi was adopted in Britain in 1965 and, to my knowledge, it has not caused any confusion, furore or any of the horrendous circumstances which were painted here last night in the most extravagant form. I have given certain assurances and have indicated my willingness to make amendments to the sections which appear to be causing the most aggravation. Beyond that I cannot see how I can bring debate any further.
The only point I would add is that the application of the Schedules to the 1967 Act is done in a different way. I was only answering the Minister's point last night when he suggested that the Schedule was only for the purposes of the Act. That was the purpose of my defining the position in the Schedule.
Would the Minister comment on the point I raised, which is, if subparagraph (2) imports all the relevant parts of the income tax code and therefore that table is merely for help and convenience, what was the point of deleting section 176 from it?
I dealt with this when we were dealing with amendment No. 53.
Yes, but a good deal more has emerged since then, as the Minister will appreciate. We have learned a good deal more about the import of subparagraph (3).
I have said and I can repeat that the inclusion of section 176 in the table was not considered to be necessary in view of the many provisions relating to the supply of information contained in the remainder of the paragraph.
Did not the Minister say that the only purpose of the table was to be helpful and convenient and that in fact these things were imported anyway under subparagraph (2), without the table at all? I think the Minister said that. I am not misrepresenting what he said. That being so, what is the point of taking out section 176 from the table? Would it not still be helpful and convenient to leave it in?
The Minister is not unaware of why I am asking this question. What has emerged as the effect of subparagraph (3) in conjunction with the deletion of section 176 does raise certain questions in one's mind. If the Minister explained the removal of section 176 in one context and that does not stand up in the light of his explanation as to why there is a table there at all, one is entitled to ask him to reconcile what he said, that is, that the provisions of the table are merely for assistance and convenience and would, in fact, be imported without the table. That being so, what is achieved by deleting section 176 from the table? It is imported in any case, according to the Minister.
What I have said is that it is not considered to be necessary. There are sufficient provisions in the Bill. In fact, strong objection has been taken to the provisions for the supply of information because it is represented that they are too rigorous and may require more information to be furnished than people would be disposed to give.
I take it that the Minister would agree that the effect of subparagraph (2) is to import section 176 with any necessary modifications to capital gains tax.
Without prejudice to the generality of paragraph 3 (1).
Yes. Paragraph 3 (1) would automatically import section 176 with the necessary modifications. That being so, what is achieved by deleting it from the table?
Section 176 will stand in relation to furnishing information for income tax purposes.
The Minister is saying that it will not be imported, subject to any necessary modifications, in the capital gains tax code?
The provisions of the Income Tax Acts relating to the making of returns provided for in section 3 (1) shall, subject to the necessary modifications, apply in relation to capital gains tax as they apply in relation to income tax.
That would presumably include section 176. Section 176, with any necessary modifications would be imported into the capital gains tax code. That is my understanding of the position. Would the Minister agree that that is so?
The powers set out in the Schedule are so extensive that there is no need specifically to refer to section 176, which is not so extensive as some of the provisions of the Bill.
That is going a little further than I had gone. I was asking if the Minister agreed that section 176, with any necessary modifications, was being imported into the capital gains tax code by virtue of paragraph 3 (1) and (2). Would the Minister agree that that is so, apart from any additional provisions of the Bill?
All the provisions of the income tax code in relation to the delivery and return of information are brought in by section 3 (1), that is true. The purpose of these tables is, as has been the practice, to identify sections that may have some very specific purpose and to direct people's attention to them. It is considered to be necessary to direct attention to the section that deals simply with returns and to the sections set out in page 72 but it is not considered that section 176 need be specifically referred to.
If that is as far as the Minister can put it, all I can say is that that has not removed the suspicions which were created in my mind. I shall not pursue that matter any further. We have made our position clear on it.
Could I refer the Minister now to paragraph 4 (3) on page 73 which refers to "a person not carrying on such a business", that is, the business affecting public shares or securities—"may be required to make a return", et cetera. Would the Minister indicate what kind of person he has in mind in this subparagraph?
Banks and underwriters.
As distinct from——?
As distinct from issuing houses, stockbrokers and the like.
In subparagraph (5) there is a reference to a person who acts as an agent in the State in transactions in shares or securities, other than a member of a stock exchange. Again, what kind of people has the Minister in mind in that subparagraph?
An agent of any description.
In transactions in shares or securities?
Yes.
What is involved there? For instance, if a customer were to give his bank manager instructions to arrange for the sale of shares and the purchase of others and if the bank manager were to arrange that through a stockbroker would the bank manager then be an agent in the sense of subparagraph (5)?
In such a situation a stockbroker is likely to be engaged by the bank manager, so the stockbroker would be liable to give the information.
Yes, but my question relates to the bank manager in such circumstances.
The Revenue Commissioners would, of course, go primarily to the stockbroker. There would be no need to call on the bank manager who acted as agent. The only case where an agent would be called upon to furnish the information would be if a stockbroker had not been used in the transaction.
Is that the meaning of subparagraph (5), that is relates only to transactions which are not effected through a stockbroker?
No. Obviously there is no need to use the powers of subparagraph (5) if any of the persons mentioned in the remainder of the paragraph have been involved in a transaction.
(Dublin Central): Do the provisions in subparagraph (2) extend further the powers of the Revenue Commissioners with regard to getting information from banks?
It is necessary to provide a method whereby information may be obtained in relation to capital gains. It has not been necessary up to now to deal with assets, but as gains on the disposal of assets are being taxed it is necessary to obtain the relevant information.
(Dublin Central): What was the extent of the powers of the Revenue Commissioners up to now with regard to obtaining information from banks?
They could obtain information about income arising from funds in banks. Up to now the information had to be related to income but now we must have similar provision in relation to assets.
(Dublin Central): Has it not been the situation up to now that the Revenue Commissioners sought information only where the amount was more than £70?
Yes.
(Dublin Central): As I read the provisions in this legislation the powers of the Revenue Commissioners are being extended into the private affairs of the banks. There has been a long-established relationship between the banks and their customers, particularly in rural Ireland. During the years there has been a particularly close relationship between the banks and the farming community. Extending the powers of the Revenue Commissioners in this area will undermine the confidence of small business people and farmers who have put more trust in their bank managers than any other group. When this provision goes through the same trust will not be placed in the banks. I know what is the Minister's intention but it will not be desirable from the economic point of view and I would ask him to reconsider this matter. At this time, more than any other time in our history, we need to restore confidence in the economy. The Minister is doing the reverse by proposing this type of legislation. Banks will be obliged to divulge private information given by their customers. If a person cannot confide in his legal adviser or in his bank manager, to whom can he turn?
He cannot even go to his neighbour.
(Dublin Central): The Minister has said he will look at this matter but, as the Bill stands, the Revenue Commissioners can demand information from a person's neighbour. The Revenue Commissioners can seek information, irrespective of whether it is relevant. If they have any doubt they can go to any bank and demand information. There has been too much of this kind of legislation in the last few years and today we see the result—confidence has been undermined and business people are leaving the country. This has not helped us in the last 12 months.
Will the Minister give the House some indication of the nature and extent of the powers being given to the Revenue Commissioners under paragraph 4, subparagraphs (1), (2), (3), (4), and (5)? Is the purpose to require issuing houses, stockbrokers and auctioneers to make returns of all the transactions they may have, or is the purpose to empower the Revenue Commissioners to get particulars by notice in writing of transactions in which they may be interested? Are we dealing with a new situation, where all houses dealing with property and share transactions will be required to make returns, or is it specifically where the Revenue Commissioners are of the opinion that someone may be evading liability to capital gains? Further, will the Minister give the House information on the nature and scope of similar legislation in other European countries?
If one goes by experience elsewhere, none of the horrific things visualised here will happen. In Britain stockbrokers are obliged to give the information we are seeking in this legislation. They have been doing so for ten years but that has not meant the London Stock Exchange has closed down. It is still the greatest centre of finance in the world, notwithstanding the fact that these provisions exist.
If a country is to have a capital gains system there must be a system of collecting information. As I pointed out last night, the Government will not ask the Houses of the Oireachtas to produce capital gains tax legislation without providing the machinery necessary for its operation. It will be a matter ultimately for the Revenue Commissioners to use the powers given to them. Obviously if people give full disclosure of their transactions the Revenue Commissioners will not bother getting information from a third party, but if they have reason to believe they are not being given adequate information obviously they must have the means of checking. Therefore it is necessary to give them these powers.
(Dublin Central): Will these powers give the Revenue Commissioners the right to demand from the banks the full disclosure of current accounts?
That is not so.
(Dublin Central): What do the provisions mean, then?
Will the Deputy please read the paragraph? Paragraph 4 states that an inspector may by notice in writing require a return under any of the provisions of the paragraph. Subparagraph (2) (a) states:
An issuing house or other person carrying on a business or effecting public issues of shares or securities in any company, or placing of shares or securities in any company, either on behalf of the company, or on behalf of holders of blocks of shares or securities which have not previously been the subject of a public issue or placing, may be required to make a return of all such public issues or placing affected by that person in the course of business . . .
At the moment banks are required to furnish returns of any interest returned on deposit accounts so that the Revenue Commissioners may charge tax on that interest —this applies where the interest exceeds £70. Does this provision mean that all the agents engaged in business of this kind—issuing houses, stockbrokers, auctioneers and so on—will be required to make returns to the Revenue Commissioners because, if it does, two questions are raised. First, the Revenue Commissioners will require a massive staff to deal with returns from all over the country and, secondly, ordinary small people encouraged to invest for the good of the economy may feel that what they are doing is going straight to the Revenue Commissioners and they will cease to invest. I can see the validity in what Deputy Fitzpatrick says. I agree the Revenue Commissioners should have the power to follow up individuals who may be trying to evade tax on capital gains but I am concerned about how broad this is. What will be the intention in respect of this provision? Will all houses of this kind be required to make returns of everything they are doing?
As I have already explained, the Revenue Commissioners will not be concerned to use these powers if they are satisfied that they are getting adequate returns; but they must have the powers to use if they are of the opinion that they may not be receiving full accounts.
(Dublin Central): At the moment the banks are obliged to return any accounts giving an interest over £70. Will they be obliged now to give information about all their accounts?
This has nothing to do with bank accounts as such.
(Dublin Central): I know.
We are dealing here with shares and items on which capital gains tax could arise. Capital gains tax cannot arise on mere money. It will only arise on property and, therefore, the question of bank accounts does not arise.
(Dublin Central): We will have to wait for the Wealth Tax Bill.
Under subparagraph (4) reference is made to any person carrying on a trade or dealing in any kind of tangible moveable property. Would that mean that a cattle dealer, a pig dealer, a tangler, as he used to be called in days gone by, will be affected by this? Would it affect an auctioneer on the disposal of the contents of a farm or a house if the combined sum exceeds £2,000 or is it per item? I would like to know that. Suppose a cattle dealer comes along and buys cattle today and sells them tomorrow has he to make a return? Will wholesalers be involved? Will hawkers, such as the people selling electrical equipment and so forth by the roadside be involved? Will it be on one item only or on a combination of items? Will an auctioneer be called on by the Revenue Commissioners to disclose the affairs of his clients? That could put him in a very awkward position if he were requested to make returns of his clients' affairs. Will all dealers and traders be affected?
It is £2,000 per item. Cattle will not be chargeable because, even though they are tangible moveable property, they are a wasting asset. All that will be affected are items of tangible moveable property exceeding £2,000 in value. I doubt if roadside traders are disposing of tangible moveable property at more than £2,000 per item. The number of such items would be comparatively few and it is not extraordinary that such information should come to the notice of the Revenue Commissioners. They come to notice at present through the ordinary system of stamp duty and registration; land properties are already affected. The number of returns an auctioneer might have to make would probably be comparatively few. An auctioneer might specialise in very valuable and rare items which might occasionally command prices in excess of £2,000.
Antiques would come under this. I have known antique silverware recently going well over £2,000. There is a big demand for this kind of silverware. The auctioneer will now be in the position that he will have to make a return of these items. Will it not be open to the Revenue Commissioners to write to an auctioneer seeking information if they are not sure whether or not any item at public auction did or did not exceed £2,000? They will have that right under this Bill. This will probably mean extra staff being employed by the Revenue Commissioners to deal with these returns. Would the Minister omit silverware antiques?
I could not accede to the Deputy's request to delete the very items which it is intended to catch. If persons are making significant capital gains by investing in and disposing of items of considerable value we consider it appropriate that they should pay capital gains tax on such transactions. That is the whole purpose of the Bill and it would defeat the purpose of it if such items were exempt. The fact that they are exempt for all such items under £2,000 is a very generous exemption. It has been faulted because the area of exemption is so generous. It is extremely generous by comparison with the levels of exemption in other countries. I consider it would not be a responsible thing to grant any further exemptions.
Will combine harvesters be involved? Today they cost around £10,000.
The answer is probably no because they would be deemed to be a wasting asset.
Would it also be the same in regard to other machinery such as trucks, JCB's, excavators and other such items?
If they are deemed to have a life span of less than 50 years, yes.
Surely subparagraph (6) does not exclude those?
According to it they would not be excluded because they are moveable items. The subparagraph does not define if those items would come under it. Equipment, such as land reclamation equipment, equipment, involved in building schemes and farming equipment such as mowers, combine harvesters and silage making equipment come on the market very often. Silage making equipment changes hands nearly every two years. Some of this equipment now costs up to £20,000. If such equipment came on the secondhand market it would surely realise 50 per cent of its actual value, that is about £10,000. As that would exceed £2,000 would the balance of £8,000 be subject to capital gains?
I can understand the points the Deputy is making. Any items which are called wasting assets are exempt except where such assets are solely for the purpose of a trade or profession. Farming could be a trade or profession so some of the items described by the Deputy would not be exempted by virtue of section 18 (2). The probability of capital gains on the disposal of many of these items is not great. Their value would diminish rather than increase.
Subparagraph (6) does not appear to exclude any item whether or not it forms the basis for chargeable gains. It is merely whether it is a tangible, moveable property exceeding £2,000. On the face of it that is what it seems to say.
That is what it says but I suppose the question was whether an auctioneer would be required to give the information and the answer is yes. If it is used in the course of a trade or profession the probability is that it will come to the notice of the Revenue Commissioners because it will appear in the ordinary business accounts for such purchases and sales.
As far as I know Deputy Connolly was trying to point out what were the transactions in respect of which returns would have to be made under subparagraph (6). Would the Minister confirm that the position is that returns would have to be made under subparagraph (6) in respect of any tangible moveable property, the amount or value of which in the hands of the recipient exceeds £2,000, whether it is a wasting asset or not?
The appropriate phrase to use is "may be required to make a return" not that they "will have to make a return" in all cases.
The Revenue Commissioners will only know this on a new transaction. If those items come up in a clearance sale will they come under capital gains, because this will not come to the notice of the Revenue Commissioners unless they see any advertisement or some of them are at the particular sale to know that one of those items has been disposed of for over £2,000? I do not know what item of farm machinery one could buy today for £2,000.
Those engaged in farming are going through a very difficult period and there are very high costs involved. Most farm machinery is purchased through HP or the banks. The interest rates on HP range from 18 per cent to 22 per cent. A farmer or a builder purchasing machinery will then be liable for high costs, such as bank interest on a loan. Will such a person be caught for capital gains tax? I would like the Minister to put something into this paragraph excluding certain items such as farm machinery and building equipment of all types. I feel it can be done but as I see the wording it can mean any item or article.
It is very difficult to generalise about this situation because many of the people to whom Deputy Connolly referred will be making returns for income tax purposes and the machinery which he is concerned with here will be passing through their income tax accounts any way. They cannot be getting allowances on machinery for income tax purposes and then be given concessions also in relation to the same machinery for capital gains tax purposes. The number of cases where any difficulty will be caused will be few and far between. The reality is that any piece of such machinery, if kept for a period, is unlikely to produce a gain at the time it is ultimately sold because it is a wasting asset and its sale value is declining because of its declining age and the fact that it has been used.
The Minister has stated that these people will be making a return for income tax but I should like to point out that as far as the farming community are concerned it will only apply to those with a valuation in excess of £100. The farmer with a valuation less than that will not be making a return unless he has other employment. I am not happy with the wording. As far as the farmers and rural business people are concerned this provision gives the Revenue Commissioners great scope. The Minister, apparently, is unable to say whether these people will have to pay capital gains tax; he said they may and they may not. I should like to see this spelt out in greater detail so that we will know who has to pay capital gains tax.
The liability is dealt with in other parts of the Bill. All we are dealing with here is the information which an auctioneer may be required to furnish: the question of liability has to be determined separately.
Subparagraph (6) of paragraph 4 states:
An auctioneer, and any person carrying on a trade of dealing in any description of tangible movable property, or of acting as an agent or intermediary in dealings in any description of tangible movable property, may be required to make a return giving particulars of any transactions effected by or through him in which any asset which is tangible movable property is disposed of for a consideration the amount or value of which, in the hands of the recipient, exceeds two thousand pounds.
In my view it is this paragraph that really counts because the Revenue Commissioners can quote it. This gives them great power. They can decide for themselves.
The Deputy will agree that the only people who can decide liability to tax are the Revenue Commissioners. We could not have a situation in which the individual auctioneer would be left to determine whether a gain made on disposal of an asset was taxable or not. That would be putting the auctioneer and his customers in an invidious situation. The mere disclosure of information does not mean that a person becomes liable to tax. That is a matter that has to be separately assessed looking at each individual taxpayer's position. The only thing the auctioneer can know is whether or not the consideration for a particular asset exceeded £2,000.
Depreciation on farm machinery, building equipment and other equipment is very high. The depreciation on a car costing £2,000 is running at £450 for a year. On a JCB, which costs in the region of £8,000, the depreciation after one year is around £2,000. Most of these are purchased through the banks or through hire purchase companies. Can the Minister give me an assurance, in view of the depreciation, that such items would not be liable to capital gains tax?
The Deputy is reopening a discussion on many sections of the Bill that have already been passed. All we are dealing with now is the question of the information to be furnished by an auctioneer. The only information which an auctioneer can have and which we could reasonably expect him to give would be particulars of transactions involving items with a value in excess of £2,000. The question of liability of individual people has to be separately looked at, taking many matters into consideration. All of these are outside the knowledge of an auctioneer.
I do not wish to be awkward but on the information I have given the Minister would he think such a person would be liable?
I do not wish to express an obiter dictum across the floor of the House about any hypothetical situation. There are too many possibilities that would have to be fed into the scenario painted by Deputy Connolly before I could give an assessment as to whether a person would or would not be liable.
Paragraph 4, which relates to returns, is a further provision enabling the Revenue Commissioners to get the information which they require. That paragraph cannot be read alone; it has to be taken in conjunction with subparagraph (3) of paragraph 3 which we have already discussed. The effect of that is to make the powers conferred by paragraph 4 more extensive than appears on the face of that paragraph. To prove that I would have to repeat all the arguments put forward on paragraph 3. I refer the Minister to those arguments. That is a very important qualification because there is very little in paragraph 4 that is not covered by a general extension of the income tax procedures and methods to capital gains contained in paragraph 176 of the Income Tax Act which the Minister deliberately excluded by amendment.
Therefore by means of subparagraph (3) the powers conveyed in paragraph 4 are wider than they appear on the face of it. As I say, it is difficult to see why the mere extension of paragraph 176 of the Income Tax Act would not affect practically everything that is in the paragraph. However, as I pointed out last night, paragraph 176 is very carefully restricted as to the class of persons from whom information can be demanded by notice and the type of person liable to respond to that notice, and it is also much more limited in respect of the subject matter of the notice, that is, the property that is involved. The Minister, unless I misunderstood him, said earlier this morning that this paragraph had nothing to do with banks or information supplied by banks.
I said bank accounts.
Yes, bank accounts or banks. On the face of it, the Minister is right. There is not a word about banks, but if you take the particular provisions of the paragraph you will see it captures the banks at nearly every point. Take, for instance, subparagraph (1) of paragraph 4 which reads:
For the purpose of obtaining particulars of chargeable gains, an inspector may by notice in writing require a return under any of the provisions of this paragraph.
Subparagraph (2) (a) reads:
An issuing house or other person——
Then it goes on:
. . . notice requiring the return, giving particulars of the persons to or with whom the shares or securities are issued, allotted or placed, and the number or amount of the shares or securities so obtained by them respectively.
Banks are very often involved in these transactions. Therefore, in so far as this subparagraph (2) (a) requires the furnishing of information, the phrase "other person"——
"Carrying on a business of effecting public issues of shares and securities".
Yes, but if the Minister makes this point, I immediately move to subparagraph (3) which reads:
(3) A person not carrying on such a business may be required to make a return as regards any such issue or placing effected by that person and specified in the notice, giving particulars of the persons to or with whom the shares or securities are issued, allotted, or placed and the number or amount of the shares or securities so obtained by them respectively.
If the Minister is going to stand on the point that "other person" in paragraph (2) (a) is qualified by the phrase "carrying on a business of effecting public issues of shares," then he cannot escape the consequences of subparagraph (3) which especially captures a person not carrying on such a business. Subparagraph (4) deals with the stock exchange, but paragraph (5) reads:
A person (other than a member of a stock exchange in the State) who acts as an agent in the State in transactions in shares or securities may be required to make a return giving particulars of any such transactions effected by him in the period specified in the notice and giving particulars of—
(a) the parties to the transactions,
(b) the number or amount of the shares or securities dealt with in the respective transactions, and
(c) the amount or value of the consideration.
If that does not apply to a bank I should like to be explicitly referred to where it says it does not. Subparagraph (6) reads:
An auctioneer, and any person carrying on a trade of dealing in any description of tangible moveable property, or of acting as an agent or intermediary in dealings in any description of tangible moveable property, may be required to make a return giving particulars of any transactions effected by or through him.
Surely the type of transaction that Deputy Connolly was talking about is often effected by or through a bank. Therefore it is very hard to escape the conclusion that subparagraph (6) captures a bank also. On the face of it, in spite of what the Minister has said, this paragraph is wide enough to require a bank to give particulars in regard to any client of the matter specified here in this paragraph. Taking that paragraph standing on its own as a positive enactment, that power is certainly conveyed. It is arguable in a sense that it is not— and I concede this—as sweeping or as objectionable as subparagraph (3). It is on all fours with paragraph 176 of the Income Tax Act that was excluded. It would seem, on the face of it, to qualify the subject matter, but it is definitely an extension to any other person. Not only does it capture banks but it captures any other person in not quite as general a class as in subparagraph (3). Here again I would point to what is another case of an extension of power in the Schedule and it is objectionable from a legal point of view.
My final comment on interpretation is that while paragraph 3 stands as it is, with its impact on paragraph 4, it must leave banks or any person or institution wide open to any enquiry from the Revenue Commissioners about their accounts or affairs. I think no other legal conclusion can be drawn from this.
I am concerned that we should realise what we are doing; I am not arguing merits at this stage, but what I am trying to emphasise—as I had been last night and leaving other arguments to my colleagues, because this aspect of the matter is vitally important—is that in contemplation of law and in the enactment of it, this is what we are doing. I am asking that we realise what we are doing. I am not expressing views on merits as to the intention but I am, when I use the word "objectionable", expressing comments on the form in which we are making these provisions. I am dealing with the matter purely on a legal interpretation basis and I want the House to realise what we are doing in the combination of these two paragraphs and I want to keep that as a separate issue from the merits. Let us have no smokescreens about the nature of schedules or the desirability of what we are doing. These are separate matters that can be debated; let us focus on what we are doing whatever may be the reason or the social or economic consequences.
My submission is that as this schedule stands the confidentiality of advisers, bankers or brokers is now a matter for the arbitrary discretion of the Revenue Commissioners if we pass this Bill. I am stating that as a matter of law. I repeat it because I mean it to be a responsible statement: as the schedule stands with particular reference to paragraphs 3 and 4, the confidentiality of bankers, brokers, lawyers or other agents—indeed, I could even go further on subparagraph (3)—is a matter for the arbitrary discretion of the Revenue Commissioners as between—let me qualify it clearly—the Revenue Commissioners and the banker, broker, lawyer—or other agent or person, if we fall back on subparagraph (3) of paragraph 3.
I want to advert to that legal fact and not to any smokescreens as to why the Revenue Commissioners must have this power in the nature of a schedule. We are dealing with what is in the Bill and in the schedule as it stands. My objection is that it should be done in this way. I leave over the question of what power should be given and how it should be given for another argument.
Having said that and, I hope, made the point clear, let me come to the merits as a totally distinct argument. I am much more in agreement with the Minister here. First, one of my big objections to the form in which this is done is that it attracts opprobrium and unfair comment and suspicion where the Revenue Commissioners are concerned. That is a pity. As I have often said I am prepared, perhaps more than others in the House, to grant the Revenue Commissioners powers and discretion to deal with the problems of evasion and generally to carry out their functions. I am pretty certain their will be no abuse in that regard. We should realise that the Revenue Commissioners are somewhat analogous to the custodians of law and order in the community. It is not desirable that their every action should be scrutinised in detail provided there are general limitations and general procedures are observed.
I recognise with the Minister the need for giving powers to the Revenue Commissioners and I do not wish to withhold them. Further, I am confident they will not be abused in the ordinary way. Therefore, I invite the Minister to effect them in a more frank way than is attempted in this schedule. If it has to be done, why should we be afraid of saying what we are doing? If we are—as we are— giving these powers we should concentrate on the counterbalances that may be necessary rather than on spancelling the Revenue Commissioners in granting these powers.
One thing that disturbs me in this connection is that without legislation of this nature you will develop a large administration, a large body of people dealing with this matter and to maintain confidentiality of individuals will become a mechanical problem. This is not specific to the Revenue Commissioners; it is happening all over our economy. Fifty years ago when trading was very competitive the affairs of individuals and firms were fairly strictly confidential and that confidentiality was exploited for the purposes of competition. Now, whether it is under the Companies Acts or under procedures which relate to groups of companies and so on, there are very large staffs dealing with confidential information.
Most people have come to the conclusion that confidentiality in the old sense is something of the past. All businessmen and, in particular, every big enterprise, must accept that details of their affairs cannot be kept totally secret. This is to the detriment of competition and to the securing of efficiency but it is part of the social scene. Therefore, I see no reason for singling out the Revenue Commissioners as ogres in this but one must realise that in regard to expanding legislation of this nature, the Revenue organisation will expand and that in proportion to that expansion the difficulty of maintaining security of confidential information will become greater. In saying that I am not casting aspersions on anyone. The problem is the same for any bank or any big firm. It is a general feature of our modern life.
The Minister should try to get a general provision, a provision which, on the face of it, may be shocking, but which, if it is necessary must be included. I find the method applied in this Schedule to be very disturbing. It would be well for people to realise what is the legal content of this legislation and how much further we are going than in previous legislation. On the other hand, I agree with the Minister that section 176 of the Income Tax Act, 1967 which was the cause of a great furore and in respect of which I understand representations have been made to the Minister, has not produced any scandals. It is a pity that our social development is such that the individual or legitimate groups of individuals can no longer have personal security in regard to intimate and confidential information. That is the best I can say by way of trying to put this paragraph into perspective.
I would point out that no information could be collected as a result of the operation of these paragraphs which should not be furnished by taxpayers in any event. The mere fact of creating a liability may require further disclosure. Assets will have to be declared as well as income but it is a checking process that information furnished is correct.
I appreciate that.
It is very important also that nobody should misunderstand this paragraph. It is confined to obtaining information from people who issue shares. Subparagraph (2) (a) refers to an issuing house or other person carrying on a business of effecting public issues and who may be required to make a return of all such public issues.
(Dublin Central): Compare that with paragraph 6.
Subparagraph (3) says that a person not carrying on such a business may be required to make a return as regards any such issue or placing effected by that person. Subparagraph (4) says that a member of a stock exchange in the State may be required to make a return giving particulars of any transaction effected by him while subparagraph (5) refers to a person who acts as an agent in the State in transactions in shares or securities being required to return the particulars of any such transactions. It is related to what the person is engaged in and is concerned with the issue of shares. Subparagraph (6) imposes an obligation on auctioneers or any person dealing in tangible moveable property exceeding £2,000 in value to return the particulars of any such dealings. It does not in any way affect bank accounts.
I did not refer to bank accounts. I said that in the context of paragraph 3 it goes that far. It covers banks. If the Minister wishes to make a nice distinction between information from a bank about one's account and about one's transactions he may do so but this does not alter the fact that under this paragraph a bank is liable to make certain returns for likely transactions with which it would be associated. To extend it to bank accounts would mean having to rely on subparagraph (3) of paragraph 3. I shall not pursue it too deeply as a legal argument but the Minister should not try to gloss over it. All of this may be very necessary but I do not like the way in which it is being done.
Deputy Fitzpatrick referred to paragraph 6. That is another matter and we will come to it in a moment. On the whole question of requiring information the point has now been reached where there is practically no limit placed on the Revenue Commissioners as to the inquiries they can make from any person in regard to any financial transaction and to which any person may be liable legally to respond. The desirability or necessity of such a sweeping conferring of powers is another matter. From experience and having regard to the problem of tax avoidance I would be prepared to trust the Revenue Commissioners but what I am cavilling at is the manner in which the powers are being given, a way which seems to have a double disadvantage and also a certain furtiveness that is highly undesirable and most unfair to the Revenue Commissioners in particular and to the whole of the State administration generally.
In relation to paragraph 5 can the Minister say whether there is any precedent or similar or analogous provision for this in relation to income tax?
I cannot tell the Deputy that offhand. As far as I know there is no such provision in the Income Tax Acts but I am not speaking ex cathedra.
Perhaps it is a necessary provision regarding liability for capital gains but has the Minister not covered that in the substantive part of the Bill? In other words, is this paragraph really necessary?
Elsewhere in the Bill the Minister has covered the question of the avoidance of the incidence of capital gains tax by the device of trusts and trustees. If he has done that and if he has the general powers for obtaining information which he has otherwise in the Bill, is that paragraph altogether necessary?
A person could be an agent and not a trustee.
Deputy Esmonde is quite right but agents are also covered in the Bill. Is this paragraph necessary having regard to the sweeping powers of obtaining information already provided in the earlier part of the Schedule and also having regard to the substantive provisions in the body of the Bill where both agents and trustees are amply covered for cases where the agency or the trusteeship could be used as an avoidance or an evasion mechanism? I shall not press the Minister too hard on that one.
I am not in a position to furnish any other information.
It cannot do any harm considering the damage that is done elsewhere.
The good that is done elsewhere. We are dealing in this Schedule with returns for information. It is desirable where we are spelling out the powers the Revenue Commissioners have to obtain returns that we should cover everything which they must reasonably have possession of in order to make correct assessments.
You are covering it all right.
That is why I think it is necessary.
In regard to paragraph 6 there are two points I want to put to the Minister. In the second line there is a reference to a party to a settlement:
The Revenue Commissioners may by notice in writing require any person being a party to a settlement . . .
I take it that the word "party" in relation to a settlement does not include a beneficiary under a settlement who may not be an actual party, say, signing the document which produces the settlement.
That would be my understanding of it. A beneficiary need not be a party. It would be the settlor or the trustee.
It goes on to say:
—to furnish them within such time as they may direct not being less than 28 days with such particulars as they think necessary for the purposes of this Act.
This is somewhat reminiscent of other matters I have disputed with the Minister on other Bills and I want to suggest to him that he might consider deleting the words "as they think necessary" and replacing them with something like "such particulars relating to the settlement as are reasonably required for the purposes of this Act". First, the particulars should clearly be related to the settlement and secondly "as are reasonably required" is not unreasonable. I know the Minister will argue that, although not explicitly stated, the Revenue Commissioners are obliged to act reasonably but I suggest that the insertion of the words "as are reasonably required" connotes a slightly more strict interpretation than would be implied by any general obligation on the Revenue Commissioners to act reasonably. Therefore, I suggest that the Minister should delete the words "as they think necessary" and substitute something on the lines of "relating to the settlement as are reasonably required".
I should like to support Deputy Colley on this but for a slightly different reason. Deputy Colley's suggested amendment would get over the objection I see in this and which I am sure the Minister does not intend but which is an accident of drafting. The Revenue Commissioners may by notice require any person being a party to a settlement to furnish information. The mere fact of being a party to a settlement brings him within the terms of this paragraph. Suppose that Deputy Fitzpatrick is a party to a settlement, the Revenue Commissioners can under this section require him to furnish within 28 days such particulars as they think necessary for the purposes of the Act. The particulars that they might be interested in and think necessary for the purposes of the Act might be a transaction by somebody who had nothing to do with the settlement, somebody who had sold Deputy Connolly a combine harvester. The Revenue Commissioners could require Deputy Fitzpatrick merely from the fact of his being a party to a settlement to supply the information about the combine harvester.
I think the Deputy is right.
The Minister knows what I mean. I know that this is not intended but it could be interpreted that way. It could have that peculiar effect.
(Dublin Central): It is probably solicitors and accountants that the Revenue Commissioners would have in mind.
No; it is the trustees of the settlement.
They want to know what the facts of the settlement are.
(Dublin Central): It is so broad that it can include anybody.
Such persons as are a party to a settlement.
That brings in Deputy Connolly's point.
We argued on this year's Finance Bill the meaning of the words "think necessary". I quoted several judgments which showed that the courts interpret these words "think necessary" as conferring on the Revenue Commissioners a power to come to a decision that something which they require to be done is reasonably necessary for the purposes of the Act and it is not necessary to put in the word "reasonably" in order to impose on the Revenue Commissioners the obligation to act reasonably. The courts consider that that obligation is there and they have held in several cases that where the Revenue Commissioners are given power to make a judgment they must be reasonable in making that judgment and if they seek information which they consider to be necessary it must be on the face of it and substantially be reasonable and they may not obtain any information which is unreasonable.
Quite clearly the particulars sought here are particulars of a settlement and nothing else, but in order not to allow even the debating point to be made I will be disposed to bring in an amendment on Report Stage to provide that the particulars sought will be particulars of or related to the settlement.
I would like to draw the Minister's attention to paragraph 7. In the second line there is a reference to a person "who is interested in settled property" and it goes on to provide that such a person may be required by notice by the Revenue Commissioners to give particulars. I would ask the Minister if it would not be more appropriate to provide there for a person "who is interested beneficially in settled property" because it seems to me that the word "interested" on its own is open to a very wide interpretation and could bring in people who would really have no knowledge or virtually no knowledge of the particular property. It is so wide as to lead to argument as to what is involved.
I do not think the courts would interpret the word "interested" there as "being curious about".
I am not suggesting that.
I will carefully consider the Deputy's suggestion. Offhand I think it is a reasonable amendment to make but I would like to be careful.
Paragraph 7 states:
A person holding shares or securities in a company which is not resident or ordinarily resident in the State, or who is interested in settled property . . .
This is a little bit vague. I would be afraid that a person who has incidental information, something like a shareholder who merely has purchased shares, might be liable for information. Of course, the answer is that they have not got it. I do not think it could be abused.
There is one other point on this paragraph to which I should like to draw the Minister's attention. Further on in the paragraph it says that a person:
. . . may be required by a notice by the Revenue Commissioners to give such particulars as the Revenue Commissioners may consider are required to determine whether the company or trust . . .
The Revenue Commissioners "may consider". I would suggest that also could be tightened a little at least to the extent of limiting more the purpose for which the information may be sought to the shareholding of the securities. I have no immediate suggestion as to the wording that might be substituted but I am just asking the Minister to have a look at the phrase "such particulars as the Revenue Commissioners may consider are required". I think that is a little wide.
Would the Deputy accept "may think necessary"?
No. I am relating it to the purpose for which the Revenue Commissioners consider the information is required.
Is that not set out in the Bill?
It says: "to determine whether the company or trust falls within section 36 . . . "
It is very confined. I cannot confine it any more and still have it effective.
Perhaps it could be: "as the Revenue Commissioners may reasonably require to determine . . . " It would be more in consonance with what should be there.
As I said already, the judgments interpret such powers as necessarily involving reasonableness in the use of them and if any taxpayer, any aggrieved person, complains that they are unreasonably being used the courts will condemn such use.
I do not want to reopen this argument but I want to reiterate my belief that the degree of reasonableness imposed on the Revenue Commissioners under this general edict of the courts, if I might put it that way, is not as great as is imposed by the use of the word "reasonable" or "reasonably" specifically in each provision.
I now want to refer the Minister to paragraph 9 which provides that the Revenue Commissioners may make regulations for quite a number of items which are set out here. The first question I want to put to the Minister is this: are the various matters which are provided for here in respect of which regulations may be made not laid down, for instance in some time limit which is actually in the Bill earlier, or in the case of the other items are such matters not laid down in regulations already made in regard to income tax? If so, why not apply them with necessary modifications instead of setting out all of this in paragraph 9?
One could not confidently say that all the provisions of the income tax code are adequate to cover all the situations which will arise in the administration of the capital gains code. There are a number of different factors. Under income tax an assessment usually affects only one person who is the person in receipt of an income but under the capital gains code an assessment may affect two people, the person disposing and the person acquiring. Clearly there has to be a different system in operation under the capital gains code. Again, if the holdings of unquoted shares have to be valued, the valuation fixed on appeal will affect other holders of shares of the same class so that a multitude of complexities would arise which we would not be able to solve by a simple application of the income tax code no matter how much we modified the code.
The paragraph requires that any regulations made by the Revenue Commissioners must be laid before Dáil Éireann. I think that is sufficient protection to ensure that any regulations which are made by the Revenue Commissioners will be scrutinised by the Dáil.
I should like to make a comment on paragraph 9 (1) (e). It says:
(e) authorising an inspector or other officer of the Revenue Commissioners, notwithstanding the obligation as to secrecy imposed by the Income Tax Acts or any other Act, to disclose to a person entitled to appear on such an appeal the market value of an asset as determined by an assessment or decision on a claim, or to disclose to a person whose liability to tax may be affected by the determination of the market value of an asset on a particular date, or an apportionment or any other matter, any decision on the matter made by an inspector or other officer of the Revenue Commissioners.
I do not know if there is a corresponding provision in the Income Tax Acts? Is there a corresponding provision in the Income Tax Acts enabling the Revenue Commissioners to make regulations which, in effect, can overcome the obligation as to secrecy imposed by the Income Tax Act or any other Act?
The answer is "No". As I mentioned earlier, under the Income Tax Acts one person is concerned, the person whose income is being charged, but the difference here is that more than one person is concerned.
Here again is, if I may say, buried in a Schedule— again I am objecting to the way things are being done, not so much what is being done, or the necessity for it, but the way it is being done—under a power to make regulations, a provision that in effect completely nullifies potentially the provisions in the Income Tax Acts or any other Act in regard to obligations as to secrecy. Under this paragraph a mere regulation made by the Revenue Commissioners can over-ride the obligation to secrecy imposed by the Income Tax Acts or any other Act; in other words, it can be construed as conveying to an agency outside this House power to over-ride provisions which this House specifically made to safeguard what I might call rights of privacy. That in cold legal fact is what this does.
Again, let me bring home the point: I am making this as a point of what the legal content of the Bill is, quite apart from intention, from desirability, from necessity or from any justification or, indeed, objection to what is being done. I merely want to expose what is being done and this is precisely what is being done in paragraph 1 (e) of this Schedule.
This means, in effect, that pro tanto the Revenue Commissioners, an inspector of taxes or any Revenue officials may disclose to any person either the market value of an asset—remember, an asset under section 7 includes a very wide class of property, practically all property—as determined by an assessment or decision on a claim, or disclose to another person the market value of an asset on a particular date, or an apportionment, or any other matter, any decision on the matter, made by an inspector of taxes or an official of the Revenue Commissioners.
May I pose a question to the Deputy? Suppose the Deputy and I were joint owners of a property and the inspector had dealt with the Deputy's case and my case is up on appeal, the same inspector could, without that section, claim privilege to my cross-examination to find out how he assessed the value of the property and I could not get him because that section was not there. That is the protection of the taxpayer.
One moment, if the Deputy will bear with me. I take the Deputy's point and he is anticipating me. I want to separate two things here. What is the complete legal content of this provision? The merits, the reasons, the necessity is a different matter with which I shall deal in a moment. It may be necessary, but I do not like the idea of delegating to any agency the power to abrogate a statutory provision of such importance which could conceivably—although in the case of the Revenue Commissioners most improbably—be used and construed as an invasion of privacy. I shall come back to the Deputy's point in a moment. I do not want to be distracted from the point I am making.
It is objectionable in principle to delegate power, by making a regulation, to any agency outside this House, even the Government themselves, to abrogate and over-ride a statutory provision of this sort. That is the point I want to make. In other words, the content of that provision is as wide as I have said it is. It is objectionable from the point of view of this House to enact a provision of this nature which so over-rides an enactment of this House. It is undesirable to delegate in this way. If this particular provision is necessary, it should have been included as a section in the Bill; it is so wide, it should have been substantively in the Bill. Quite apart from the Revenue Commissioners, on a general principle I object to the delegation.
I now wish to deal with Deputy Esmonde's and the Minister's point. Of course, I understand the dilemma of the Minister and of the Revenue Commissioners here and we shall have to provide for it. I shall take a very simple case. I do not have to go as far as Deputy Esmonde went. Let us suppose the matter had to be an appeal before a judge, the Revenue Commissioners would have to brief their counsel and solicitor with the facts. Something like this might be required for that very simple case itself. It might be required to enable evidence to be given, or it might be required for them to check on evidence. Supossing that I were to give a valuation and there was any question of the valuation, I take the Deputy's point on that as to the desirability or the necessity for some such provision. However, that does not take away from the point I am making here and I should like the Minister to look at it from that point of view.
The Bill as a whole is a peculiar mixture of handing over everything, all discretion and all power, to the Revenue Commissioners on the one hand and on the other of providing very specific limitations of powers, duties and responsibilities. It is natural enough when it is approached this way. Apart from the objections I have raised on the paragraph I want it to be understood what it is actually doing. The merits of what is intended to be done are a different matter from which I do not dissent. I cannot put the matter much more clearly than that.
We are arguing once again about the most suitable location for these provisions. I would rely on what Deputy de Valera argued here this morning, that is that the Schedules are an essential part of the Act itself, so it is a matter of indifference, from the point of view of their strength, their impact and their authority, whether they are in the Act or in the Schedule. It is necessary to provide that the Revenue Commissioners should have what Deputy de Valera has on many occasions argued in favour of, some flexibility. If we tried to cover every possible situation which may arise in capital gains tax in the statutes instead of dealing with it by regulation we could be here until the year 1980 and we would not have a workable code at the end of it.
It is much better to leave these to regulation-making machinery and then, of course, to the scrutiny which Dáil Éireann will be entitled to apply to any regulations which the Commissioners may make.
The Income Tax Acts impose very solemn obligations of secrecy on people who operate the Acts on behalf of the Revenue Commissioners. This relieving section is very confined, because the information may only be given to a person whose liability to tax may be affected by the determination of the market value of an asset on a particular date, an apportionment on any other matter. If we did not get that power then many people would be jeopardised by hearings before Commissioners, from which they would be excluded, although they would be bound by the findings of those tribunals. It is clearly in the interests of all people who have a common interest in particular assets that they should be given an opportunity of expressing their points of view on assessments and determinations. Regulations which will confer authority on inspectors within that very confined area will ensure that the people who have such a vital interest are given opportunity to protect that interest. If Deputy de Valera or any other Deputies can suggest some other way in which they can communicate this information without this modification of the secrecy obligation I would like to know it. I do not think it can be done, but it is a modification which is being made in such a way as to ensure that persons with a common interest are given a full hearing before they are bound by decisions affecting any one of them.
I appreciate the intention and as I have said I am not opposing it. I see the necessity for what the Minister intends to do but I am objecting to the way that it is being done. I am objecting in principle to the delegation of power to do this in a general way, as is done here under the simple power to give out regulations. Earlier I made a general suggestion that would meet this but it will not be practicable for this Bill to enact this as a substantive provision in the Bill. At this stage it would be just to introduce a purple patch in an already very variegated garment. I nevertheless, think that we should appreciate what we are doing. I want, if only for future purposes, to record an objection to approaching such a matter that way on the principles that I have tried to outline. I will leave the matter with this.
The way the whole Bill and as far as we have got in it now is drafted either the provision would have to be dropped or such a drastic readjustment would have to be made, like the other suggestion I made last night, that it might not be practicable at this stage. If the Revenue Commissioners and their officers were not the responsible and trustworthy organisation they are and have been, I would strenuously, and as strongly as I possibly could, oppose this paragraph in the schedule. The Minister attempted to turn my arguments about the schedule back on me. That only reinforces my point. It is a substantive enactment and it fully delegates the powers of the Oireachtas to the extent of overriding, in the case mentioned, the obligations of secrecy. As I have said it is a matter of the hard case making bad law.
Could I refer the Minister to subparagraph (2) of paragraph 9 on top of page 76, which reads:
Regulations under this paragraph may contain supplemental and incidental provisions as appear to the Revenue Commissioners to be necessary.
I imagine the Minister is not surprised to hear I am not entirely happy with that wording. I would suggest something on the lines instead of "as appear to the Revenue Commissioners to be necessary", as may be necessary for the implementation of this Act."
That is how I would interpret that phrase.
Hopefully that may be so but in order to make absolutely certain I think that it might so state.
The difficulty is, as I mentioned earlier this year to the Deputy, that if one were to start introducing words of that kind into this legislation the argument would probably be made some time in futuro that their absence from other legislation meant that people did not have to act reasonably because the word reasonable did not appear. That would be the position and I would not like to have to undertake the task of bringing in a Bill to cover all cases where the word “necessary” appeared in the legislation.
I did not even use the word "reasonable" on this occasion. I will repeat what I said. It should read:
Regulations under this paragraph may contain such supplemental and incidental provisions as may be necessary for the implementation of this Act.
Again, the courts consider where the word "necessary" appears in a Bill that it may only be interpreted as being necessary for the purposes of the Act in which the word appears.
"Supplemental and incidental provisions as appear to the Revenue Commissioners to be necessary" seems to me, no matter how restricted the courts may interpret it, to mean something different from "as may be necessary for the implementation of this Act".
Well, if I were advising a client in a case where the Revenue Commissioners inserted provisions which were not necessary for the purposes of the Act I would be quite confident that I could forecast the successful outcome of any proceedings.
I am not as happy as the Minister about that.
Even though it is not part of the Act paragraph 9 is one of those things which creates an impression which prompts people to make some of the remarks made about the Act. "Regulation with respect to appeals", is the heading of paragraph 9. Paragraph (e) of subparagraph (1) of paragraph 9 does not seem to be restricted to appeals. Paragraph 2 does not confine itself to appeals. Therefore, the power to make regulations is not confined to regulations with respect to appeals. Why has that to be inserted? It seems the same as the device that was used in the Finance Act of labelling a section, Abolition of Death Duties, the wording of which had no legal effect; it was a marginal note, but it conveyed an impression. If the words "et cetera” are inserted after “appeals” it will appear more honest.
Every paragraph in subparagraph (1) of paragraph 9 contains the word "appeal". Only regulations under this paragraph which relate to appeals can be made under subparagraph (2).
Paragraph 2, for instance, is not confined to appeals?
No. The only regulations to be made are with respect to appeals.
How does the Minister make that out?
The paragraph says that the Revenue Commissioners may make Regulations—(a) as respects the conduct of appeals against assessments; (b) entitling persons who would be so entitled to appear on such appeals; (c) regulating the time within which such appeals may be made; (d) to determine how market value is to be determined; (e) to disclose to a person entitled to appear on such an appeal the market value of an asset.
But it goes beyond appeals. If the Minister wants it spelled out for him I will. Subparagraph (2) states:
Regulations under this paragraph may contain such supplemental and incidental provisions as appear to the Revenue Commissioners to be necessary.
It is a political comment rather than legal submission.
That does not make it unworthy.
It may in fact make it better. In regard to paragraph 10, subparagraph (1) I should like to ask the Minister why that provision is there?
This gives authority to the inspector to require a married woman to furnish a return for capital gains tax separate from her husband, in the case where she has made application under section 13 (2) for separate assessment. In the absence of such an application the husband is required to return his wife's gain for the purposes of assessment under section 13 (1).
It is dealing only with the ordinary return? It is not a special notice requiring particular information?
It would be the returns where the wife has applied for a separate assessment.
Are we talking about the ordinary return?
Yes.
At this point of the Schedule we leave the question of returns and a general comment which I wish to make would appear to be appropriate at this point. This legislation will entail a lot of form-filling, making of returns and paper communications. As a result of this we will have a substantial operation in bureaucratic machinery. This will place a heavy burden on the Revenue Commissioners in their assessments and their collection. The opportunities for mistakes and inadvertent breaches of secrecy will be multiplied. The Revenue Commissioners cannot be blamed if a confidential document, with secret information pertaining to somebody, arrives at somebody else's address through a mistake of the Department of Posts and Telegraphs. This is not an uncommon occurrence nowadays. The effect is that the practical opportunities for the inadvertent disclosure of confidential information relating to individual persons or bodies corporate, will be multiplied extensively here.
The Minister should look quickly at the organisation of this work. It will be totally unfair to throw this at the Revenue Commissioners and say: "swim". They are already overburdened in certain areas. Their collecting mechanisms for income tax are overburdened. There is also the question of arrears of procedures, which I have had occasion to have information about while a member of a committee of this House. I may not be popular, and as a citizen and in certain other capacities I would not welcome the development at all, when I say it may be a necessity. The same type of situation developed rather rapidly under the Income Tax Acts some years ago. A situation was developing where it became impossible for the Revenue Commissioners to deal with this. The problem was solved by the PAYE scheme. The PAYE scheme is a method by which, onerous as the duties are—and the Minister should take it into account when taxing these people who are doing the work for him but it is necessary that they should—the individual employer acts as an agent or officer for the Revenue Commissioners and the Collector as well, and the Revenue Commissioners' own individual task is confined to manageable proportions and to supervision. This scheme is effective.
It seems to me this capital gains Bill is so wide in scope and the returns that will be needed to implement it equitably as provided for in this Schedule will be such that it may be necessary to mobilise the appropriate agencies in a co-operative spirit with the Revenue Commissioners. I may appear to some extent to be contradicting what I said on paragraph 4, but as I pointed out, I was primarily interested in what that paragraph was actually doing, and rather anxious to draw the veil aside for people who were too modest about what they were doing in the Bill, but it may be necessary for the Minister to consider this.
Therefore before we leave this I would like the Minister to say, perhaps on the Fifth Stage, what the prospects for administration are and what provision is being made, on the one hand, to enable the Revenue Commissioners effectively to administer this Act, and, on the other hand, how the rights and particularly the privacy of the taxpayer can be safeguarded.
I have indicated already in relation to certain amendments which the Minister moved to paragraph 11, not only considerable misgivings but, subject to what the Minister may have to say, total opposition to the provisions of paragraph 11, which basically provides that in the case of a sale of certain assets by a non-resident, the purchaser is, under this paragraph, obliged to deduct from the purchase money and pay to the Revenue Commissioners capital gains tax on one half of the purchase money. The object of this, of course, is clear and I think in many senses wrong. That is not what I am opposed to. What I am opposed to is the imposition which is involved in this paragraph on citizens here, an imposition which is totally impossible of discharge in a number of circumstances, and would render the whole paragraph unworkable.
However, before I develop that, there is one matter I would like to be clear on—the assets referred to are those mentioned in subsections (2) and (6) of section 4. There is a proviso to section 4, in subsection (2), which says:
Provided that this subsection shall not apply to a person who, by virtue of the provisions of Part XXII of the Income Tax Act, 1967 (double taxation agreement) is exempt from income tax chargeable for the year of assessment.
That seems to mean that a person who is not liable for income tax under that provision is not liable for capital gains tax either in respect of the assets specified in the subsection. What I want to know from the Minister is, in the event of a sale of assets, as mentioned in this paragraph, by a person coming under that proviso, does the obligation to make the deduction apply or does it not?
I mentioned last night that I am disposed to consider any suggestions which might be made by any Deputy as to how the State could ensure the collection of capital gains tax from non-residents. I notice so far no alternative suggestion has been made. I think the reason is that——
The Minister wants to collect the capital gains tax, but we are not prepared to ride roughshod over every citizen here to ensure it.
We are not riding roughshod over every citizen here.
The obligation is on the Minister, not on us, to see that the citizen is not ridden roughshod over.
Nobody is riding roughshod, least of all the Minister for Finance. All I am ensuring is that persons who are non-residents will pay the same amount as persons who are resident. We have to ensure that consideration for an asset does not pass out of the country beyond our control in such a way as would make it very easy for non-residents to avoid paying their fair share of tax. What are we doing? We are providing that a purchaser will deduct 26 per cent from half of the consideration and pay it over to the Revenue Commissioners, in the absence of a certificate from the Revenue Commissioners produced by the vendor to the purchaser to show that the vendor has paid his tax and that therefore the purchaser is freed from the obligation to make the deduction from the purchase money towards the tax. I would like to give a few examples to illustrate that there is no unfairness in what we are proposing. Before I give the example I would like to point out that it is under existing law. Estate duty had to be paid on all property left by a deceased person before even a grant of probate issues and before the assets could be handled by the next-of-kin.
(Dublin Central): The purchaser has nothing to do with that.
I think the Minister should stop attacking windmills, because no objection has been made on this side of the House to the idea of deduction. It is what this is doing to Irish citizens that we are concerned with.
It is not doing anything harmful to Irish citizens at all.
I did not develop the argument that perhaps the Minister wants to answer because I asked him a question. I was going to develop it, but of course he is in possession and is entitled to go ahead.
I will give some examples now to show how this section will operate. Let us visualise a sale with a consideration of £200,000. A consideration of that size would represent a majority of sales. Take £200,000 and 50 per cent of that is £100,000. Therefore the tax to be retained by the purchaser pending evidence that the vendor's capital gains tax has been paid would be £26,000.
If the vendor had bought the asset for £50,000 he would have a gain of £150,000; the tax payable by the vendor on such a gain would be £39,000. Therefore, if the purchaser deducts only £26,000 as provided for in the paragraph, the Revenue would still be at risk for another £13,000. So, even this precaution we have provided here, does not fully guarantee that the full tax will be paid.
(Dublin Central): The Minister is giving a very high capital gain on £200,000, when he takes that type of example.
I am going to give three examples, I want to be fair to everybody. Suppose the sale again was for £200,000 with an original acquisition cost of £100,000, there would be a gain of £100,000. The tax on such a case payable by the vendor would be £26,000 which would be the amount of the deduction the purchaser is required to make.
Let us take a third example where the sale is for £200,000 and the original cost £150,000. There would be a gain of £50,000 which would carry a tax liability of £13,000. In such a case the purchaser had deducted the £26,000 and paid it over to the Revenue Commissioners; the vendor on application would obtain a refund of the £13,000 from the Revenue Commissioners. If the vendor does not wish to await receipt of the money from the Revenue Commissioners but wants it direct from the purchaser, all he has to do, when he has negotiated his sale of property, is to notify the Revenue Commissioners giving them the relevant information whereupon the Revenue Commissioners will immediately assess the liability and, if tax is payable——
Even though he has not made a gain?
The vendor will furnish the necessary information to the Revenue Commissioners and they will assess the liability. If the liability was nil and the certificate furnished——
But if he has not made a gain, if this is before he completes the transaction, he has not made a gain. How can they assess him?
The price is settled at this stage. He has negotiated the sale and he may have paid tax on the gain which he is just about to make.
So it is a provisional, tentative assessment to facilitate him, is that what the Minister means?
Yes.
(Dublin Central): The purchaser will have to pay the Revenue Commissioners. The sum of £26,000 is the figure he is expected to pay, whether he made a capital gain or not?
That is right.
Yes. The assumption is made——
(Dublin Central): He must pay irrespective of whether he made a capital gain or not?
The purchaser will make the deduction and pass it to the Revenue Commissioners in the absence of evidence produced by the vendor in the form of a certificate which he has received from the Revenue Commissioners that he has discharged his liability.
The argument was advanced that the person might then have to advance tax before benefits were received. I should like to preface my remarks by pointing out what happened under the old estate duty code. Massive sums had to be put forward from banks in order to pay estate duty before people could even begin to handle the assets and they had to realise them later in order to pay off the banks. The sums involved were very much greater than anything which is likely to arise under the capital gains tax code. We are simply providing the minimum insurance for the State. We must do this if we have any sense of equity; we must ensure that non-residents cannot escape a liability which is imposed on residents. On the specific question raised by Deputy Colley——
Section 4, subsection (2) excludes liability in the case of certain non-residents.
Yes. This would apply to a British non-resident.
The question is, in the event of the vendor under paragraph 11, being a person coming within that proviso—in other words, the person who is not liable for capital gains tax—does the obligation to make the deductions still apply or does it disappear?
The obligation does not disappear but the British resident would get a certificate which would clear him.
But in the absence of that certificate, the deduction should be made anyway. Is that correct?
Yes.
As I indicated, the objection that I have to this paragraph has nothing to do with what the Minister has been talking about. It has to do with the obligation being imposed on the Irish citizen who is dealing with a non-resident. If one considers the implications of this paragraph a most extraordinary thing is being provided because, effectively, it is saying that in the case of the sale of land, minerals and certain rights on the Continental Shelf by persons who are non-resident in the State and where the consideration exceeds £50,000, the purchaser is obliged to make this deduction which the Minister has been talking about.
It is worth looking at the provision which deals with this. It says in subparagraph (2):
Upon payment of the consideration by or on behalf of a person acquiring an asset on a disposal falling within subparagraph (1), being a payment, directly or indirectly, to a person who is not ordinarily resident in the State, the person by or through whom any such payment is made shall deduct thereout a sum representing an amount of capital gains tax on one-half of the said payment at the rate of such tax in force at the time the payment is made.
I cannot read this provision as doing anything other than imposing an obligation, not only on the purchaser, but on his solicitor or, indeed, on a bank or any agent of the purchaser to whom the moneys might be paid; an obligation to make this deduction even though the bank, the agent or whoever is concerned might have no knowledge whatever as to the source of the funds or the destination of the funds; or, indeed, no knowledge as to the fact that the transaction was in any way connected with someone who was not a resident in the State.
This obligation which is imposed here in this way is an absolutely enormous extension of the obligations of solicitors or, indeed, any other agents. It is likely to create substantial dangers to these people because, in many cases, it will be quite impossible to know whether or not the money will ultimately be received, directly or indirectly, as the subparagraph says, by a person who is not ordinarily resident in the State. This use of the word "indirectly" makes it totally impossible to know whether any payment would ultimately wind up with a person not ordinarily resident in the State.
I want to suggest to the Minister that the object he has in mind is, as I said earlier, quite commendable; the method by which it is proposed to do it, as far as the person who is liable for the capital gains tax is concerned, may have considerable justification but none of that is of any use at all if, first of all, it is imposing impossible obligations on Irish citizens, and I would seriously suggest unworkable obligations and, secondly, any examination of what is proposed here in the light of what really is going to happen shows that this is a totally unworkable proposition. As such to put it forward and maintain that it is going to work in order to collect capital gains tax from non-residents is just bringing the law into disrepute when it is so clearly unworkable.
Progress reported; Committee to sit again.