I was earlier dealing with the question of what happens where there is an annuity or limited interest of one kind or another charged on property which is high in value and low in income. But there is another aspect of this on which I think the Minister should throw some light and that is whether a lease would be a limited interest within the meaning of this section and if so, what would be the procedure in regard to——
Wealth Tax Bill, 1975: Committee Stage (Resumed).
SECTION 3.
Debate resumed on amendment No. 2 d.
In page 4, subsection (3), lines 32 to 36 inclusive, to delete "the whole or the appropriate part of the property in which the limited interest subsists or on which it is charged or secured or on which the individual is entitled to have it so charged or secured shall be property to which the individual is beneficially entitled in possession" and substitute "the taxable wealth of the individual in relation to such property shall be such sum as that limited interest would fetch if sold on the open market on the valuation date, having due regard to the age and state of health of the individual.".
—(Deputy Colley.)
(Cavan): A lease is not a limited interest within the meaning of this section.
In any circumstances, any lease?
(Cavan): No.
The Minister will appreciate that there are so many different definitions, apart from the beginning, that it is difficult to put one's finger on this immediately. Perhaps the Minister could assist me by directing my attention to the provision which excludes a lease.
(Cavan): It is in the definition of limited minimal interest.
A definition of a limited interest?
On page 2.
(Cavan): Is the Deputy thinking of the definition at the bottom of page 2?
There is somewhere in the Bill a definition of limited interest?
Yes, page 3, section 3 (5) (b).
Sorry, section 3 (5) (b)?
Yes, it is referred to in section 1. You have the definition at the top of page 3—"limited interest" shall be construed in accordance with section 3 (5) (b).
Yes. The definition is "limited interest" and 3 (5) (b) says: "an individual shall be deemed to be entitled to an interest which is a limited interest in any case where——".
(Cavan): The Deputy is on the right lines now.
"——(1) the income, or part of the income, if any, or an annuity or other periodic payment"— which, I presume, could mean rent—"out of the income of property to which he is not absolutely entitled, ——"
(Cavan): He is absolutely entitled to the leasehold interest. Those are the facts.
To the leasehold interest, the periodic payment being the rent?
(Cavan): No, “—to which he is not absolutely entitled.” He is absolutely entitled to the leasehold interest.
But the periodic payment is coming out of the leasehold interest. Is it? Is that what the Minister is saying, not out of the—we shall say—freehold interest for simplicity?
(Cavan): Yes.
If the Minister is satisfied that a lease does not come into this I will not pursue that aspect of the matter but I will go back now to what I was saying earlier on the question of the situation where you have property which is high in capital value and low in income and in which as a result, a limited interest charged on all of that property results in a totally distorted valuation of the limited interest for the purpose of assessment of wealth tax. This is independent of the amendment that the Minister had down later dealing with the question of raising money to pay it and so on.
I think it is true to say that in such a case one is getting a totally distorted valuation of the limited interest and therefore the apportionment provision in the section still gives you a distorted result. The justification for this that the Minister gave us as I recall it is that failure to treat it in this way would leave the matter open to evasion or avoidance and also it would involve a number of valuations on the same property.
To take the second point first, it might involve a number of valuations of the same property but surely the valuations are of different interests and that is the reason that you would have to have separate valuations. The valuations would not be the same figure. There would be the valuation of the limited interest; the valuation of the reversionary interest and possibly the valuation of a contingent interest. But you would, in fact, if you did this be assessing tax on the real market value of each person's interest, not on as you get here, a totally artificial value.
As regards the question of avoidance. I doubt if it is beyond the wit of the Revenue Commissioners to devise methods which would overcome the efforts at avoidance principally by using the basic tools that we were referred to earlier of looking through the transaction and seeing who is effectively the owner and in control of the particular interest or asset. Such an approach would, I suggest, make the whole concept of the application of this tax more logical and more understandable and would avoid the kinds of anomalies which I have referred to earlier and illustrated. I wonder if the Minister is fully satisfied that such an approach is really not practical.
(Cavan): Deputy Colley can rest assured that very serious consideration has been given to this matter and that my advisers are satisfied and I am satisfied that the only practical way of dealing with it is the way in which we propose to deal with it here. As the Deputy knows, subsection (3) says:
Where the property to which an individual is beneficially entitled in possession includes an interest which is a limited interest, the whole or the appropriate part of the property in which the limited interest subsists or on which it is charged or secured or on which the individual is entitled to have it so charged or secured shall be property to which the individual is beneficially entitled in possession.
Then, as the Deputy knows, we have the method of valuing today. We have the definition of "appropriate part" in subsection (5) (c):
"the appropriate part", in relation to property tax referred to in subsection (3), means that part of the property which bears the same proportion to the entire property as the gross income of the limited interest firstly referred to in subsection (3) bears to the gross income of the entire property, and the property to which the individual is beneficially entitled in possession shall be deemed to include the appropriate part of each and every item of property comprised in the entire property.
Does the Minister accept that the portion he has just read out about "the appropriate part" can produce a very distorted valuation in the kind of case I am talking about?
(Cavan): Of course, you can get extreme cases and extreme examples of practically anything but that is not the realistic approach to it. Supposing that a person is entitled to an annuity of £1,000 and that it is charged on a fund which produces £10,000, and is valued at £100,000. The value of the appropriate part there is £10,000—one-tenth of £100,000. Of course it is not liable. It does not come within the charge to tax, that is unless the threshold for the individual is exceeded. If the income was £10,000 the value of the appropriate part would be £5,000.
The value of an income of £5,000?
(Cavan): No. The value of the appropriate part for wealth tax purposes would be that.
Would the Minister start again on his second example?
(Cavan): Sorry if I said £10,000, I should have said £50,000. If he is entitled to an annuity of £1,000 charged on a fund which produces £10,000 per annum, which is worth £100,000, the value for tax is £10,000—one-tenth of the entire value.
Yes.
(Cavan): The life tenant is deemed to be entitled to the underlying property, that is, £10,000. As a result of that he gets the benefit of whatever exemptions and reliefs which are appropriate to the underlying property. He gets the benefit of the threshold and he gets the benefit of any exemptions that apply.
The relevant part of what I am talking about is if a person is liable, of course. It does not apply if he is not. In other words, if the total amount of wealth he has brings him over the threshold, then the question of giving a distorted value to portion of his wealth becomes acute.
(Cavan): As the Deputy says, if he is not liable it does not matter. If he is liable, he gets the benefit of any exemptions that would be attached to that property.
(Dublin Central): How could he get exemption for tax on that property if it is over the threshold? What exemptions would he be entitled to?
(Cavan): The underlying property could be a house and there could be stock on the lands. The exemptions and reliefs could not be applied if he were treated as having a mere chose-in-action or a right against the property. Neither could these exemptions or reliefs be applied to remainder interest or a revisionary interest whether vested or contingent. Deeming a life tenant to be entitled to the property gets over all arguments regarding the proper law of the settlement, the charity, et cetera. The Deputy may take it, as I say, that this has been gone into very carefully —I am slow to use the words “in ignorance”—but without being aware of what the position in other countries was and we find that the other countries had adopted this approach which we had arrived at independently. It is a satisfaction that there is this practically universal justification for our approach. The exception is West Germany where they have another system where they tax the life-interest and the remainder interest. Once the method of getting after the underlying property the “appropriate part” is understood there is no problem, there is no hardship and what we are doing is necessary in order to make the system workable.
The Minister was going to give a second example in figures.
(Cavan): No. I was not actually.
Sorry, I thought he was.
(Dublin Central): I can see the reason for Deputy Colley's amendment. I am sure throughout the country there are businesses, even land, where there is limited interest in property, in the case of brothers and sisters where a person would own property and there is no transfer.
(Cavan): Yes.
(Dublin Central): I see what Deputy Colley is concerned about. For a given time the limited interest will be ignored and you will go to the underlying value of the property to assess what the property is worth. I can see why Deputy Colley is concerned about this point. The underlying value could be valued at a much higher level than would be appropriate to a limited interest. We want to ensure that this limited interest is not overvalued. That is the purpose of what Deputy Colley is trying to do here, to ensure that persons having a limited interest are not victimised. I thought we could approach this on the same basis as Deputy Colley has mentioned, the value plus the limited interest. I can see the Minister's point of view. It would certainly create complications as regards value for two or three different factories within the property. This would probably create a problem and add another complication for the Revenue Commissioners. What we are concerned about is to protect the person with the limited value.
Take the case of property on the perimeter of Dublin that might be subject to development in the near future. Here is a property the underlying value of which would be valued at a very high level. But if there is a limited interest in the case of a family, a mother or nephew, as the case may be, will the apportionment in a case like that be accurate?
It is charged on the capital. We are not changing anything. The person who created the limited interest must have known what he was doing.
(Dublin Central): This would be true as and from the time the White Paper was published. I could see that certainly. I am not in any doubt that that could happen, but I am talking about genuine cases that existed for the past 15 or 20 years where this limited value has been created. It was done in good faith at that time. Is there a danger then that with the movement of the city out and property getting a much higher value that they could be penalised by virtue of the fact that the underlying value had appreciated by 500 or 600 per cent? Could that type of situation not arise where this limited value has been created over the past 20 years long before what we are talking about?
(Cavan): I understand that on the Second Reading debate Deputy Colley said that he had no objection to the limited interest that we are dealing with now provided that the corpus of the fund was made liable for the tax. We have introduced an amendment to meet that point. That is the purpose of the amendment I am making. I am advised, and I accept, that if the limited interest is not made liable in the manner we are dealing with it then by means of settlements very valuable property can be settled in such a way that it would escape fictitiously all liability to tax. This is a tax on capital as has been said. That is the reason it must be done this way. Otherwise it simply will not work. Deputy Colley did make this point on Second Reading and the Minister for Finance has introduced an amendment to meet that point.
Could I ask the Minister if the amendment to which he is referring will ensure that in all circumstances the estate will pay? In other words, where there is a distorted value put on the limited interest and where the owner of the limited interest is, because of other property, liable to wealth tax the effect of the distorted value will not affect his liability for wealth tax but only the estate where it will not be distorted. Does the Minister follow the point I am making? Let me put it this way: A is the owner of a limited interest and the effect of applying this subsection is to value his limited interest, we will say at £50,000, when its market value might be only £10,000. This is conceivable. If the effect of the Minister's amendment which is coming later is that no matter what A's liability for wealth tax is other than in respect of the limited interest—suppose he is liable for wealth tax apart from the limited interest and then this £50,000 is added on for the purpose of assessing him for wealth tax can he, no matter what his liability under other heads, recover the wealth tax on the £50,000 on the estate?
(Cavan): Yes, he can recover the wealth tax on the £50,000 because that is the value of the estate. That is the value of the capital. That is the value of what we are taxing. He can recover that under amendment No. 24.
In the light of that I am satisfied.
Amendment, by leave, withdrawn.
(Cavan): I move amendment No. 3:
In page 5, subsection (5) (a), lines 9 to 14, to delete subparagraph (i) and to substitute the following subparagraph:
"(i) an individual who is not domiciled in the State on a valuation date and who has resided in the State for not less than—
(I) 183 days in the year ending on that date, and
(II) 183 days in each of six or more of the nine years immediately prior to that year,
shall be deemed to be domiciled and ordinarily resident in the State on that valuation date;".
The original subparagraph is being deleted and a new subparagraph is being substituted. The effect is that liability in respect of global wealth will not arise in the case of an individual who is not domiciled in the State on the valuation date unless two conditions are fulfilled, that he has resided in the State for 183 days in the year ending on the valuation date and he has resided in the State for 183 days in each of the six or more of the nine years prior to that. For the purposes of wealth tax the position of a foreigner will now be as follows. He will always be liable for the tax on property situate in the State. If he comes here and does not acquire an Irish domicile his foreign property will not be liable for the seven years of his stay here. After the seven-year period liability to tax on foreign property will arise only if conditions at (I) and (II) of the new subparagraph are fulfilled: that he has been there for 183 days in the year ending on the valuation date and that he has been there for 183 days in six or more of the nine preceding years.
In view of the two tests it is possible that the liability to tax on the foreign property will be intermittent: liability may arise in the eighth year not in the ninth year, again in the tenth year depending on the movements of the individual. If an individual does not reside for 183 days in the year prior to the valuation date his previous history is irrelevant. That is, unless he is 183 days in the State on the relevant 5th April it does not matter what he was doing in the previous year. Liability arises under the amended subsection where the individual has resided in the State for six months in the year. This test is not the equivalent of "resident" as used in the income tax code.
A person is resident for income purposes if he maintains a place of abode in the State and stays any time, however short, in the State during the year. If he has not such a place of abode he must spend more than six months in the year to be regarded as resident. For wealth tax purposes he must stay six months, whether or not he has a place of abode in the State, before liability can arise. This approach has the special advantage that it simplifies the problem for both the public and the Revenue. Whether or not a person has resided in the State for six months is a question of fact and readily ascertainable. It removes all doubts on the issue.
This amendment has the effect of removing from liability to the tax in respect of their global property the vast majority of persons who are not domiciled here but who, for business or social reasons, spend a couple of months each year in the State and who, for this purpose, maintain a residence here. Under the Bill, as drafted, these people felt they were being caught unfairly with the result that many representations were received in the matter. The amendment should have the desired effect and should put the matter beyond doubt. Residence alone seems to be the criterion for liability to wealth tax in most countries. That is certainly the case with European countries—Germany, the Netherlands, Norway, Sweden, Denmark and Finland. The concept of domicile is a feature of common law countries and is unknown in these European countries.
I certainly agree with the Minister that the definite specification brings an element of certainty that is desirable from the point of view of the administration of the Act and also from the point of view of the person charged. Reading this subsection as meaning that a person resident in the country here is naturally chargeable, as the Minister said, for the property located in the State——
(Cavan): No matter where he resides.
Yes, but where he has property outside the State he does not incur any liability until he has fulfilled the two conditions in this section. As the Minister has pointed out, there is one condition with regard to the year immediately preceding the valuation date; he must have been there for just over the six months and, if he fulfils that condition, then you have to look back and see if he fulfils the further condition. If the answer is "No" to the first, then the question does not arise. So far so good. The Minister has referred to the type of country that can be involved. We would be particularly concerned with certain countries and the question naturally arises as to how this ties in with the similar provisions of these countries. For instance, a question of double taxation might arise.
(Cavan): That does not arise at the moment and you can have taxation agreements.
Yes, but this brings in a problem. We are in the Common Market and there will be growing economic inter-relationships involving the owning of property outside the State. Take a specific example: supposing an ordinary citizen—I do not want to use any of the technical words here—of some continental state within the Common Market has property here; if he fulfils this condition this property, say in France, is captured for the purpose of wealth tax here. That involves double liability on his part, namely, making the appropriate return here and then paying the tax on the assessment. Am I right in that? He makes the appropriate return here after the assessment. It could be that he is, at the same time, capitally taxable in his own country for precisely the same property. If there is a double taxation agreement the matter can be resolved. I presume taxation of this sort, as the income tax code did, will stimulate double taxation agreements. Assume for the moment that there is not a double taxation agreement——
Or assume there is no wealth tax, as in France.
Yes. Assume there is a corresponding tax, and assume the property is taxable in the same sense in both countries, the question I am asking is are the terms of these provisions as near as possible on all-fours? In other words, can we get an automatic element into it? If in the country in Europe where he is a citizen and where his principal place of residence would be, and he spends six months of the year here and six months of the year there, he qualifies under this—if you had precisely the same provision in both countries the whole thing would work automatically because he would be automatically excluded in the one by that one day. It is six months and one day; the 183 days boils down to six months and one day. If he is six months and one day here he cannot be six months and one day in the other; he is six months less one day in the other country. If the tax is comparable, it is simply a question of where does he pay and at what rate. I would like to know if that aspect has been considered and if the Minister has any information on that point.
Deputy Colley brings up another issue when he points out that France has no wealth tax. You may be dealing with countries that have not got this type of taxation and we are not, in this section, confined to the Common Market. Even if all the Common Market countries were involved you would still have other countries where this did not apply. In that case, the problem is resolved for the gentleman by his keeping a diary; he makes sure he has an efficient secretary who tots up how many days he spends in each country and, when he reaches the 180th day, he gets out. The more knowledgeable people may say: "There is something more to this than you see" and I would like to see what the little something more is, if there is something more to it. I am thinking of the exercise in practice. That is the big objection to the Minister's amendment, as I see it. I see all the points in its favour. I go all the way with the Minister in this but it seems as if we are trying to have it both ways—to criticise some of the amendment stimulated by comment and an attempt to meet the comments of Deputy Colley in this. I do not want to put it in that way, but one of the difficulties about a specific definition like this is that anti-avoidance in the most virtuous sense is so facilitated. We are talking in Committee and it is as well to see——
It is in relation to foreign property.
Yes, but it is the capturing of the foreign property for the purposes of here.
I am taking the case where that foreign property is capitally taxable here, if it is captured within this section, but which is not capitally taxable in the country where the person concerned is ordinarily resident. In that case, as I say, the simple solution is to keep a diary and he avoids capital taxation altogether. Where there is equality of code, there is no problem. I do not wish to hold up the House and if I am, so to speak, barking up the wrong tree, I would like to be stopped. I am referring here to an old point. On the one hand one wants to control the powers given to any State agency to keep control in this House and we had to argue that very strongly on the last Schedule of the last Bill. On the other hand I am equally strongly in favour of delegating the proper discretions. Once you give fairly definite guidelines to the Revenue Commissioners, I have confidence that they would say: "Do not confine discretion too narrowly in the mathematical sense. Because it may work injustice. We have plenty of experience of our own agency to know that discretion will always be applied in reason". Perhaps I had better leave it at that.
The next point I am raising is: what will happen to double taxation? Will double taxation agreements cover it? What is the position vis-á-vis ingrafting and the fixing of six months plus a day? What is the position in relation to, say, the countries we are most likely to be dealing with? And lastly, where the property in a country is not capitally taxable a person can evade taxation by the simple device of carefully keeping his diary. Is there a disadvantage in this section as against the original drafting? I think that is a simple question.
(Cavan): In reply to Deputy de Valera, first of all, I can assure him that 183 days seem to be the general criterion elsewhere.
It is in line with other countries?
(Cavan): It seems to be in line with other countries with which we would be concerned. When we come to double taxation agreements, they will have to be negotiated with each country concerned. Anything we do here will not be binding on the other country concerned unless they happen to agree with it. Therefore, I agree with Deputy de Valera that in order to simplify matters in the future, our legislation should be in line, in this regard, as far as possible with the other countries concerned, and I am assured that that is so.
That is wise.
(Cavan): In regard to countries that have no wealth tax, the question of double taxation will not arise, but it will be in the interest of the person who has property here to establish that he is not domiciled and ordinarily resident here within the amendment as I am asking the House to accept. I understand that this is a problem the Revenue Commissioners have been dealing with for years. They have been dealing with it in regard to income tax and they are aware of the type of people likely to be involved in this tax. In income tax they would be asked to produce evidence to the Revenue Commissioners in the form of—it may sound odd to us—travel tickets, hotel vouchers or something of that nature. It is a matter of considerable importance to these taxpayers, and, therefore, they keep much more accurate diaries than some of us would. They have evidence to back up the diaries. I am told that this is the way this works.
The whole section, as originally drafted, was intended to deal with foreigners but some, as I said in introducing the amendment, felt that they would be caught as being domiciled or resident within the section if they were only here for a couple of weeks and had a residence here. We wanted to put the position beyond doubt. That is the purpose of this amendment, which spells out very clearly that the person must be here 183 days in the year ending on the relevant date and must be here 183 days in each of six of the previous nine years. I think that answers the point raised by Deputy de Valera.
Perhaps I am little less trusting than some of my colleagues, and the Minister will, I hope, forgive me if it turns out that that mistrust was unfounded.
Doubting Thomas.
Deputy Esmonde said earlier in regard to this amendment that it was a relieving amendment. The Minister said it was introduced because of the various representations received by people who felt they were going to be caught and should not be. It occurred to me that there might be another reason for this amendment. When I look at it I find that it very neatly introduces the concept of residing in the State and then goes on at the end to deem to be domiciled and ordinarily resident. The Minister will recall my difficulty in regard to the term "ordinarily resident". I raised this quite a long time ago with the Minister for Finance and as a result —I am not going to go into all the details of what transpired across the floor in the House—the Minister for Finance undertook to let me have details of the basis and the cases on which he claimed that "ordinarily resident" was clearly defined, despite the information that had been given to me by various well qualified sources that "ordinarily resident" is not defined anywhere with any degree of precision.
Subsequently I reminded the Minister for Finance that he had undertaken to give me this information and that I had not got it. Last week I reminded the Minister for Lands, sitting in for the Minister for Finance, that this was the position and I still did not have it. As of this minute I have not got it. I believe there is considerable difficulty arising as a consequence of the non-statutory definition of the term "ordinarily resident".
(Cavan): It does not come into this. The non-statutory definition of “ordinarily resident” is not relevant here.
You are providing a definition.
That is the point. Let me refer the Minister to the last two lines of his amendment which says:
shall be deemed to be domiciled and ordinarily resident in the State on that valuation date;".
What Deputy de Valera is saying is quite true. In effect, this amendment is providing, at least in this class of case, a definition of what is "ordinarily resident". In the course of doing so it uses the word "resided" in the State. When the Minister was talking about the amendment, he clearly believed, and gave us to believe, that that means actual, physical presence in the State. The Minister is presumably aware of the fact that under other codes, income tax in particular, one could be deemed to be certainly ordinarily resident—I do not know if one could be deemed to be residing in the State—for a year, without actually physically being in the State for a year. I would like to know the basis on which the Minister says that the term "resided here" means that you must be actually present for the 183 days in the State, because on the definitions that are available, and the interpretations of these terms in the past, it would seem that it was not necessary to be physically present in the State. I think the Minister would agree that it is of considerable importance that we know precisely what is being provided here in regard to persons of the type covered in this part of the section.
I would like to add one further point to Deputy Colley's argument here, merely to reinforce it. The Minister will remember that on section 1 I raised the whole question of in pari materia. Now if these Acts were to be so, if the point of view that I have taken were to be held to have any substance, notwithstanding my learned friends' contrary opinion, we are introducing a definition into the code that might have unforeseen effects. I merely put that as a supplementary question——
(Cavan): To deal with Deputy de Valera's point first, I think I established to my own satisfaction at any rate that these three measures are not in pari materia.
I would not mind taking a brief in another place.
(Cavan): You would not go back to that sort of slavery again. To get on to Deputy Colley's argument, we have two types of person here. We have the person who is domiciled and ordinarily resident here. He is a person who is domiciled according to the well-known criterion of domicile which has been used here for estate duty purposes since estate duty was introduced. Now you have that person who is domiciled and ordinarily resident here, and for the purposes of that individual, “ordinary residence” has the meaning ascribed to it by the income tax code over the years and operated by the Revenue Commissioners in regard to income tax.
Could I stop you there? The real problem is, in fact, that the Bill actually says it is given the meaning given to the Income Tax Acts, and there is no meaning given to the Income Tax Act.
(Cavan): No, but there is usage and decided cases and a whole code of decisions and interpretations and usage over the years gives a definition or meaning. That is domiciled, and ordinary resident for a person who is domiciled. We have here in this amendment the man who is not domiciled, in other words, he has not the intention of living here permanently. He is not domiciled but he seemed to be domiciled, if he has resided here for the required period, that is 183 days in the year ending on the valuation date and in six of the nine years before that. We do not have to define every blessed word we use—“has resided in the State” means that he has slept in the State, or tried to sleep for 183 nights, and I think that Deputy Colley is really going too far. I know that it is the business of the Opposition to raise obstacles and they are certainly discharging that obligation very well— going too far to question the wording.
(Dublin Central): If you had a yacht out in Dublin bay, would you be domiciled?
(Cavan): If you were within our territorial waters, that, of course, is the answer to that.
(Dublin Central): I would like to get one clarification of the amendment. I think the Minister should at least give a guideline as to what ordinary residence is. Deputy Colley has pursued that on the other Bill, but is it not in the section of it here that it must be 183 days in each of the previous years? I consider this an impossible fact to establish.
(Cavan): He would have been presumably under notice from an income tax point of view and there will be some data on him.
(Dublin Central): It would be a little difficult, but do I take it then that there are just six or seven years, although there are 183 days on the qualifying date for the previous year?
(Cavan): First of all, he is out altogether, unless he has been 183 days here on 5th April last.
(Dublin Central): Let us assume that he is only here for the previous five years, but he is here 183 days on the valuation date.
(Cavan): He is exempt completely.
(Dublin Central): That is the only clarification, but I do think that it will be difficult to establish. The Minister says the Revenue Commissioners will have accounts submitted for the previous five or six years, but I doubt if the particular people we have in mind would know themselves.
(Cavan): The Revenue Commissioners get over many difficulties.
(Dublin Central): I doubt if a lot of these people moving to and fro, perhaps from America and France to Ireland, would know how many days they have spent in this country a year ago. The Revenue Commissioners may have figures, but I doubt very much if you could get them to any degree of accuracy, going back six or seven years ago.
Presumably they all must be taxpayers.
(Cavan): I presume so.
I may be misleading myself again, but I am a bit puzzled to know what is the need for establishing domicile or residence. As I understood it, an individual who lives abroad and who has a substantial interest in a trade here comes under this Bill.
(Cavan): Yes, but this is his global wealth, his wealth in another country which becomes liable.
So if he is ordinarily resident here his wealth——
(Cavan): If he is domiciled and ordinarily resident but this is a person who is deemed to be domiciled and ordinarily resident.
I think the Minister in his remarks about the Opposition will concede that Deputy Colley has given a very fine example of careful and thorough reading of a Bill as an Opposition leader in dealing with the Bill should have done, and of the points he is raising, there are none that I have seen that were either superficial or frivolous, and this is very far from being superficial or frivolous.
(Cavan): As long as we do not go on for anything like 18 hours.
We will try not to do that. The Minister has given satisfactory answers to me, but Deputy Colley raises a point that I think we should not pass, even though the answer in the end may be the same as in the other cases, and I would like to recap in this form. This definition introduces what is, in effect, a definition of "domiciled and ordinarily resident in the State on that valuation date". It is a definition of these terms, primarily for this Bill. I think everyone will agree that, being a taxation measure, it will be strictly construed so far as the taxpayer is concerned in the first instance. If it is being construed in the interest of the taxpayer one should confine one's self to that definition alone and not go beyond it. That is an end to the matter. But if the circumstances should be different —I am not going to expand the argument; I merely wish to mention it— the point, in pari materia with the other three measures and even the income tax code, could conceivably arise. Deputy Esmonde will see that I am trying to be accurate and not provocative. I admit that the matter is completely arguable and perhaps the balance of the better opinion would lie with the Minister although, as I said, I think that in certain cases, I would be prepared to argue it.
(Cavan): Might I refer the Deputy to subsection (5) of section 3 which we are discussing, where the opening words are “for the purpose of this Act”?
Of course it states, "for the purpose of this Act" but I am getting into the old pari materia argument again and I do not wish to do that. The balance of the better opinion may very well lie with the Minister, so I would not refuse the challenge if it were to arise.
In that case, it is only if the construction were favourable to the taxpayer that it could arise. In my submission, it could arise against the Revenue Commissioners. It is the protection of the Revenue Commissioners we are talking about on this point, not the taxpayer. As Deputy Esmonde pointed out very early in the debate on section 1, the taxpayer will be protected by the principle of the most strict and the most appropriate construction in his favour. I think I am right in that. But per contra the Revenue Commissioners may be at the opposite end of the stick and I am raising the point in that sense. There is no need to expand on it because the practicality of it is this: the Revenue Commissioners, in the colloquial phrase, did not come up yesterday; they have a lot of experience and no doubt know what they are doing. I am perfectly happy that having once raised this point on section 1 they are alert to it. If there is any trap in it they will look after their own interests, and I am quite prepared to leave it at that.
Deputy Colley put his finger on a point that was well worth making and which is a very important one to make. The Deputy obviously has something else up his sleeve but I will not undertake that I will not chase the rabbit.
(Cavan): I do not mind the Deputy chasing rabbits but I do not like him producing them out of a hat.
I did not say "hare". The next point is one which Deputy Fitzpatrick made—again it is a matter of experience for the Revenue Commissioners. I see no problem in the future in so far as the returns will have to be made annually and after six years there will be no difficulty because the Revenue Commissioners' records will be there. But Deputy Fitzpatrick has a point in raising the question of the previous six years. Income tax and capital property are not quite the same thing. The evidence may or may not be there for six years behind us. I give two general answers to that: first, the Revenue Commissioners know what they are doing and they are the only people who can advise the House, through the Minister, whether there is any problem there; secondly, we are not so vindictive as to be worried about missing out a little retrospectively. It would not be of great financial concern to the State to lose out retrospectively on this so it does not arise as a practical problem.
Deputy Fitzpatrick had a point to raise there and I should like the Minister to confirm or otherwise that the attempted answers I have given there are the correct ones. I seem to be giving the Minister's answers now.
(Cavan): The Deputy is worried about how the Revenue Commissioners are going to decide whether a person has been here for 183 days in six out of the nine years that have gone past. The answer is that unless he is or has been here or hereabouts for seven years the matter will not arise because he will not be alive. If he has been here, the probability is that he has been dealing with the Revenue Commissioners in regard to income tax and they will have a lot of information about him. The movements of people in this category are pretty well known. I suppose if a man had a residence here and the Revenue Commissioners thought he had been living here for the past seven years, they would put an assessment on him under the income tax code. His advisers would come in and talk it over. There has to be a common-sense approach to all these sorts of things and this is just one of the teething problems. There are teething problems in any innovation.
(Dublin Central): It will be of vital importance so far as that amendment is concerned.
(Cavan): Certainly there is no onus placed on the individual to prove that he has not been resident here. Is that what is worrying Deputy Fitzpatrick?
(Dublin Central): I am wondering how the Revenue Commissioners will establish this.
(Cavan): That will be their problem, but there is no onus on the individual to prove that he has not been residing here for 183 days. That being so, it will be a matter for the Revenue Commissioners and if a man denies that he comes within the provisions of this subsection, it will be a matter for the Revenue Commissioners to prove that he does. If they cannot establish it, he gets away with it.
(Dublin Central): I do not think it will work out as simply as that because it is quite obvious that representations have been made to the Minister in regard to this section and this is why we have this amendment here. Of course it serves a fundamental purpose which we will pursue on another section of the Bill. As Deputy Colley has already mentioned, the 183 days have not been established in any of the income tax laws where they tried to establish domicile and especially ordinary residence. Unless that number of days is established, it will be important to the Revenue Commissioners to say : “You have been here for 183 days in the past seven years”. The section will be of vital importance to people who have property abroad. They will be rearranging their affairs from now on. Whether the Revenue Commissioners will be capable of establishing the fact that they have resided here over the past six years will be a major problem for the Revenue Commissioners, where this particular type of person is concerned. He will undoubtedly now be looking at his whole financial arrangements and from now on he will consult the calendar with regard to the number of days he will reside in this country.
We are dealing with people who could have substantial wealth abroad. These people are well advised by their accountants as to the exact number of days they will spend in every country, especially in Ireland. The Minister has stated that the same regulation exists in the other European countries where there is a wealth tax, but I am convinced that it will be very difficult to ascertain that information. The Revenue Commissioners say: "We can use another guideline. We have some other means of doing this." This Bill provides for 183 days over the previous nine years and, irrespective of whether the Revenue Commissioners would like to decide on any other issue or not, I do not think they would be entitled to do so. All this person has to say is: "I did not spend 183 days over the previous nine years in this State." This will be very difficult to prove. I doubt very much that the Revenue Commissioners will be able to prove it. I am looking at the section in the Bill to see how it will operate. There is no good in having a section in the Bill if we think it cannot operate to the benefit of the entire Bill.
As we read the Bill now it is quite obvious that people will be taking a different view of their whole financial structures and their place of residence in any particular country. I am raising this problem because I can see it arising immediately this Bill goes through the House.
(Cavan): If I had left the section as drafted I am certain that Deputy Fitzpatrick would be in here accusing me of harassing people who were coming here to spend holidays, or coming here for a short period every year and who were not genuinely resident here. I would be accused of driving those people out of the country. It would be said I was making it impossible for them to know where they stood in regard to this tax. All sorts of accusations would be levelled against me, acting for the Minister for Finance. Now when I come in here with a spelled out amendment in ease of the very people who were concerned about this, I find the argument on the other foot, that the Revenue Commissioners will not be able to get the facts from these people Deputy Fitzpatrick wants to get after.
(Dublin Central): The Bill must be workable and made workable.
(Cavan): If the Deputy was making the argument that this would not be in ease of the taxpayer but would impose a hardship on him that would make his life much more difficult, I could understand his point of view. I would feel obliged to answer him and to argue to the best of my ability that he need not have any fears. But, he is in here now in defence of the Revenue Commissioners.
That happens too on this side of the House.
(Cavan): The Revenue Commissioners are the people who will have to operate these sections. The Revenue Commissioners are satisfied that this subsection is workable, as drafted, and after all they are the people who will be responsible for operating it. We should take their advice, which is based on experience over many years in dealing with people who have been liable over the years, for income tax here under these circumstances. I am told the Revenue Commissioners are satisfied that the type of person they will be interested in in this regard will be able to establish whether or not he comes within this. Indeed, as of now, he would most probably have been dealt with during the past seven years.
If they have not been dealing with them over the past seven years because they were not here, then there is no problem because they will not be liable to this tax. I would suggest to Deputy Fitzpatrick that he should leave this with the Revenue Commissioners for the time being and if they find that they have not got the tools to do the job, he may be certain that they will be back here asking for them.
Can I ask the Minister if the persons who would become liable under this amendment could not become liable before 1984? Is that a correct interpretation of it? That is nine years hence.
(Cavan): Offhand I would say no. They could be liable immediately the President signs this measure.
Provided the evidence was there.
Now that is the real significance of the point Deputy Fitzpatrick is making. As I understand it the Minister is saying that in most of these cases in fact the Revenue Commissioners were dealing with such people in respect of income tax and the evidence will be available. That may be so. but presumably there must be a number of them who were not dealing with the Revenue Commissioners. However, I am not pursuing that matter very much further, though I think that Deputy Fitzpatrick has a very strong point when he says it might turn out to be unworkable in so far as some people are concerned.
I want to return to the point that I raised earlier which the Minister may think is a small point, but I want to assure him it is a vital point and will be for very many people, to get this absolutely right. The Minister described the meaning of domiciled as defined over the years. I agree with him 100 per cent in what he says. He went on and seemed to imply that the same thing was true in regard to the definition of "ordinarily resident", but it is not. That is what the real trouble is. I do not want to go on repeating myself but there is some significance in the fact that when I raised this point on the capital gains tax, the Minister for Finance was unable to point out what was the basis for the statement that this was clearly defined over the years. When pressed, he stated that it would be aiding people unnecessarily if he gave it to the House and he would give it to me privately. He did not and I reminded him afterwards and I did not get it, I reminded the Minister for Lands last week and I still have not got it. There is some significance in this.
(Cavan): I hope the Deputy will accept that I am not deliberately withholding it. I never thought of it since it was mentioned here before.
I accept that, though the Minister will appreciate—I know from my experience as a Minister— that when a thing like this happens in the House the normal thing is that the official concerned makes sure that it is done. I accept the fact that because it has not been done there is a difficulty. I shall not pursue that any further. All I am saying is that it is of some significance in the light of this amendment and its wording. I must get this as clear as I can; so far I do not understand it although the Minister may believe that he has explained it very clearly. The point is that since the term "ordinarily resident" is not clearly defined under "case law" and it is not defined at all in the statutes, we find that in the amendment the Minister is defining here something that will be deemed to mean "domiciled and ordinarily resident" in a particular class of cases.
That is all right but we are entitled in those circumstances to try to find out what precisely is the meaning of the definition. In so far as "ordinarily resident" has been defined at all, one thing that can be said with certainty about this term, which is being imported into this at the bottom of the amendment, is that it can cover a situation in which the individual concerned was not physically present in the country at all for years. "Ordinarily resident", I take it, can cover that. The Minister said that by using the word "resided" in this and then defining that later on as, in the circumstances, meaning "domiciled and ordinarily resident", "residing", means physical presence in the State. I should like to ask him on what basis does he say that having regard to the fact that "ordinarily resident" does not mean that? I am not saying he is wrong. I just want to know why or on what authority he is saying that "resided" means physically present.
(Cavan): Words in a section or in an Act which are not given any special meaning and which are not specially defined, are given an ordinary, everyday meaning of The ordinary, everyday meaning of the word “reside” is to be physically in a place at a particular time.
There is a flaw in that argument, because the term "ordinarily resident" is not defined in any Statute. Therefore, on the basis of what the Minister is saying, it should have been interpreted in its ordinary meaning. I think the Minister will agree that no ordinary meaning of the term "ordinarily resident" would envisage not being present in the State for a year and still being deemed to be ordinarily resident for a year. Therefore if we let this phrase go as "ordinarily resident" went in the past, we can end up with an artificial definition of "reside". This is why I am paying such attention to this particular phrase. As I already said, I am reasonably convinced that there was a motive in the introduction of this amendment in addition to the motive mentioned by the Minister as being in response to representations and in ease of the people. I do not deny that it may be in ease, but I think it is doing more than that. The key to what it is doing lies in the word "resided" and in the manner in which a definition is being spelled out in the phrase "domiciled and ordinarily resident". It is a matter of considerable importance which we are entitled and indeed obliged to pursue as far as we can to get the exact consequence of what is in this amendment.
(Cavan): I just want to say again that the Deputy is introducing the terms “resident” and “ordinarily resident”. The words “ordinarily resident” have acquired a special meaning within the income tax code. Section 3 (1) says: “a person who is domiciled and ordinarily resident” that is the man who is domiciled in the State, and we know what the meaning of that is. Then “ordinarily resident” comes within the meaning of the income tax code. When we come to this amendment we are dealing with another type of individual, with “an individual who is not domiciled in the State. That is important.” An individual who is not domiciled in the State on a valuation date and who has resided—“resided” there is the simple word “resided”, it is in no way connected with “ordinarily resident.” It goes on to say he is not domiciled but he has resided for the period specified in (I) and (II) and he then “shall be deemed to be domiciled and ordinarily resident”, which is a different thing. He is deemed to be domiciled and ordinarily resident if he has in fact done what was mentioned earlier.
The intention is to convey that he has resided physically?
(Cavan): Exactly.
But would the Minister put in the word "physically"?
(Cavan): I would certainly give serious consideration to that before the next Stage. If that makes the Deputies any happier I will certainly look into that.
That, I think, would meet it because, if I may put the argument in reverse we could get into a legal circle here—I understand that the phrase "ordinarily resident" has been judicially interpreted in such a way that the consequences, pointed out by Deputy Colley, follow. It seems surprising to the lay man at first glance that "ordinarily resident" can cover a man who has not actually physically resided at a particular place for a year, but lawyers can well contemplate cases where the contrary interpretation would be valid.
The danger that I see is that the phrase "ordinarily resident", having been subjected to such judicial interpretation and the consequences which Deputy Colley has pointed out, having been accepted, may be taken to define what is meant technically by the phase "who has resided". I am talking in legal terms now. The danger is that on a question of interpretation the court would invert its approach and say "we do know what ordinarily resident means". This is a very convenient yardstick for deciding what "who has resided" means, notwithstanding that the Minister is very clear in his own mind as to what he intends.
Whether, therefore, the Minister adopts the suggestion which we have made that the word "physically" be used to qualify the words or finds some other suitable form to express his intention, the matter is worthy of detailed and careful consideration, particularly from the Revenue point of view. We are glad that the Minister will look into it. We will be very interested to know what the result of the research on that point will be.
(Cavan): As I have said, this amendment was introduced in ease of a certain category of people who made representations. It is essential that it be seen to be clearly in ease of it. As it stands at the moment it is quite clear, but if the Opposition think otherwise and suggest that adding “physically” or other words to it makes the matter clearer, I will certainly ask my advisers to look into that with a view to arriving at a formula that would put it beyond doubt.
We thank the Minister for that. Let us assume that somebody complies with the two conditions laid down here and therefore becomes liable for wealth tax on his assets and that he has no taxable assets here, which is certainly conceivable, how it is proposed to enforce this?
(Cavan): We will deal with that when it arises. It is unlikely.
No, it is not.
(Cavan): It is unlikely that such an individual would have no assets here at all. All we can do is to do our best. All the Revenue Commissioners can do is to do their best. They cannot work miracles. They cannot take feathers off frogs.
How do you get after a case where somebody has a substantial interest, say in a foreign corporation and comes over here merely as an observing agent and has no property in the State?
(Cavan): Chasing moonbeams.
They could have dwelling houses here and very little else but have a great deal of wealth around the world. If they come within this there would theoretically be a substantial liability. I do not think there is any way the Revenue Commissioners can collect.
(Cavan): In the case of any tax that was ever imposed the question of collecting it arises.
We did not try to impose it on people around the world and on their assets around the world.
I agree with Deputy Colley. Let us take somebody who had a contractual interest on behalf of a corporation in which he had a very strong beneficial interest. He comes here merely for the length of time it takes to keep in contact and is merely doing his business and supervising his contractual relations. It could happen. Frankly I am inclined to agree with the Minister that as a serious problem to the Revenue it is not likely to arise but on the other hand it is the very type of case where very substantial sums of money might be involved or the movement of considerable sums.
(Cavan): Does not the same thing arise in a case where an individual is domiciled here and has no property here but has £1 million worth of property in some other part of the world and on whose death a grant of administration is not taken out and the Revenue Commissioners are in theory entitled to the cut of his £1 million but in practice they will not get it.
(Dublin Central): Do I take it that a person residing here must fulfil these two clauses? A man who has resided here, say, on the valuation date of the previous year, is he exempt for the next eight years from wealth tax? He has only just come here. He has finished 183 days on valuation day. That was his first year. He qualifies on that basis only. Do I take it that he is exempt from wealth tax until he fulfils the provisions in the following section?
(Cavan): Yes.
(Dublin Central): He does not become liable for another eight years?
(Cavan): Unless he is domiciled. He could establish a domicile by declaring his intention that he was going to live here for the rest of his life.
(Dublin Central): He will be exempt for the next eight years?
(Cavan): Yes, unless he declares he is domiciled.
Amendment agreed to.
Question proposed: "That section 3, as amended, stand part of the Bill."
There are a number of points I wish to raise but I think I should first deal with a matter of considerable importance that we have been referring to obliquely in connection with previous sections and amendments. This matter arises under subsection (2) which says:
Subject to the provisions of this Act, the taxable wealth of an individual other than an individual who is domiciled and ordinarily resident in the State on the valuation date shall comprise only the property situate in the State to which he is beneficially entitled in possession on that date.
The Minister has referred to this subsection and has said that the meaning of "property situate in the State" is such that it does not include the ownership of shares in a foreign company which effectively controls and owns property situate in the State. I do not know whether the Minister would agree with my version of what he said, but I give the specific example he referred to.
If one assumes that, say, an American citizen and resident of the United States sets up here a factory with substantial investment and assistance from the IDA the normal pattern is that an Irish company is formed and therefore the ownership of the property here is vested in that Irish company but the shares in the Irish company are owned by an American company, a trading company in each case. There are cases we know of where this is the set-up and where the shares in the American company are owned virtually 100 per cent by an individual, perhaps one or two by relatives, but substantially by one individual. The practice of the Revenue Commissioners under the death duty code has been and will be under the Capital Gains Tax Bill, in such circumstances, to look through the transaction and to determine who effectively owns and controls that property which is represented by the shares in the American company. If they find that the effective ownership and control of the property in the State is in the hands of X, then X is liable to them for whatever tax arises on the property.
That has been the general approach of the Revenue Commissioners. In the Capital Gains Tax Bill there are some detailed rules set out for determining whether property is situate in the State or whether it is not. But in this Bill there are no such rules. It simply states "property situate in the State". If one followed the normal approach adopted by the Revenue Commissioners one would conclude that in the kind of situation I have described that American citizen would be deemed to be the owner of property situate in the State. but the Minister has told us that that is not so, that in fact in such circumstances the American is deemed to be the owner of the shares in the American company and is not situate in the State and therefore does not come under this subsection. That is what the Minister has told us.
If one follows the line that has been followed heretofore one does not reach the conclusion the Minister reached. If we assume that the conclusion the Minister reached is the correct one then what do we find? We find that in the case I have described that American individual shareholder is not liable for wealth tax and of course neither the Irish nor the American trading companies are liable for wealth tax. So effectively that operation—we will assume for the moment that it is a manufacturing factory—is not liable for or affected by wealth tax. There may well be within half a mile of that factory another factory engaged in the same business and competing. It is owned by an Irish trading company the shares in which are owned by Irish residents and Irish citizens and in that case the wealth tax is applied to the Irish shareholders with the consequent effect on the company that that extra amount of money, plus the income tax on it as I explained earlier, has to be paid out. So there is extra overhead added to the operation of that factory because it is owned and controlled by Irish residents and Irish citizens.
You could take a situation in which exactly the same thing happened but with hotels close to each other and competing in the same resort, in the same area. If the Minister's interpretation is correct what I have described is the position and therefore this section proposes deliberately to discriminate against Irish shareholders in companies of that kind. This is what I was referring to this morning, where the Minister finds himself in the position that either he has to discriminate against Irish people in favour of foreign investors or, alternatively, he has to impose the tax on foreign investors and thereby risk inhibiting encouragement of investment from abroad.
When I said this morning that we, in protesting in this matter, were not being inconsistent and that both propositions were valid, that is the proposition that there should not be discrimination against Irish people on the one hand and on the other hand the proposition that we should not inhibit investment from abroad, I was saying that those two propositions are valid and it is not contradictory on our part to put them forward. The contradiction lies with the Minister and with the attitude that is taken up in this Bill because the Minister finds himself, under this section, obliged to come down on one side or the other and the side on which he has come down is to discriminate against Irish people. If he took the other side we would still attack him and we would not be inconsistent because the two propositions we are putting forward are correct, I believe. I do not think the Minister would dispute either of them but he finds himself in the position that he has to make a choice between two propositions, each of which is valid and he has to choose one and reject the other.
The reason that this is happening is that the basic concept of this Bill is wrong. That concept is that you should apply a wealth tax to productive assets in an economy like ours which needs to attract investment from abroad as well as encouraging Irish people to invest in productive assets. These are the two requirements which I think everybody accepts that we need in this country.
This Bill, because of its basic concept being wrong, its basic concept of applying a wealth tax to productive assets, produces this result that we either discriminate against Irish people who invest or we inhibit investment from abroad. I think that the Minister has in his interpretation of subsection (2) opted to discriminate against Irish people presumably so as not to inhibit investment from abroad. We should not be in the position of having to opt between these two. The reason that we are in it, and I repeat, is that the basic concept of the wealth tax in our circumstances applying to productive assets is wrong and it is producing this ridiculous situation which I do not think we should be put in and I do not think the Minister should be put in.
(Cavan): I stand over the attitude I have taken at the commencement of this Committee Stage debate. Take the example given by Deputy Colley. There is an Irish trading company established here, presumably, and owned by an American trading company, the shares of the American trading company being owned by American citizens resident in America. I repeat that those shares are not liable to wealth tax because they are shares in an American company held by American citizens. It is true that some of the profits, some of the wealth, owned by that American company comes from its operations here which are giving employment and adding to the economy. That is the position and I stand over it. The very same position exists at the present time in regard to death duties. There has never been any complaint about it or never any suggestion that it should be otherwise. In that very same situation, the Irish trading company owned by the American trading company, whose shares are owned by American citizens, or people resident in America, those shares on the death of the owner are not affected by death duties at all. Neither do the shares attract wealth tax. I see nothing inconsistent in that, good, bad or indifferent.
Deputy Colley had an amendment down this morning which we discussed for a long time, the object of which was obviously to confer a benefit on foreigners who own shares in Irish trading companies. He argued it very forcefully. I argued that it was not necessary, that it did not affect many people but, if it did affect people, Deputy Colley was quite prepared to confer on those foreigners a benefit.
Since the Minister has referred in the past to amendments coming up he might refer to the fact that I have an amendment coming up to abolish wealth tax on all productive investment. Would the Minister deal with that point?
(Cavan): I am dealing with that point. There is nothing new about this. That is the position as it operated in regard to death duties over the years. That is the position as it will operate in regard to wealth tax.
I can see that shares in Irish trading companies, in the hands of people who are deemed to be domiciled and resident here, are subject to the tax. I can see that, but there are generous thresholds as I have stated, up to £100,000 which can be scattered around and I do not think it is likely to inflict any hardship. Even under the income tax code there has been a recognition over the years that foreigners can have substantial deposits in Irish banks and I think—I speak subject to correction—may buy Irish Government securities and national loans and the income will be disregarded for income tax. In regard to the ordinary Irishman, the banks are obliged, under legislation enacted by the previous Government, to make a return to the Revenue Commissioners, giving particulars of any deposits held so that tax can be levied but they are not required to do that in regard to foreigners. Again, this is a storm in a teacup. There is no precedent being established; there is no innovation. We are following, by and large, the practice carried out in the past. The underlying principle in all this is that a trading company as I have said ad nauseam, is not subject to wealth tax.
(Dublin Central): Only if you have money.
(Cavan): The trading company is not subject to a wealth tax——
The shares.
(Cavan): If the shares are held by another trading company they are not subject to wealth tax and that is why the American trading company is not subject to tax.
An individual might be paying more income tax in America, a lot more than he might be paying in wealth tax and income tax together here.
(Cavan): Yes.
He might be paying more than wealth tax and income tax combined.
Do not let us get away from the main point.
(Cavan): As Deputy Belton has reminded me, the American is subject to whatever forms of tax exist there. I know that is no concern of ours. On the other hand, if an Irishman owned shares in an American company, he would pay the tax here and the death duties. There is nothing inconsistent about this if you do not look under the surface to try to find something inconsistent.
I understand the Minister's answer and, in the sense in which he uses those words, I do not controvert him, but there is a difficulty, if not an inconsistency, that goes to the root of the matter. In effect, putting it in its simplest terms, the capital of the Irish company will be taxed in one case and will not be taxed in the other. Let us get these fundamental points clear. The Minister has made a good case and has pointed out the consistency with the Revenue Commissioners. This is fine as far as it goes. I do not want to say that I agree with the Minister as far as he has gone. Will the Minister please accept that I am taking his arguments in the most sympathetic spirit? there is a basic fact that, whereas looking at it from the point of view of this code, it would be difficut to answer some of the Minister's points, there is still a basic difficulty; in one case there is a capital tax attaching to one company and there is none in the other. That is the basic principle. That creates a certain difficulty.
(Cavan): I do not accept it applies to the company; it applies to the shares.
The value of the shares of a company affect the company's operation. It is a liability, indirectly, on the company.
(Cavan): No. Surely the amount of income tax I have to pay on shares in Guinness does not influence the economy of that firm.
I may do it later, but I do not have time now to spell out the whole point of the case. Accepting that the Minister does not accept my premise, will he allow me to make my argument on that basis in order to save time?
If this is so, does it not really get down to a fundamental matter of principle which has been summarised by Deputy Colley? Could we not, in this taxation code, differentiate in some way between productive asset and non-productive asset? Obviously, from the point of view of the economy, take a trading company or, more pertinently, a manufacturing company, a company that employs a number of people and is manufacturing a product, from a social point of view, bringing in factors which will stimulate the growth and activities of this company is desirable. If the wealth of that company is taxed, even when it is in the hands of the individual shareholders, a liability is still put on the company and it inhibits the reinvestment of profits in that company. This is the point I should like to develop: it is essentially a matter of how far wealth can be used for productive purposes. The wealth which is being syphoned off merely to pay the housekeeping expenses of the State, to support the superstructure, is wealth for productive and reproductive purposes taken out of the economy. We are at the basic point of the argument here. I have sympathy with the Minister if he feels: "Oh, not again," when this point comes up. We cannot but come back to it.
Progress reported; Committee to sit again.