Dáil Éireann debate -
Tuesday, 8 Jul 1975

Vol. 283 No. 5

Capital Gains Tax Bill, 1974: Report Stage (Resumed).

Debate resumed on amendment No. 34:

In page 47, to delete subparagraph (3), and to substitute the following subparagraph:

"(3) (a) Where—

(i) a company incurs expenditure on the construction of any building, structure or works, being expenditure allowable as a deduction under subparagraph (1) in computing a gain accruing to the company on the disposal of the building, structure or works, or any asset comprising it,

(ii) that expenditure was defrayed out of borrowed money, and

(iii) the company charged to capital all or any part of the interest on that borrowed money referable to a period ending on or before the disposal,

the sums so allowable under the said subparagraph (1) shall include the amount of that interest charged to capital except in so far as such interest has been taken into account for the purposes of relief under the Income Tax Acts, or could have been so taken into account but for an insufficiency of income or profits or gains.

(b) Subject to clause (a), no payment of interest shall be allowable as a deduction under this paragraph.".

—(Minister for Finance.)

Mr. Colley

I pointed out that the Minister's amendment goes part of the way we sought he should go in so far as it is allowing interest as an expense for deduction, like other expenses allowed in the Bill, in the computation of capital gains. The Bill as drafted had a specific prohibition on the allowance of interest. We pointed out on Second Stage, and on Committee Stage, that this was wrong especially having regard to the fact that the Bill provided for the allowance of deduction of costs of architectural fees and other expenses, and, in certain circumstances, advertising and matters of that kind. Interest is an expense; it is the cost of money.

The Minister has gone some of the way in so far as he now proposes to allow interest as a deduction in the case of companies only where the expenditure has been incurred on the construction of any building, structure or works. In so far as the amendment goes in allowing interest to be deducted in the case of companies that, since it is only in respect of expenditure on the construction of any building, structure or works, will not apply in many cases where it should be allowed. Its principal value—not its only value—would be in the case of companies which are property developers. I say not its only value because other companies can engage in and undertake expenditure on construction of buildings, structures or works but other companies will also undertake expenditure of other kinds in respect of which they will incur a liability for interest. As I read this amendment that interest will not be allowed.

I pointed out on Committee Stage that it was necessary that interest should be allowed also in the case of individuals. The moving of this amendment by the Minister indicates that he accepts clearly the obligation to allow interest but he does not allow it in the case of individuals primarily, as I understand it from what the Minister has said, because he would find it difficult to police this. He feels that the accounts in respect of companies are such that he could police it but in the case of individuals he feels he cannot. I understand the difficulties the Minister has in mind but I do not think they are sufficient to justify the Minister in not allowing it in the case of individuals. The allowance of interest is so fundamental that the onus is on the Minister to ensure that this can be done. Heretofore in effect under the law in the case of individuals we have not been concerned with a division between capital and current expenditure but, in the case of capital gains, we have to be concerned with such. Therefore, I submit that the onus is on the Minister to devise a structure which will enable that to be done.

I am suggesting that it is not sufficient for the Minister simply to say that that is too difficult and he will not allow interest to be deducted in the case of individuals. I suggest that is trying to make the individual conform to the system instead of making the system conform to the requirements of the individual. I should like to know whether the non-allowance of interest is not repugnant to the Constitution. Where an individual has genuinely incurred interest related only to the cost of acquisition of the asset and has subsequently sold the asset the non-allowance of interest as a deduction will result in taxation on a profit which was never made. It is worse than the non-allowance for inflation which can also result in taxation on an apparent profit which is a real loss but at least in that case it is an apparent profit. In the case of the non-allowance of interest it is not even an apparent profit. In certain circumstances it can be clearly a loss but because of the non-allowance of interest the Bill will deem the individual concerned to have made a profit. It will deem the individual to have made a gain and to apply capital gains tax to it. I suggest that the taxation of a gain or profit which the individual did not make is likely to be unconstitutional.

Furthermore, it should be understood that the non-allowance of interest, except in so far as the Minister now proposes to allow it in this amendment, is not confined to what we might call private transactions but covers all trading transactions. In the case of such trading transactions no allowance will be made in respect of interest except in the circumstances outlined in this amendment, that is where the taxpayer is a company and where the expenditure incurred was on the construction of any building, structure or works. Therefore, in the case of business or trade there is a very wide range of activities in respect of which interest is normally incurred in which interest will not be allowed as a deduction and in which, in consequence, tax will be applied where there is a real loss or it will be applied to a gain which is substantially higher than the real gain. That being so, I do not think one can say this amendment, although it is on the right lines, goes nearly as far as it should go.

It was pointed out in discussion on this matter on Committee Stage that there are circumstances in which it may not suit an individual to form a limited liability company. Deputy Paddy Belton was one of those who pointed this out. It was also pointed out that in many cases even where there is a limited liability company the bank concerned, if it is a bank which is advancing the money on which the interest arises, will require the personal guarantee of the individual and that effectively it is the individual who is obtaining the loan and incurring the liability for the interest. The Minister has indicated that he considers that the cost of the formation of a limited liability company is relatively so small that it is easy enough for an individual to conform with the requirements of the Bill by forming a limited liability company. Of course, that does not cover the case in which a liability for capital gains tax has arisen and in which interest is not going to be allowed because it is the case of an individual prior to the passing of this Bill and the liability, of course, goes back quite some distance so that the Minister's suggestion about the formation of a limited liability company does not cover that situation at all.

I have pointed out also that even as far as cases in the future are concerned it does not always suit the individual to do his business by way of a limited liability company and even if it did there is no good reason why he should be compelled, for the sake of the administrative convenience of the Minister and the Revenue Commissioners, to do his business in this way. Heretofore, I have always understood that the question of whether business would be done by an individual or by a limited liability company is a matter of individual choice but effectively what the Minister is saying here is that if you want to do any business and get any benefit by way of deduction of interest in assessment of capital gains tax then you will form a limited liability company and if you do not you will get no such benefit. I do not think the Minister is entitled to approach the matter in that way.

The Minister may say, of course, in relation to the non-allowance of interest in respect of trading assets other than those covered in this amendment that such assets get rollover relief but I have repeatedly pointed out to the Minister and, in effect, he has acknowledged this, that this is merely a postponement or deferment of liability for tax, that it is not relief from tax. Therefore, if interest is not allowed as a deduction in respect of expenses incurred in the case of trading assets ultimately the capital gains tax will have to be paid on what is either an imaginary gain or a gain which is artificially increased because there is no allowance for deduction in respect of interest.

There was another aspect that was referred to on this matter on Committee Stage. Deputy O'Malley is reported in the Official Report of 28th May, 1975, at column 1173 as follows:

It strengthens the point I am making, that no purchaser willingly involves himself in that kind of situation, where he may have to pay a rate of interest as high as that on delay in closing the sale. Therefore, with the very high rates current nowadays no purchaser willingly delays the closing any longer than he need, or beyond the closing date specified in the contract. The delay may be due to problems of title or a variety of other matters but, if that interest does become payable, certainly it should be allowable as a deduction so far as capital gains are concerned because it is an expense of purchase in the same way as are the various forms of fees, stamp duty, Land Registry fees or anything else.

Therefore in making the amendment he proposes on Report Stage the Minister should bear in mind that that type of interest, as opposed to the other, which is the cost of money borrowed, should certainly be allowable in full as a deduction. It is a capital form of interest in the sense that it is a once-and-for-all capital payment on the closing of the purchase rather than an interest which will continue to run for as long as the money is borrowed.

The Minister said:

It raises an interesting point. I shall look at it.

Deputy O'Malley was, of course, referring to the payment of interest on outstanding purchase money calculated on apportionment account in an ordinary closing of a sale. He pointed out that nowadays very high rates of interest are charged in this regard, sometimes perhaps 18 per cent, which is certainly a penal rate of interest and if a purchaser is compelled to pay this interest why should he not be allowed this as an expense because it clearly is an expense which he incurred in the acquisition of the asset?

This amendment goes part of the way it should go. The original provision in the Bill was totally wrong in our view, and we said so, because the non-allowance of interest as an expense, while allowing all sorts of other expenses, is illogical and inequitable. The Minister's amendment goes some of the way in so far as it proposes to allow the deduction in respect of interest where (a) it is incurred by a company and (b) it is in respect of expenditure by the company on the construction of any building, structure or works. That is going part of the way but since it covers only companies and only that kind of expenditure the result is that it will be of limited benefit and it will be of primary benefit to companies which are engaged in construction and property development.

It will not benefit a wide range of commercial activities conducted by companies and it will not benefit any commercial or private activites conducted by an individual. I suggest that may well be unconstitutional in so far as it clearly involves the taxation of an alleged gain or profit which does not exist. I suggest also that if the Minister finds difficulty in administering a relief of this kind in the case of an individual the onus is on him to find a way around it. It is not an answer to say that the individual must form a limited liability company and do his business in that way. I do not think the Minister is entitled to try to force the individual into that mould for the sake of administrative convenience.

I have pointed out that there are other ways in which liability for interest may arise as in the case of interest charged on the balance of purchase money in an apportionment account on the closing of a sale and that no provision is being made for that in this amendment. While the amendment is acceptable in so far as it gives an allowance in respect of interest in the limited circumstances prescribed in it, in my view it does not go nearly far enough for the requirements of justice or the proper administration of a capital gains tax.

The moving of this amendment by the Minister is an acknowledgement by him, and one I do not think he could avoid, that the allowance of interest is necessary and is merely justice but since he has so circumscribed it in this amendment he is not going nearly far enough to achieve, in my view at any rate, justice or a fair prospect of administration of this Bill on a reasonable basis. I urge him, even at this stage, to think again about the manner in which he is circumscribing the allowance of interest as a deduction.

Ruairí Brugha

I suggest to the Minister that before he concludes on this amendment he should take another look at subsection (b) which states:

Subject to clause (a), no payment of interest shall be allowable as a deduction under this paragraph.

I suggest that it is not equitable to charge capital gain against any gain and not allow any legitimate charge against that gain. There is one good thing here. The effect of the Capital Gains Tax Bill is to bring under a tax code all individuals who may be engaging in profitable business in private transactions. It is not a bad thing to bring in the fairly wide section of people not involved in companies who may be making personal gains for themselves. Although this side of the House do not agree with the flat rate of 26 per cent we agree with the principle that people engaged in business in their own interest who make a profit or a gain should have to pay their fair share of taxation.

As Deputy Colley has pointed out, the principle is there that an individual should be entitled to claim just as a company will be entitled to claim. The object of the Minister's amendment is to ensure that a company can claim any expenditure incurred, which would include interest charged on a loan. The individual should not be put at a disadvantage against the company. It does not make any sense. In the Finance Bill last year the Minister introduced a maximum allowable interest charged for private individuals in connection with insurance policies. If an individual has to pay a substantial figure—26 per cent of any gain is a fairly substantial amount— and he has a fairly substantial mortgage interest payment to meet in connection with the land or property there will be a grievance if the Minister is not prepared to allow that mortgage interest.

The Minister should avoid creating a sense of grievance. It is not difficult to create a sense of grievance on any of us over the tax we have to pay but the Minister should avoid creating a genuine sense of grievance that one person is enabled to do it legally and charge against a tax and another cannot. That is the effect of the Minister's amendment that one individual or group of individuals in the shape of a company can charge interest against a capital gains tax bill presented by the inspectors and a private individual cannot do so. That will create a genuine grievance because however much we may dislike taxation all taxation should be seen to be just. It should be seen to be levelled equally on everybody.

I agree with the Minister's amendment in respect of subsection (a). It is right that any company should be able to charge against his tax any expenditure on the construction of any building, and so on. The Minister and his advisers should take a look at the problem of policing. I cannot see, having studied the new return of capital, property and wealth which all people have to return now, any major problem in policing.

If an individual has purchased property, buildings, or land and has had to go to the bank or to some lending society to raise the money for it, it should appear in the ordinary way in the return; the property would have to be returned under the wealth section and the interest would be paid or payable by him. There probably are ways of getting around the introduction of interest charges that may not apply to an individual, but I do not see this happening in the ordinary case. The ordinary cases are a matter for the investigating side of the Revenue Commissioners, and so I do not see the objection based on the difficulty of policing this as being a valid one. I would recommend the Minister to take a second look at this whole area, because not alone, I believe, will the Minister be making a mistake but he will be bringing our taxation system into a greater degree of disrepute with the private individual who complains enough already about the tax he or she has to pay.

Minister for Finance (Mr. R. Ryan)

The Opposition overlooks the necessity for confining this interest privilege to companies.

Mr. Colley

Did the Minister say "privilege"?

Mr. R. Ryan

Yes, because any concession is a privilege. It is interesting to note that a predecessor of mine in office bearing the same name but from the Opposition party, the late Dr. James Ryan, said in this House that the export tax relief could not be given to individuals but only to companies. The reasons which he advanced are the reasons which we advance for giving this concession.

Mr. Colley

That was a privilege, of course.

Ruairí Brugha

There is a great difference.

Mr. R. Ryan

This is also an advantage on which people may borrow and set-off the cost of borrowing against their tax liability. That is a privilege.

Ruairí Brugha

It is unjust to allow it to one and not to another.

Mr. R. Ryan

In January, 1974, we put a limit on the exercise of that privilege by private individuals because the exercise had become a scandal, where people in the top rates of tax were deliberately borrowing vast sums of money because they could set off 80 per cent of the cost against the general body of taxpayers and in many cases were using the money so borrowed at the expense of the taxpayers for reinvestment abroad where they made a tax-free profit.

Ruairí Brugha

The Minister is talking about income tax. We are talking about capital gains tax.

Mr. R. Ryan

They are connected.

Ruairí Brugha

They are not in this case.

Mr. R. Ryan

That is the reason why it is not possible to allow this concession to individuals; if we did, it would negative the restriction which we have very properly, in the public interest, put upon the amount of interest an individual may set-off against his income tax liability. That limit is £2,000 worth of interest per annum. If we were to make this concession available to private individuals, they would then use up to £2,000 as a set-off against their income tax liability and claim the rest against the capital gain. By so doing they could make a laugh of the restriction which we introduced in the public interest to discourage people from borrowing large sums of money any more because the principal cost of so doing was borne by the general body of taxpayers who had to make good the income to the Exchequer which was lost as a consequence of that practice.

The Companies Act has very strict obligations imposed upon companies to produce their accounts in a certain form. Audited accounts must be furnished, and the audited accounts must show very clearly what are income items and what are capital items. It is by virtue of the obligation on companies under the Companies Act that it is possible to give this concession to companies, because the capital element can be properly identified. It is for that reason also that the export tax relief is made available to companies and not to individuals, and as my predecessor, Dr. Ryan, said, it is not a great burden on anybody who wants to avail of the interest set-off to form a company.

Mr. Colley

But privilege or concession that gives relief to a company——

Mr. R. Ryan

Like any reasonable lawyer the Deputy has no doubt given advice in this area to his clients, and he is well aware that people form companies or discretionary trusts. There have been various arrangements made where it suited people to do so for tax or other purposes, and no doubt that will continue to be the practice of prudent people. Nobody complains it is wrong to do it. If the law permits a person to get a certain exemption by arranging his affairs in a certain way, it is prudent for a person so to arrange his affairs, and as the incorporation of a business into a company can confer upon a person the opportunity of setting off the interest as part of the cost of the acquisition in computing a gain no doubt it is something that people will do.

If the Revenue Commissioners have difficulty in policing an activity, a difficulty so serious as to render the operation of the law ineffective, then clearly the Legislature has an obligation not to impose such an arrangement upon the Revenue Commissioners. I cannot accept that there is any hardship involved in incorporating a business. Most of the operations which have been described by the Opposition are, in fact, carried on by companies. They will have the facility available to them and thus have an easy way of setting up machinery to give this concession to themselves.

Ruairí Brugha

What is the easy way?

Mr. R. Ryan

Incorporating the business into a company.

Ruairí Brugha

That is not easy for a lot of people.

Mr. R. Ryan

I suggest the Deputy should look at the newspapers and he will see people holding themselves forth as capable of doing it in ten minutes.

Ruairí Brugha

The Minister is thinking only of certain types of people. I am talking about the large number of people who will find themselves pulled in under this and who are not trying to evade anything.

An Ceann Comhairle

Could we hear the Minister out?

Mr. R. Ryan

I am sure they will consult a solicitor, and they will be able to put their affairs in order. I think the thinnest of all arguments is the one advanced by Deputy Colley as to unconstitutionality. If this tax is a confiscation then tax of anything is a confiscation and all tax is unconstitutional.

Mr. Colley

I did not use the word "confiscation".

Mr. R. Ryan

No, but I am saying that if we are to get down to deep constitutional arguments, all tax involves an element of confiscation, whether it is of a person's income or a person's capital. The courts have already considered that argument and found it unacceptable.

Mr. Colley

Have they considered the argument of taxing a gain?

Mr. R. Ryan

If the cost of making the gain is so critical to the making of the gain that it must be allowed as Deputy Colley suggests, then I would put to him this argument, that the law should also allow to every income earner the cost of getting to and from his place of employment because if he did not get to his place of employment he would not make the income, but the law never accepted that principle.

Ruairí Brugha

That is different. There is an earned income allowance.

Mr. R. Ryan

No, it is not. The cost of getting to one's place of earning income is surely similar to the interest which a person may pay in order to make a gain. Each is part of the cost of making the profit. One is an earned profit and the other one is a capital profit but they are similar in so far as it is part of the cost of generating the profit. Of course, I know that many unconstitutional things have remained on the books for years and remained unconstitutional until they are proved to be otherwise but the argument is a pretty thin one, indeed, and would not stand up at all.

Ruairí Brugha

What about a tax on a loss?

Mr. R. Ryan

I do not think I can carry the argument any further. We have given consideration to what was said on Committee Stage and we have tabled an amendment which goes a long, long way, indeed, to meet the points which were raised and so far as anybody who is left outside the ambit of the amendment is concerned there is a comparatively cheap way of coming within the ambit of it so as to get the full value of the concession granted.

An Ceann Comhairle

Is the amendment agreed to?

Mr. Colley

Yes, Sir, on the basis that it goes only about one-quarter of the way it should go.

Amendment agreed to.

Mr. Colley

I move amendment No. 34a:

In page 66, in subparagraph (2) of paragraph 5, to delete", but not so as to convert the gain into a loss, or to increase any loss".

I suggest that amendments Nos. 34a and 34b are similar and might, perhaps, be discussed together.

An Ceann Comhairle

Yes.

Mr. Colley

I referred to this matter on Committee Stage and, perhaps, the best thing I could do is to quote the Official Report, although there was some very lengthy discussion on it. There is one portion of the report which very well summarises what is involved in this and the following amendments. On 4th June, 1975, in the Official Report, at column 1537, I am reported as follows:

Is this principle right? Perhaps I am misinterpreting it, but it seems to me to be saying that if the amount of income tax you have to pay is such that if deducted in full it would reduce your liability for capital gains tax or even create a loss——

It says in the report, "you will be allowed". I think it should be "you will not be allowed"

to do that. Is that right in principle, if in fact, this consequence arises because you have paid income tax?

The Minister said:

It is very complicated.

I then went on to say:

Is it over-simplifying it to say that because you paid income tax, if that were allowed in full and were to create a loss situation, you are not to be allowed to claim a loss situation? If that is so, it seems to me to be wrong in principle. Incidentally, there is exactly the same provision at the end of the next subparagraph, subparagraph (3).

That is the end of that quotation but in column 1538 the following occurs: The Minister said:

Generally speaking, the intention is to provide that sums which have been brought into charge to income tax will not be liable to capital gains tax.

I said:

That is true only in so far as it does not produce either converted gains into losses or increase losses. I am not clear as to why that should be so.

The Minister said:

I will look at the point the Deputy raises.

There are provisions referred to in these two amendments which seem to have the effect of saying that if you have paid income tax in respect of certain gains you may omit the items in respect of which income tax was paid from the computation of the consideration for the purpose of assessing a capital gain but that you are not allowed to do that if the effect of it is to convert a gain into a loss or to increase any loss. That being so, it seems to me that the principle which the Minister enunciated and to which I referred and to which he has referred a number of times, that generally speaking the intention is to provide that sums involved in income tax will not be liable to capital gains tax—that that principle is being breached here so as to prevent the conversion of a gain into a loss or the increasing of a loss.

I did ask on Committee Stage what was the reasoning behind this and I do not think I got a satisfactory answer and it is not a satisfactory answer for the Minister to go on and point out that there is another subparagraph which works in reverse, in other words to say that if the thing is working the other way it will not be allowed to operate to convert a loss into a gain or to increase any gain. That is merely conforming with the provision that I am trying to amend here.

What I am primarily concerned with is to try to establish as I tried to establish on Committee Stage what is the principle behind this. Why breach the principle which was enunciated by the Minister on the occasion that I quoted and on a number of other occasions that sums which have been brought into charge to income tax will not be liable to capital gains tax? I have not been able to ascertain the thinking behind the provision which says, "That is true but we are going to limit it in so far as if it were to enable you to convert a gain into a loss or to increase a loss then you are going to pay capital gains tax on a sum in respect of which you have already paid income tax". It is not at all clear to me why this should be done especially having regard to the fact that the principle generally accepted is that on one gain you will pay income tax or capital tax but not both or, alternatively, on one loss you can claim against income tax or capital gains tax but not both. There are qualifications on that because the Minister has provided that in certain circumstances you can claim a loss in respect of income tax or be entitled to claim it but in no circumstances be allowed to claim it against capital gains tax. That is merely a qualification. The basic principle seems to be pretty well established that on a gain if you pay income tax you will not pay capital gains tax and on a loss if you are allowed to claim it against one you are not entitled to claim it against the other. This principle appears to be thoroughly breached in the provisions I am seeking to amend here and my primary purpose in putting down these amendments was to get the Minister to spell out the principle on which he is going which I think he omitted to do on Committee Stage in relation to these provisions.

Mr. R. Ryan

The principle is that there is not to be an overlap between the charge to income tax and the charge to capital gains tax. The income tax charge is to prevail and if it is greater than the capital gains tax charge, the charge to the capital gains is cancelled and, therefore, there is no question of overlap.

If the creation of a loss on capital account were allowed to take place, this would mean effectively that the income tax charge is too great and there would be a clawback in favour of the taxpayer through the medium of the capital gains tax. The income tax charge introduced by the Finance Act, 1963, was designed to impose a proper charge on recipients of rent from and premiums on short leases. Its charge is an equitable one and, quite clearly, there should not be any watering down merely because the capital gains tax comes into operation. To do so would mean that the larger of the two charges, income tax or capital gains tax, should be cancelled. The most that should be done is to eliminate any double charge and there is provision to do this. The situation would be that if the capital gains tax charged was £3,000 and the income tax charged was £3,250, £3,250 tax would be collected and the capital gains tax of £3,000 would be cancelled. Thus we ensure no double taxation and we also ensure that the greater tax sum would be collected. That is as it should be because if we did not so arrange, it would mean that we would be replacing an existing tax liability by a new tax liability which would be less than the old one. That is not intended at a time when we are introducing a capital gains tax in addition to whatever income tax liability may already exist.

Mr. Colley

The principle enunciated by the Minister that there should not be a double charge both to capital gains tax and to income tax is acceptable and the principle that it is the higher charge which should be applied is also acceptable. However, it does not seem to me that the provision here "but not so as to convert the gain into a loss or to increase any loss" is quite the same thing. However, the Minister seems to believe that is how it will operate. Even if it were to operate that way it would be far better to express the provision as the Minister has expressed it now and say there will not be a double charge and where there is an overlap the income tax will prevail. That would be far more satisfactory than providing, as it does here, that even though you would be applying the normal capital gains tax rules you would not be allowed, because you were claiming in respect of income tax paid, to convert a gain into a loss or to increase any loss. That immediately raises the spectre that you are preventing the taxpayer from claiming what he would normally be entitled to claim, whereas the provision as stated by the Minister, if it works in the same way, seems far more acceptable, that is, to eliminate the liability to double charge but provide that where that can arise it is the income tax charge that will prevail.

I have no objection to either of those propositions but it seems to me that the words used in the Bill do not convey that and may not operate in that way. But if the Minister believes they do operate in that way I have no objection to the principle which we have now got the Minister to enunciate and which we did not succeed in getting him to enunciate on Committee Stage. At this point there is nothing to be gained by trying to argue with the Minister as to the effect of the words sought to be deleted: if he is satisfied that they will achieve the operation of the principle which he has now enunciated, I shall have no objection to that.

Amendment, by leave, withdrawn.

Amendment No. 34 (b) not moved.

An Ceann Comhairle

Amendments Nos. 34 (c) and 34 (f) are cognate and may be discussed together.

Mr. Colley

I move amendment No. 34 (c):

In page 68, in subparagraph (2) of paragraph 8, after "determined by notice given by the lessor" to insert "otherwise than for breach of covenant".

Again, this matter was referred to on Committee Stage. I referred the Minister to the original report, the Official Report of 4th June, 1975 at column 1553 where I referred to this matter. I said then:

I would like to refer the Minister to paragraph 8 dealing with the duration of leases, particularly to subparagraph (2) which reads:

I then quoted the subparagraph. I went on to say:

Should there not be added to that, unless it can be shown that it is implied, "notice given by the lessor otherwise than for breach of covenant"?

Major de Valera: Every lease normally has a notice for determination on certain contingencies, breach of covenant being one of them, and quite common. There is nothing easier than to put in some clause of determination by notice. We should look carefully at the paragraph.

Mr. R. Ryan: Perhaps I could anticipate the Deputy by saying that I think Deputy Colley has made the point well and I think he is right.

Mr. Colley: It also applies to subparagraph (4).

Unless the Minister has changed his mind since, I think this amendment should be in. It appears to me on the face of it that unless the amendment I am moving is accepted the position will be that it does not matter what the term of a lease may be on its face, that since it could be deemed that notice could be given to terminate it on the very first day of its existence, all leases would be deemed to be short leases unless a provision like this was put in. The provision in subparagraph (2) of paragraph 8 reads:

Where the terms of the lease include provision for the determination of the lease by notice given by the lessor, the lease shall not be treated as granted for a term longer than one ending at the earliest date on which it could be determined by notice given by the lessor.

In other words, it will be treated as being, despite what it says on the face of it as being only for such term as would run up to the date of determination by notice given by the lessor. But I assume that what is intended is that it would provide for notice after a certain number of years, notice that could be given by the lessor or, perhaps, by the lessee. However, at any time, the lessor can give notice for breach of covenant. Therefore, unless we provide for that in the way I have suggested in the amendment, we are simply providing that the lessor may give notice for breach of covenant on the day or the day after the lease commences. Effectively, then, all leases could be deemed to be short leases. It may be that there has been an oversight in this regard or that the Minister has had second thoughts and will throw further light on it but as it appears to me now, and as it appeared to me on Committee Stage, this amendment is necessary.

Mr. R. Ryan

As the Deputy has recalled, I expressed sympathy for this point of view on Committee Stage but since then I have examined the matter further and, on reflection, I do not consider the amendment to be justified. I fear that its introduction might create ambiguity and difficulties which it might be better to avoid. The rules of duration included in the paragraph are very similar to those of section 83 of the Finance Act, 1963 and, with some variations, are similar to those in section 19 of this year's Finance Act. The words in parentheses "whether relating to forfeiture or to any other matter" are in section 83 of the Finance Act, 1963. They are included there mainly to deal with the possibility of forfeiture being forced on a tenant by the imposition of onerous conditions. The words "render it unlikely" were in that section also. Perhaps I might illustrate the matter: let us take a lease which is granted for 60 years on the life of a person who is 60 years old at that time. It would be highly unlikely that the lease would continue for more than 50 years. It could be said that the provision would render it unlikely that the lease could continue for more than 50 years. In such circumstances the lease would be treated as being a short lease but as has been pointed out, there has not been any difficulty in practice from the use of the two phrases mentioned and on that account no amendment is proposed.

Mr. Colley

I wonder whether the Minister is dealing with another amendment—the one relating to forfeiture.

Mr. R. Ryan

I am sorry. I was amalgamating the two. Regarding the words "otherwise than for breach of covenant" it is considered that in a genuine case of breach of covenant the duration of the lease would be what was fixed under the ordinary rules. The insertion of such phrase would not affect the interpretation of what would be the duration of the lease. On the contrary, it might open the way for the insertion in a lease of artificial terms. Substantially, the rules are those which have been used for income tax purposes. No problems have arisen in relation to their use in that context. In the light of experience and because no difficulty has arisen in the past the best course would be to rely on what is known rather than to introduce something which might well lead to a number of new devices which could be beyond our control.

Mr. Colley

Perhaps the Minister would elaborate on the manner in which the insertion of these words might lead to opening up a loophole for somebody to create an artificial situation.

Mr. R. Ryan

There might be imposed some covenant which was not in any way onerous but the breach of which might be adequate to terminate a lease and where, by connivance between the parties, such breach could take place in order to affect the duration of the lease. The duration is that which is set out in the lease and is interpreted under the ordinary rules. I fear that to allow the period to be altered by some convenient breach or forfeiture would open a very uncertain and possibly mischievous area.

Mr. Colley

I can see that something like that could happen, regardless of whether this provision is included, but I would remind the Minister that, in general, the Revenue Commissioners would prefer to treat leases as short leases rather than long ones. If the words sought to be added in this amendment are not added, the position would be that it could be argued that every lease is a short lease, a situation which is not favourable to the Revenue. Apart from that, it would not conform with reality. If a lease can be treated as running for a term which ends on the day on which notice can be given for breach of covenant, what the Minister was talking about—the introduction of some non-onerous covenant and the creation of an artificial situation—can arise. Therefore, the lease could be treated easily as a short lease. The way is wide open for that. If this has not happened before, it is all to the good but it may happen in the future. However, it is not my obligation to go to the stake in order to close these loopholes. I have moved an amendment which I believe would prevent that situation but if the Minister does not wish to accept the amendment, that is his business.

Amendment, by leave, withdrawn.

An Leas-Cheann Comhairle

Amendments Nos. 34 (d) and (e) seem to be related so perhaps we could discuss them together.

Mr. R. Ryan

The Deputy has the advantage of knowing my line of argument before he speaks.

Mr. Colley

I must confess to having been so mystified thinking of the other one that I did not quite take in what the Minister was saying. In regard to amendment No. 34 (d) there is a general point I wish to make while on amendment No. 34 (e) there is a specific point I wish to make. May I suggest they might not be taken together?

An Leas-Cheann Comhairle

Yes, and separate decisions.

Mr. Colley

I do not think it would take very long, and it would make for tidier debate if we could take them separately.

An Leas-Cheann Comhairle

I am sure the Minister will have no objection to taking them separately.

Mr. Colley

I move amendment No. 34d:

In page 68 to delete subparagraph (3) of paragraph 8.

In this connection I will refer the Minister to the report of the proceedings in this House on 4th June last at columns 1623 and 1624 of Volume 281 of the Official Report. The extract to which I am about to refer followed quite a lengthy discussion on this subparagraph, and the portion I am about to quote summarises reasonably well what has gone before. I said:

I think the Minister by now must accept that this subparagraph as drafted is uncertain, may even be void for uncertainty, that it is unsatisfactory because of the uncertainty attaching, and that at least the drafting of it should be changed, apart from the matter already mentioned about forfeiture, and possibly the thinking behind it should be changed. I do not want to delay on this, but one could develop the question of what happens if one determines a particular lease to be a short lease, what happens in practice to the lessor and the lessee and their claims for allowances against capital gains. However, I am asking the Minister to have another look at this.

The Minister replied: "I certainly will." There was a passing reference to forfeiture there and that is why I am asking that it be treated separately because there is another case on that. What I have just read summarises what was being said on this side by a number of Deputies in relation to this subparagraph. That was that the subparagraph was very uncertain and very unsatisfactory, unsatisfactory largely because of its uncertainty, and this uncertainty related to its general drafting and, in particular, to its reliance on the word "unlikely". Subsection (3) provides:

Where any of the terms of the lease (whether relating to forfeiture or to any other matter) or any other circumstances render it unlikely that the lease will continue beyond a date falling...

There are other aspects but my primary purpose in putting down the amendment was to remind the Minister of the arguments made and the lack of satisfaction expressed with regard to the subparagraph and thus give the Minister an opportunity of putting on the record his attitude in the light of the arguments advanced on the Committee Stage.

Mr. R. Ryan

There are two main factors in this subparagraph relating to the duration of a lease. The first one is that there may be terms or other conditions which make it unlikely that the lease could go beyond a particular date. Where this is so the duration of the lease is deemed not to go beyond that date. This part of the subparagraph from the beginning to the words "ending on that date" is an exact replica of section 80 (2) (b) of the Income Tax Act, 1967. The provision is substantially the same as section 19 (2) (a), paragraph (i) of the Finance Act, 1975, and is exactly the same as lines 13 to 18, together with lines 22 to 24 of that subsection. The provisions thus appear in the 1967 Act, in the Finance Act, 1963, and now imported into the 1975 Finance Act. It can certainly be said of them that they have stood the test of time and, because of that, there is a great deal to be said for sticking to them.

Secondly, the second part of the subparagraph provides for a break by the lessee in the event of onerous conditions coming into operation, such as an increase in rent or greater obligations, and the conditions are such that the lease will be unlikely to last beyond the time of the imposition of these onerous conditions. Provision for a break by the lessee is included in section 80 (2) (a) of the Income Tax Act, 1967. Provision for unlikelihood is included in section 19 (2) (a), paragraph (i) of the Finance Act, 1975. For these reasons it is considered that the provision in subparagraph (3) is a necessary ingredient in determining the proper duration of a lease and, having stood the test of time, we think it is better to rely on the success that has been achieved during that time in the use of these words, and we believe deletion of the subparagraph would lead to problems in the kind of situation it is designed to cover.

Mr. Colley

As I indicated, this amendment was tabled to enable the Minister to put on the record his considered response to the arguments put forward on this side of the House on the Committee Stage. The Minister has done so. It was not seriously contended that the subparagraph could in fact be deleted. This was merely a device to enable the Minister to put his considered view on the record. I know now what his considered view is. There is a great deal of substance in it. In so far as such provisions have operated since the 1967 Income Tax Act, and operated satisfactorily, one ought not change them. That is certainly a reasonable argument.

I wonder to what extent have they been tested and to what extent has the implication of the word "unlikely" been tested. We do not know that. The Minister has force of argument on his side when he says the provision has withstood the test of time and we should not, therefore, change it. I must accept that argument, but unless the implications of the word "unlikely" and the phrase "unlikely that the lease will continue beyond a date" have been tested there really may not be as much force in the Minister's argument as at first sight there might appear to be. No doubt, if and when this phrase is tested, and the result is unsatisfactory, the Minister will be in fairly fast to amend, not only this provision but the other provisions also to which he refers. In the absence of any information on that particular aspect, I accept the Minister's argument that it is better to let the subparagraph stand as it is. The purpose of my amendment has been achieved in so far as the Minister has now placed on the record his considered response to the arguments put forward by this side on the Committee Stage.

Amendment, by leave, withdrawn.

Mr. Colley

I move amendment No. 34e:

In page 68, in subparagraph (3) of paragraph 8, to delete "(whether in relating to forfeiture or to any other matter)".

This amendment is designed to remove from subparagraph (3) the words in brackets "whether relating to forfeiture or to any other matter". This was referred to on Committee Stage. As reported at column 1616 of the Official Report of 4th June, 1975, in response to arguments put forward the Minister said:

One might responsibly argue that the words in brackets are, perhaps, unnecessary because they say "whether relating to forfeiture or to any other matter" but forfeiture involves a termination so I suppose to that extent the draftsman considered it would not be inappropriate to put in the word "forfeiture". I agree it is difficult to give an illustration of specific circumstances.

I said:

I am wondering why it was mentioned at all. As the Minister says, it is specifically mentioned as distinct from anything else.

On Committee Stage we went into this matter in some detail and pointed out the apparent consequences of leaving in this phrase. I do not want to go back over that ground again. We drew attention to it and that quotation from what the Minister said would indicate that the Minister thought at that time that the words should be removed as we are suggesting. Therefore, I thought it best that I should put down an amendment which would enable the Minister to give the view he now has in relation to the use or otherwise of the words in brackets which we suggested and the Minister seemed to accept on Committee Stage were better out than in.

Mr. R. Ryan

As I mentioned earlier, we have the benefit of experience to assist us in drafting this paragraph. The words are substantially similar to the words in section 83 of the Finance Act, 1963, and section 19 of this year's Finance Act. The words "whether relating to forfeiture or to any other matter" are in section 83 of the Finance Act, 1963. They were included to deal with the possibility of forfeiture which might be imposed upon a tenant by virtue of onerous conditions which would have to be fulfilled before a particular date. The words "render it unlikely" were included in that section. I gave an illustration and perhaps I might give it again.

Mr. Colley

If the Minister would not mind.

Mr. R. Ryan

Take the case of a man of 60 years of age who is granted a lease for 60 years on his life. That would be a highly unlikely lease. It would be unlikely that the lease would continue for more than 50 years. It could happen. I accept that, but it would be rare, particularly in these days of great pressures, for a person to live for 110 years. We can certainly say it is highly unlikely that the lease would continue for more than 50 years. It could be said that the provision would render it unlikely that the lease could continue for more than 50 years. In such circumstances the lease would be treated as a short lease.

In practice there has not been any difficulty from the use of these expressions. They have worked satisfactorily. Deputy Colley made the point earlier that perhaps some of them had not been put to the test. They have been put to the test in ordinary every day affairs. They may not have been challenged in courts. I cannot say of my own personal knowledge whether that has occured. I have no doubt that if they gave rise to disputes they would have been tested in court. That has not occured and I think it would be safer to rely on previous experience.

Mr. Colley

In this case the force of the argument that the phrasing has been used in earlier legislation is less than it was in the previous case particularly because, on the face of it, the wording is ridiculous whether or not it was in the 1963 Act. What this provision is saying is that where any of the terms of the lease render it unlikely that the lease will continue beyond a certain date, the lease will be treated as a short lease. I am summarising it, of course. "Where any of the terms of the lease... render it unlikely..." Then it says that included in the terms of the lease are "relating to forfeiture or to any other matter". In effect it is saying that where any of the terms of the lease in relation to forfeiture render it unlikely that the lease will continue beyond a certain date.

The Minister knows as well as I do that does not really make any sense at all unless you are assuming at the beginning that the lease will be forfeited. If you make that assumption you could make it from the first day of the term and you should automatically treat all leases as short leases with the consequences flowing from that. I do not think the inclusion of those words in earlier legislation or in this legislation makes them right. The words are wrong on their face. It may be that they have not led to difficulties so far but, if they have not, it is very possible that they will in the future. They do not really make any sense when you analyse what they mean. That being so, some difficulty will almost certainly arise in the future. However, we drew attention to this matter on Committee Stage. We have drawn attention to it again now. We have given the Minister an opportunity to consider it carefully and place on record his view of the situation. He has done that. I am not very satisfied with that view but I do not feel it is not a matter on which we should spend too much time. Attention has been drawn to it and we cannot do any more than that.

Amendment, by leave, withdrawn.

An Leas-Cheann Comhairle

Amendment No. 34f was discussed with amendment No. 34c.

Amendment No. 34f not moved.

An Leas-Cheann Comhairle

Deputy Colley has already been informed that amendment No. 35 is out of order.

Mr. Colley

I do not suggest, or wish, in any way to dispute the ruling of the Chair on this matter but I should appreciate it if the Leas-Cheann Comhairle could throw a little light on the matter. I am sure the Chair will recall and be familiar with the fact that a similar amendment to this has been moved from this side of the House in relation to other Bills. Furthermore, in the case, say of Finance Bills there seems to be no great difficulty for someone on the Opposition side of the House moving an amendment which has the effect of relieving the taxpayer and, therefore, of increasing the charge on the public, which is the basis on which this amendment has been ruled out of order. I do not know whether the Chair is in a position at present but I should appreciate it if he could throw some further light on the reasoning behind this.

An Leas-Cheann Comhairle

Deputy Colley's amendment makes provision for the payment by the Revenue Commissioners of simple interest at the rate of 1.5 per cent per month in any circumstances in which capital gains tax falls to be repaid to the taxpayer. There is provision for the repayment of capital gains tax, with interest, in certain specified cases, under Table 69 of the Bill. This amendment would impose a further charge on revenue. Under Standing Order 119 (3), the amendment may not be moved.

Mr. Colley

Of course, it is clear, on its face, that that is so. What I am trying to do is to reconcile that ruling with the ruling which has enabled a similar amendment to this to be moved in other cases; for instance, the one which, on a Finance Bill enables an Opposition Deputy to move an amendment designed to reduce the liability to tax of an individual taxpayer. That, I think, would clearly impose an additional charge on Revenue. Nevertheless, it is possible to do so. I am trying to reconcile the two positions.

An Leas-Cheann Comhairle

I am advised that reducing tax would not be imposing an extra charge.

Major de Valera

Are we to understand that the distinction is this: take the simple case where there is provision, in other Acts for 18 per cent, a simple amendment to substitute 15 per cent for 18 per cent would be in order. Is that correct?

An Leas-Cheann Comhairle

The Deputy will appreciate that the amendment and all the relevant factors in regard to it have been considered and, that having been done, a decision has been arrived at that it is not in order.

Major de Valera

Surely the House is entitled to be informed of the reasons for the decision. After all, we are a parliament. If we are going to be run by the office, I think it is a matter for the Committee on Procedure and Privileges. If the bureaucracy of the office here is going to run this House, we might as well fold up. Therefore, I should appreciate an answer. I asked a very simple question, which was an important one. I appreciate—as Deputy Colley says— the point that arises if there is a charge, even a technical one. But what I was asking was in relation to the simple case that if, for instance—as there is elsewhere in the Bill—there is a rate specified, is an amendment to reduce that rate in order. That was the simple question I was asking.

An Leas-Cheann Comhairle

That is in order.

Major de Valera

That is in order and is on the record.

An Leas-Cheann Comhairle

Yes, that is in order.

Mr. R. Ryan

I move amendment No. 36:

In page 70, in subparagraph (3) of paragraph 3, after "some other person" to insert "for whom the person who receives the notice is required to make a return under section 170 of the Income Tax Act, 1967, as so applied by this paragraph".

Concern was expressed during Committee Stage that the words "or if the notice relates to income or chargeable gains of some other person," implied that the Revenue Commissioners were being given wide powers to require the furnishing of information about persons other than the taxpayer himself. Of course, this was never intended, and the amendment makes it clear that the subparagraph cannot be interpreted in that way.

Mr. Colley

The Minister will recall that, on this side of the House, we spent a considerable amount of time on subparagraph (3) of Schedule 4 and pointed out its consequences, as drafted. On Committee Stage the Minister seemed to be resisting the interpretation we were giving the subparagraph, as drafted. He will recall also that we were suspicious, not alone because of the powers the paragraph gave, that as drafted it appeared simply to be transferring the powers existing already under the income tax code to the capital gains tax code, suitably adapted, but that, in fact, it was adding very substantially to those powers. It introduced the word "income" in a way that extended the powers to the income tax code. I am sure the Minister will agree that we spoke about this at considerable length on Committee Stage.

I want to put on record the fact that the Minister, in this amendment, has conceded the validity of the argument we were making, which was, that the subparagraph, as drafted, was open to that interpretation. The amendment the Minister has now introduced overcomes the difficulty because it confines the obligation to give information to the Revenue Commissioners, to a person who receives a notice in respect of somebody for whom he is responsible already, not merely to his neighbour, friends or anybody else, as it was drafted. As far as I can see, the amendment appears suitably to confine the obligation here and relate it also to the existing provisions under the income tax code. For that reason I do not object to the inclusion of the word "income" to which we had objected. Therefore, I am satisfied the amendment appears to do what we sought to have done.

But I want again to place on the record of the House that the moving of this amendment, whilst welcomed, is confirmation of the doubts and fears we expressed on Committee Stage with regard to the provisions of this subparagraph and the obligations it imposed on persons to provide information to the Revenue Commissioners in regard to their friends, neighbours and those in respect of whom they had no legal responsibility heretofore. This amendment obviates that danger and, to that extent, is very welcome.

Amendment agreed to.

Mr. R. Ryan

I move amendment No. 37:

In page 72, paragraph 6, after "particulars" to insert "relating to the settlement".

During Committee Stage it was agreed that only particulars relating to the settlement need be furnished and that the paragraph should be amended to make this clear. The amendment does so.

Mr. Colley

This was a point I had raised and sought to have amended. The amendment appears to be precisely what we sought and, as far as we are concerned, is acceptable.

Amendment agreed to.

Mr. R. Ryan

I move amendment No. 38:

In page 72, paragraph 7, to delete "interested" and to substitute beneficially interested or who acts as agent for or on behalf of a person who is beneficially interested".

This results also out of agreement during Committee Stage that the word "beneficially" should be inserted before the word "interested" in the second line of paragraph 7 to make it clear that people with a beneficial interest only in a non-resident trust would be required to give particulars. To provide for a person acting as agent on behalf of a person beneficially interested, it is necessary to make a further provision to cover the case of such a person who may not himself be beneficially interested in the settlement.

Mr. Colley

As far as I am concerned, this meets a Committee Stage point. The additional provision the Minister has referred to is probably necessary.

Amendment agreed to.

Bill recommitted in respect of amendment No. 39.

Mr. R. Ryan

I move amendment No. 39.

In pages 74 and 75, to delete paragraph 11 and to substitute the following paragraph:

"11.—(1) This paragraph shall apply to assets that are—

(a) land in the State;

(b) minerals in the State or any rights, interests or other assets in relation to mining or minerals or the searching for minerals;

(c) exploration or exploitation rights in a designated area;

(d) shares in a company deriving their value or the greater part of their value directly or indirectly from assets specified in clause (a), (b) or (c); and

(e) goodwill of a trade carried on in the State.

(2) Upon payment of the consideration for acquiring an asset to which this paragraph applies, 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 and the person to whom the payment is made shall allow such deduction upon receipt of the residue of the payment and the person making the deduction shall be acquitted and discharged of so much money as is represented by the deduction as if that sum had been actually paid:

Provided that where the person disposing of the asset produces to the person acquiring the asset a certificate issued under subparagraph (6) in relation to the disposal, no such deduction shall be made.

(3) Where any such payment as aforesaid is made by or on behalf of any person, that person shall forthwith deliver to the Revenue Commissioners an account of the payment, and of the amount deducted therefrom, and the inspector shall, notwithstanding any other provision of this Act, assess and charge that person to capital gains tax for the year of assessment in which the payment was made on an amount equal to one-half of the payment at the rate specified in section 3 (3).

(4) The inspector may, where, in relation to any such payment as aforesaid, any person has made default in delivering an account required by this paragraph, or where he is not satisfied with the account, estimate the amount of the payment to the best of his judgment and, notwithstanding section 5 (1), assess and charge that person to capital gains tax for the year of assessment in which the payment was made on an amount equal to one-half of the amount so estimated at the rate specified in section 3 (3).

(5) Where the amount of capital gains tax assessed and charged under subparagraph (3) or (4) is paid, appropriate relief shall, on a claim being made in that behalf, be given to the person chargeable in respect of the gain on the disposal, whether by discharge or repayment or otherwise.

(6) A person chargeable to capital gains tax on the disposal of any asset to which this paragraph applies may apply to the inspector for a certificate that tax should not be deducted from the consideration for the disposal of the asset and, if the inspector is satisfied that the person making the application is the person making the disposal and that—

(a) he is ordinarily resident in the State, or

(b) no amount of capital gains tax is payable in respect of the disposal, or

(c) the capital gains tax chargeable for the year of assessment for which he is chargeable in respect of the disposal of the asset and the tax chargeable on any gain accruing in any earlier year of assessment (not being a year ending earlier than the 6th day of April, 1974) on a previous disposal of the asset has been paid,

the inspector shall issue the certificate.

(7) This paragraph shall not apply where the consideration on a disposal does not exceed the sum of fifty thousand pounds:

Provided that if an asset owned at one time by one person, being an asset to which this paragraph would, but for this subparagraph, apply, is disposed of by that person in parts—

(a) to the same person, or

(b) to persons who are acting in concert or who are in the terms of section 33 connected persons,

whether on the same or different occasions, the several disposals shall for the purposes of this subparagraph but not for any other purpose be treated as a single disposal.

(8) In this paragraph ‘exploration and exploitation rights', ‘designated area' and ‘shares' have the same meanings as in section 4 (8).

(9) this paragraph shall apply only in relation to disposals and acquisitions occurring after the passing of this Act.".

The main difficulty has been with identification of assets on which the non-resident vendor is chargeable, and this paragraph provides the machinery to deal with a possible problem in the collection of capital gains tax where land or minerals or business assets in the State, or rights situated on the Continental Shelf, are disposed of by a non-resident, and the goodwill of the trade carried on in the State. The second point of the difficulty in regard to the obligation to tax is that the vendor will be able to get payment in full if he gets a clearance certificate from Revenue which will be given if he is ordinarily resident in the State, if he is not liable to capital gains tax on the transaction or has paid all capital gains tax due by him. Where the amount has been deducted from him he will be given appropriate credit against capital gains tax chargeable on him.

Subparagraph (1) specifies that the assets to which the scheme of deduction on purchase is to apply are: (a) land in the State; (b) minerals in the State or any rights, interests or other assets in relation to mining or minerals or the searching for minerals; (c) exploration or exploitation rights in a designated area; (d) shares in a company deriving their value or the greater part of their value directly or indirectly from assets specified in clause (a), (b) or (c); and (e) goodwill of a trade carried on in the State. These are the classes of assets in respect of which non-residents may be liable to capital gains tax. It should therefore be clear to a purchaser whether the transaction is of a nature where he may have to hold back tax from the purchase money.

In paragraph (1) (d) quoted shares, to correspond to section 4 (8) (a), deriving their value from land et cetera are not excluded. This is done to make identification easy for the purchaser. He does not have to differentiate between quoted and unquoted stocks. If the stocks are quoted there is no charge on the non-resident and the certificate will be given.

Subparagraph (2) provides that when the purchaser is making payment, he or his agent is to hold back a sum for capital gains tax calculated as to 26 per cent, the rate in force under the Bill, on one-half of the payment. The vendor must permit this deduction to be made and the purchaser is acquitted of the amount deducted as if it had been paid over to the vendor as part of the purchase money. The provision is thus set out in general terms and does not require the purchaser to establish the residence status of the vendor. The proviso to the subparagraph sets out that the vendor may be able to avoid the deduction being made by getting a clearance certificate from his inspector of taxes, under the conditions set out in subparagraph (6). Any person ordinarily resident in the State will get the certificate and the burden of establishing residence or non-residence is not thrown on the purchaser. There is also an incentive to non-residents to clear up their liability quickly if they wish to avoid an excessive deduction.

Subparagraph (3) requires any person who has made a deduction under paragraph 11 to deliver an account of it to the Revenue. The inspector of taxes will make an assessment on the amount. The assessment may be made before the end of the year of assessment and no deduction is given for the first £500 of gains under section 16 and the alternative charge under section 6 will not apply. These conditions as to the making of the assessment are ensured by specifying that the inspector may assess and charge "notwithstanding any other provision of this Act". The assessment thus made on the purchaser, or his agent, is a separate and distinct assessment from any assessment on his own capital gain.

Subparagraph (4) enables the inspector of taxes to make an estimated assessment to the best of his judgment where the purchaser fails to deliver an account or where an account is not satisfactory.

Subparagraph (5) gives the vendor the right to claim the appropriate relief against his correct liability on the transaction for the tax deducted from the purchase money. The relief is to be given by discharge of tax, repayment or otherwise. Thus if the vendor owes capital gains tax, the Revenue may set off the amount accounted for by the purchaser against the tax outstanding and repay the balances or if there is no liability outstanding they may repay the whole amount.

Subparagraph (6) permits a person who has disposed of an asset to apply to the inspector of taxes for a certificate of clearance. The inspector if he is satisfied that the conditions are fulfilled must issue the required certificate to the effect that tax should not be deducted by the purchaser from the purchase money. A certificate will be issued to the vendor if the inspector is satisfied that any one of the following conditions is fulfilled: (a) the vendor is ordinarily resident in the State, or (b) no amount of capital gains tax is payable in respect of the disposal, or (c) the capital gains tax chargeable for the year of assessment for which he is chargeable in respect of the disposal of the asset and the tax chargeable on any gain accruing in any earlier year of assessment (not being a year ending earlier than the 6th day of April, 1974) on a previous disposal of the asset has been paid.

Subparagraph (7) limits the application of the scheme of deduction to transactions involving amounts of £50,000 or more. The proviso is designed to prevent abuse of the limit by artifical arrangements such as sales in lots to the same person or persons acting in concert or to persons connected with one another. To counter such devices the amounts for all such transactions are to be aggregated as a single disposal to test whether they are over or below the limit. This treatment as a single disposal is for the purpose of this subparagraph only and would not, for instance, affect the time at which the vendor is to be assessed on the disposal of his property in parts.

Subparagraph (8) imports into paragraph 11 the definitions of "exploration and exploitation rights", "designated area" and "shares" from section 4 (8). Subparagraph (9) provides that the scheme of deduction at purchase is to apply only from the time of passing of the Act. The arrangement now provided differs in certain details from what was in the Bill when it was first initiated and persons who had made purchases before now were not in a position to do what is now being provided for.

Mr. Colley

Is it proposed to delete the headnote "Disposal of certain assets by non-residents"?

Mr. R. Ryan

I do not know to what extent the headnote has legal effect.

Mr. Colley

The purpose of my question is that it seems clear to me that to meet the very real difficulties we pointed out on Committee—indeed the unworkability of the provision in the Bill—the Minister has now, as one step in the way he is approaching it, simply solved the problem by deleting non-residents and residents in the same way for the purposes of transactions dealing with these kinds of property. Would that be true?

Mr. R. Ryan

The only people who would be affected by this deduction would be non-residents.

Mr. Colley

That is not so according to the amendment.

Mr. R. Ryan

Affected by the deduction whatever about the prudence of applying for the certificate. The only people who would have the actual deduction made would be non-residents. That is assuming that people operate the section so as to get the certificate.

Mr. Colley

The amendment is now drafted in such a way that it applies equally to residents and non-residents, and it includes land. It would seem to provide that in future in the case of the sale of any land or property standing on land for which the consideration is £50,000 or more the provisions of this paragraph will apply whether the parties are resident or not. Those provisions will include that the purchaser, instead of paying over the purchase money when closing the sale, will deduct from it a sum equal to, as things stand at present, 26 per cent of half the purchase money. He will not pay that to the vendor at all and the vendor will not be entitled to claim it from him. Instead, in theory, he will pay that money over to the Revenue Commissioners and the vendor will go to the Revenue Commissioners and get the balance due to him, the Revenue Commissioners having deducted the amount of tax.

There are a number of serious implications in this, and I do not know if the Minister has considered them. Does the Minister accept that these provisions are designed to apply even if both the parties to the transaction on the sale of land are resident in Ireland? Does he accept that that is so?

Mr. R. Ryan

Yes, I think we could change the heading. I am trying to think of a better one.

Mr. Colley

Apart from the heading, which is only a minor point, I was trying to draw the Minister's attention to the fact that this amendment introduces a fundamental change in the approach to the sale of property in Ireland. Does the Minister realise the fundamental nature of what he is proposing here? Has he considered how it is going to work?

Mr. R. Ryan

I would not call it a fundamental change, but it certainly would change the administration of sales.

Mr. Colley

It will do a lot more than that. I propose to demonstrate that to the Minister as we go through this.

Mr. R. Ryan

The Deputy will recall that he was urging me to provide some anti-avoidance devices to make sure that capital gains would be collected.

Mr. Colley

Of course I do not want to see non-residents getting away with taking their gains and not paying their capital gains tax. í should like to make it clear to the Minister, as I did in respect of other provisions the Minister has brought in, that while I do not want to see people avoiding or evading tax I am not prepared to trample on the rights of Irish citizens in order to ensure that. The obligation is on the Minister to devise a workable system that will prevent avoidance, but not at the cost of interfering with the whole system of operation of sales of land or property here between Irish people. That is what the Minister is doing in this. He is affecting every sale here for a sum in excess of £50,000.

Mr. R. Ryan

If the vendor is Irish he will get a certificate for the asking of it.

Mr. Colley

How can a vendor do that? Let us assume that the vendor is selling property worth £100,000 and that he will make a gain on that of £30,000. That vendor will be liable for 26 per cent of £30,000 as capital gains tax. How can the vendor get a certificate until he has paid that, and how can he pay it until he is paid for the property? It is not true to say that the Irish citizen who is a vendor will get a certificate for the asking. He will not. Does the Minister agree?

Mr. R. Ryan

Subparagraph (6) states that the person chargeable to capital gains tax on the disposal of any asset to which this paragraph applies may apply to the inspector for a certificate that the tax shall not be deducted from the consideration for the disposal of the asset. If the inspector is satisfied that the person making the application is the person making the disposal and that he is ordinarily resident or comes under any of the other paragraphs the inspector shall issue the certificate.

Mr. Colley

In other words, if he satisfies the inspector that he is ordinarily resident here the inspector will give him a certificate irrespective of whether he owes any tax or not? Will that certificate apply to that transaction only?

Mr. R. Ryan

Yes. It would not be a certificate saying that the person is not liable to pay capital gains tax but a certificate that the purchaser shall not deduct it.

Mr. Colley

I accept that while that imposes obligations on persons here engaged in sales and purchases of property nevertheless it provides a way around the difficulty for them. However, it imposes this obligation for which many Irish people will not be aware and I suppose the Revenue Commissioners will not be too concerned as long as they are resident here. If this practice is not followed on every sale—I cannot see it being followed on every sale—I can see people being caught out if they happen to be dealing with a non-resident and then being told they should have done this. As far as the transaction between two Irish residents is concerned what is envisaged here is that the vendor would apply to the Revenue Commissioners and get the certificate to which the Minister has referred. If he gets the certificate then the ordinary procedure that has always been followed on sales would be followed. If he does not get it then the procedure to be followed would be that the purchaser would deduct the amount specified here, the capital gains tax on 50 per cent of the consideration, and would then pay it over to the Revenue Commissioners.

However, if we assume in any case in which a certificate has not been got, whether the vendor is resident or non-resident, let us see what develops under the procedure envisaged in this amendment. Firstly, if the purchaser has deducted this money in accordance with this amendment but does not pay it over to the Revenue Commissioners what will be the position as far as the vendor is concerned? The vendor would apply to the Revenue Commissioners expecting to get back from the Revenue Commissioners the money paid over by the purchaser less the amount of the capital gains tax. If the Revenue Commissioners have not received any money from the purchaser will they pay any money to the vendor?

Mr. R. Ryan

They cannot repay what they have not got, so surely the vendor should obtain satisfactory proof that the purchaser has paid the Revenue Commissioners or should take steps to ensure that the purchaser will pay the Revenue Commissioners.

Mr. Colley

How does he do that? Remember this provides that he has an automatic right. In the absence of the vendor producing this certificate, this specifically provides a release and discharge for the purchaser in respect of that money, so how does the vendor ensure that the purchaser will pay the money to the Revenue Commissioners?

Mr. R. Ryan

By inspecting a receipt from the Revenue Commissioners or by receiving at the time of the closing of the sale a cheque or some satisfactory means of payment to the Revenue Commissioners and ensuring that it is sent to the Revenue Commissioners at the time.

Mr. Colley

I wonder has the Minister considered the practicality of this. Is the Minister suggesting that at the closing the vendor insists that the purchaser produces a cheque payable to the Revenue Commissioners in respect of the amount being deducted?

Mr. R. Ryan

It strikes me as a possibility.

Mr. Colley

Presumably the Minister visualises that the purchaser would hand over this cheque to the vendor, it being payable to the Revenue Commissioners, and then the vendor could ensure that it was paid to the Revenue Commissioners because it would be in his possession.

Mr. R. Ryan

No, the purchaser would have the obligation of paying the Revenue Commissioners.

Mr. Colley

That is the point I am coming to. The purchaser does have the obligation, so how does the vendor protect himself in those circumstances? The Minister will agree that it is not an outrageous conception that the purchaser, having deducted this amount of money from the purchase money, would not pay it to the Revenue Commissioners? The Minister will agree that that is likely to happen in some cases?

Mr. R. Ryan

I am sure the legal profession will ensure that this, like many other undertakings, will be honoured.

Mr. Colley

It is not as simple as it looks, if only for the reason that the obligation imposed here is going to take some time to percolate through, even to the legal profession. I am concerned at the consequences that can flow from the obligations imposed here on the purchaser to pay over the money, his failure to do so and then the efforts of the vendor and where the vendor is left in trying to recover the money that is due to him. I do not know if the Minister has considered precisely how the vendor can make certain that this money is paid to the Revenue Commissioners. The Minister has indicated already that until it is paid to the Revenue Commissioners by the purchaser the vendor will not get his money back so it is important to ensure that the vendor is not put at the mercy of a situation that he cannot control, one in which he cannot get the money that is due to him because another party does not pay the Revenue Commissioners. It is important to provide machinery which the vendor, who is the one to get the money back from the Revenue Commissioners, can control to the extent of ensuring that the money is paid to the Revenue Commissioners. That is the vested interest of the Revenue Commissioners, it is the vested interest of the vendor, but it is not the vested interest of the purchaser, who is the one who has the money. Therefore the Minister ought to examine the machinery to see that it will operate in such a way that the money will be paid to the Revenue Commissioners and that, if it is not, there is something the vendor can do about it in order to ensure that he gets his money back.

Mr. R. Ryan

I do not anticipate that there will be any difficulty in practice. There are different ways in which either party may protect himself. The purchaser could, for instance, once the closing of the sale has been arranged and agreed between the parties, pay the Revenue Commissioners and bring a receipt to the closing.

Mr. Colley

Has he a vested interest in doing that?

Mr. R. Ryan

Yes, he has, because he is under a legal obligation to do it in the absence of a certificate from the vendor that he need not do it. He must discharge his obligation to make the deduction, so he equips himself by doing so and produces to the vendor what is equivalent to part of the purchase money—26 per cent of 50 per cent of the proceeds and says: "There is that, and here is a bank draft for the balance" or, by agreement between the parties, I suppose he could bring the money to the closing and there and then, on the vendor being satisfied that the money, cheque, bank draft or whatever it may be, is the correct amount could have it put in an envelope and posted to the Revenue Commissioners as part of the actual procedure of closing the sale. I am sure the legal profession will have no difficulty in settling procedures which will be mutually satisfactory to both vendor and purchaser.

Mr. Colley

But the position in which the vendor can find himself if the money is not paid over seems to me to be very unsatisfactory. Because of the failure of another party, the purchaser, to discharge what will be his statutory obligation, the vendor will be out of his money and may indeed be subject to interest payments on that money to his bank, but I do not think there is any provision for paying interest to him by the Revenue Commissioners in respect of the money outstanding. It seems to me that the vendor in this case is in certain circumstances going to be placed in a most indivious position. Furthermore it should be generally realised that the Minister is here legislating for all the sales in the country whether between residents or nonresidents if the consideration is £50,000 or more, and that in all such cases it will be necessary to apply for the certificate that the Minister mentioned or alternatively to make deductions from the purchase money with the consequences that flow from that that we have been discussing.

The first two lines of subparagraph (2) read:

Upon payment of the consideration for acquiring an asset to which this paragraph applies, the person by or through whom ——

Would the phrase "by or through whom" include a bank, if the money were paid through a bank?

Mr. R. Ryan

No, unless the bank were an agent or one of the parties in the transaction, but it would not apply to a bank acting in the ordinary process of banking and being no more than a conduit pipe.

Mr. Colley

What is visualised here is presumably somebody like a solicitor?

Mr. R. Ryan

Yes.

Mr. Colley

In that context may I refer the Minister to the provisions of subparagraph (7) which is designed to combat the breaking up of an asset into smaller portions so as to avoid liability. If we think of the person through whom the money is paid as a solicitor is it not conceivable that a person like a solicitor might not know that the provisions of paragraph 7 were in fact occurring? In other words, he might not know that this was a breaking-up of the asset and that the particular transaction with which he was dealing was in fact one of a series to the same person or to a connected person. If he does not know is he not in fact obliged all the same, by virtue of subparagraph (2), to make the deduction specified there?

Mr. R. Ryan

I am thinking at the moment of a solicitor acting for the purchaser. The solicitor, presumably, would ascertain from his client, if not from the vendor, if he had previously acquired part of the same property or if he was acting in consort with persons who had previously acquired part of the same property so as to bring the transaction proviso within the subparagraph (7). I visualise what the Deputy is contemplating, that is where an innocent solicitor could find himself acting for a person who had already acquired assets from the same vendor in a series of transactions and the solicitor would be put in peril by virtue of the obligation which lay on him to make the appropriate deduction. It is unlikely, and I think the Deputy will agree with me, that such circumstances would arise. I suppose people planning such an operation——

Mr. Colley

That is exactly what I am getting at.

Mr. R. Ryan

——could move around from solicitor to solicitor. I accept that the solicitor would have the need to protect himself by satisfying himself that there had not been such a series of transactions or such connected transactions. When you look at the assets that are involved here, land, minerals, exploration or exploitation rights, shares in companies related to those activities, there would be records in existence which would enlighten a solicitor as to whether or not there had been previous transactions in many of these activities and if so between whom such transactions took place.

Mr. Colley

Yes, but that does not necessarily make it clear that people were acting in consort, which is one of the provisions of subparagraph (7). Unless the solicitor asks his own client: "Were you acting in consort with anybody who acquired any of this property before?" It seems to me he is in danger. Even if he does answer he might still be in danger, but it is not the kind of question I am sure the Minister will agree that a solicitor would not normally be asking his own client.

Mr. R. Ryan

No. Solicitors presume their own clients are honest and not engaged in defrauding the Revenue, I agree.

Mr. Colley

There may be an obligation imposed here that is going further than is reasonable in the case of a solicitor or other agent acting for a purchaser.

Mr. R. Ryan

I doubt if circumstances such as those Deputy Colley outlines will arise, but I can at present understand the anxiety which he has in mind and I will certainly be prepared to watch the situation. I anticipate that if any attorney or agent was to be put in the embarrassing position which Deputy Colley has in mind the law would not be unfair to such a person.

Mr. Colley

There is another matter I wish to raise in regard to the question of deduction. Again visualising the normal kind of sale conducted in regard to land, if there is interest being charged on the balance of the purchase money outstanding in the apportionment account, due as it would be by the purchaser to the vendor, would the Minister say what he thinks should happen in the event of the deduction by the purchaser of £X in the purchase money and payment of that to the Revenue Commissioners in due course, maybe with some delay? Would the vendor not be claiming that since he was entitled to interest on the full balance of the purchase money he is entitled to interest on the amount that had been deducted until payment? On the other hand, would the purchaser not reasonably claim that when he paid over that portion of the purchase money to the Revenue Commissioners that ended his obligation and that the Revenue Commissioners should be liable for the interest on the purchase money? Does the Minister see the point here?

Mr. R. Ryan

I do, but the vendor has it within his own field of operations to provide the Revenue Commissioners with the information necessary to make an assessment. If the vendor for any reason fails to furnish the necessary information then it is not inappropriate that he should carry whatever loss arises out of failure on his part to furnish the information. As soon as the necessary information to assess the gain is furnished the assessment will be made and a refund made if an excess deduction has been made. That is reasonable, and clearly the obligation lying with the vendor to furnish the information the vendor should carry any disadvantage which may arise out of his own lassitude in the matter.

Mr. Colley

The Revenue Commissioners require the information but they also require the money. The vendor may be very prompt in furnishing the necessary information but the purchaser may be anything but prompt in furnishing the money. We will leave out this provision for the moment. Let us assume that the situation was that on the closing of the sale it included the payment of a sum of money by the purchaser to the vendor by way of interest on the purchase money for the balance of the purchase money outstanding, which is not an uncommon situation. If that were the situation in the normal way that interest would have to be paid on the closing day with the balance of the purchase money. This new provision intervenes, and instead of paying the balance of the purchase money the purchaser pays portion of it and he is liable to pay the other portion of it to the Revenue Commissioners. In the normal way, as far as he is concerned, his liability for interest on the purchase money should cease on the closing date. Theoretically, he should pay over immediately to the Revenue Commissioners, and that would leave no doubt at all that that was the end of the purchaser's liability to interest.

He may not in fact do that, but any purchaser would argue that his liability ceased on the closing day. From the point of view of the vendor he will claim he is entitled to interest on the purchase money until he receives it. In so far as he receives portion of the purchase money on the closing date that is all right. He gets his interest on it and that is the end of the matter. But the other portion of his purchase money has theoretically been paid to the Revenue Commissioners. In fact it may be delayed by the purchaser and in the meantime the vendor is not only without the balance of the purchase money but is also without interest on it to which he was entitled under the contract. The Revenue Commissioners, as things stand at present, are accepting no liability for paying him any interest on the money they will eventually pay him back. Because of the procedure laid down in this amendment there is introduced an area in which there can be considerable argument and doubt between the vendor, the purchaser and the Revenue Commissioners, but the net effect would appear to be that the vendor, the man who was entitled to interest on the purchase money, is the one who will lose. It is difficult to say to what extent he will lose, for how long or how much—it depends on how long—but it seems clear that where he is entitled to interest on his purchase money he will not get interest on the portion of that money paid to the Revenue Commissioners by the purchaser from the date of closing of the sale and he will not get it from the Revenue Commissioners when they ultimately repay him.

The Minister may say that they will pay him back quickly if he gives the information quickly as they have the money from the purchaser. That may be the intention, and the Revenue Commissioners and the Minister, speaking on their behalf here, may have the best intentions—as they have had in the past—but it does not always work out that payments of this kind are made promptly as intended. Where everything goes smoothly that is the position, but there is also the distinct possibility that in some circumstances the purchaser may either not pay over the money at all to the Revenue Commissioners and skip the country— another possibility—or he may delay payment to the Revenue Commissioners, and in such circumstances it seems the vendor must lose. He cannot, I think, get interest on the purchase money from the purchaser and he cannot get it from the Revenue Commissioners, and yet in practice there is nothing he can do that will really control this situation. I think there is a hiatus there which can work to the deteriment of the vendor and should not so work. He should not be put at a loss if the purchaser fails to discharge what will be his statutory obligation to pay over the money. Why should the vendor be at a loss in that case?

I do not know if the Minister has adverted sufficiently to that. I think he tends to rely too much to overcome that difficulty on the good sense of the legal profession in working out arrangements that will comply with this. That goes a little too far: it does not follow that in all cases of transactions dealing with all the kinds of assets envisaged here members of the legal profession will be involved. Nor does it follow that if they are involved the Administration is entitled to rely on them exclusively to ensure that the necessary arrangements are made to carry out the obligations of the parties.

If the purchaser fails to carry out the obligations imposed on him here the vendor will lose substantially: he will lose the benefit of part of his purchase money and he may well lose interest on that to which he was otherwise entitled and, apparently, will not be entitled to interest from the Revenue Commissioners on that money whether he is entitled to it from the purchaser or not. When you are imposing a statutory obligation of this kind on the purchaser and when so much from the vendor's point of view depends on the discharge of that obligation by the purchaser it is not enough to rely on the members of the legal profession to work out suitable arrangements to ensure that the matter works out smoothly. The vendor who can suffer by this is entitled to expect from the Minister something more positive than reliance on the goodwill and good sense of members of the legal profession, who may not be involved in some of these transactions.

Mr. R. Ryan

I do not agree that there are reasons for genuine fears of difficulty in the operation of this provision. If a vendor is anxious to avoid being without a substantial part of his purchase money he may actively pursue the question of having his capital gains liability assessed and he may have that done before the transaction is closed. He could pay the amount on the same day as the closure if he wishes.

Mr. Colley

Can he, in practice, have it assessed in advance?

Mr. R. Ryan

Yes.

Mr. Colley

Is the Minister sure of that?

Mr. R. Ryan

Yes. Please do not say that I am now spelling out precisely how the system will operate. I am simply giving a pragmatic interpretation of it and it will be a matter for the Revenue Commissioners to particularise the operation eventually. Let us say the vendor furnishes evidence to the Revenue Commissioners that he is about to dispose of a property for £X, that he bought it at some stage for £Y. The Revenue Commissioners may then say the assessable gain is therefore £X—Y. The vendor may pay his tax.

Mr. Colley

I think there is a possibility of evasion here and that the Revenue Commissioners perhaps will not go as far as the Minister thinks, because if they made an assessment in advance, when it came to the actual payment of tax they would require confirmation that the facts of the situation worked out in accordance with the theoretical expectation on which they had made their assessment. They would not just make an assessment in advance, collect the money and say: "Now you are free". They will have to make sure that the basis on which they assess will conform with the facts as these actually emerge.

Mr. R. Ryan

I assume that the ultimate transfer deed would correspond with the provisions of the contract and on that basis the tax would be paid. The Deputy's point is that there could be a variation between the contract and the transfer deed. That would be a fraud on the Revenue, and such frauds could be committed any day in relation to any tax, but I do not think we can entirely close out such eventualities.

Major de Valera

I am coming back to a point I have repeatedly made on a number of sections. What I feel on this section comes down to this: if you are too specific and try to spell out everything you may be giving power to the Revenue Commissioners but you are also tying their hands. The ideal in legislation of this nature is to try to give the necessary power to the Revenue Commissioners, but also to leave the discretion there to deal with the case fairly, because of the multiplicity of cases that can arise. Deputy Colley says the exceptional case can occur, and I would add that the exceptional today can be commonplace tomorrow. It was, for instance, very exceptional years ago when the device of the private company was used to defeat the revenue. It became almost a commonplace.

The Minister may be getting the rights and the powers and he may be covering the case, but in so doing he may be shackling the Revenue Commissioners in cases where they would wish to escape. In subsection (6) of this section there is provision that would let a person out under certain conditions, but that is so specific in its nature that it does not capture other cases such as Deputy Colley is talking about, and while it is quite right we should go into the details of the section, we should not lose sight of the principle I am advocating here.

Looking at it from the administrative point of view, an officer of the Revenue Commissioners, an inspector in particular, might like to feel that his job is being done for him, that it is simple, in black and white, but if he stops to think for a moment he may be glad, when he meets black and white, to have some discretion. Applying that to the two points Deputy Colley has made here, you may assume in law and in the House that everything is rite esse acta, but in practice it very often is not, and indeed it is the cases where it is not that raise the trouble and where there will be legal complications and loss of revenue in paying for costs that can accrue to the Revenue Commissioners in the long run. I have a certain sympathy with the Minister that he cannot close every gap or provide for every eventuality and that when he does provide for one eventuality he leaves room for another. The Minister has ample experience of Ministers coming into the House and trying to meet points that have been raised and, as it turns out, it might have been as well if the Minister concerned had not been so accommodating. Therefore, I do not want to fault the Minister on coming in with amendments and trying to perfect this Bill.

We do not accept the principle of this Bill, but that is for Second Stage and can again be commented upon on Fifth Stage. However, we are in Committee now and on Report, and within the terms of that I wonder if the Minister is wise in seeking to amend what was already a complicated provision in his original draft as it came before the House on Committee Stage and which is now before us in Committee. It would be unkind of me to say the amendment makes confusion more confounded; it does not, but, while it seeks to meet the points raised on all sides in Committee Stage, I still feel that the fundamental law is in this paragraph, and in those circumstances I would recommend to the Minister that, as this Bill leaves the House for another place, he would reexamine this matter.

What is the Minister purporting to do in this section? He wants to deal with the case where assets are within the territory of the State. To that extent he has a hold on them, but he wants to provide for a contingency where, shall I say, consequences can follow from the mobility of people in the modern world. I am trying to put this in as general a way as possible to try to get at the principle. The Minister knows that because he has the assets in his hands there is a sanction. If these assets were elsewhere the Minister could throw his hat at it. Because he has the assets here he proceeds to deal with them.

This is either an anti-avoidance provision or else it is to ensure that what rules within the jurisdiction will be the ruling factor in all cases and that opportunities of playing with the jurisdiction will not confer benefits or particular rights or create anomalies as measured against the standard of everything being transacted within the jurisdiction. Therefore, the section might best be approached by asking the simple question: What powers do we want to give the Revenue Commissioners to ensure the observance of that normality, that all transactions can be measured as if everything was within the jurisdiction? The first requirement is to empower them to do this.

The second question is: What potentiality is there for tax avoidance here? Empower them to guard against it, but then give them discretion, as a number of Deputies said we should do. In a sense the Minister is trying to provide for that discretion in the conditions for exemption for which he is providing in the subparagraph.

Would it not be much simpler if once the Revenue Commissioners had the power to cope they were left free to cope knowing from everybody's experience in very hard cases under the death duty code and so on that there is always a sympathetic ear, if possible? It was that the law tied the Revenue Commissioners, not that the Revenue Commissioners were ogres. Approaching it in that spirit the Minister might further simplify and clarify the amendment that he has brought in, but I fear that will have to be in another House now.

My last comment would be, if through the Minister I might address it to those who would have to implement this kind of thing: there is, of course, a temptation to wish to have everything cut and dried. It does save personal trouble. But, if one stops to think of the type of case one is dealing with, which is with the imposition of taxation, the trouble will be taken anyway. Possibly the more frequent case is where one would like to take the trouble if one was free but where one cannot take the trouble because one is barred by a statutory provision.

Mr. Colley

I have been expressing some concern about the possible illeffect on a vendor in cases of this kind where the purchaser pays to carry out the statutory duty being imposed on him under this amendment. The Minister, I think I can fairly say, has tended to minimise these difficulties by relying on the good sense of the legal profession to ensure that the system works smoothly. I have pointed out that in some of these transactions members of the legal profession may not be involved. I have also pointed out that it is not really good enough to rely on members of the legal profession where the failure to carry out a statutory obligation by the purchaser can result in considerable loss to the vendor.

I should like further to draw the attention of the House to the fact that the Minister does not completely rule out the possibility of things happening in the way I envisaged. Not alone does he not rule it out but he makes specific provision for what is to happen in that event in so far as the Revenue Commissioners are concerned. He makes that provision in subparagraph (4) where it is provided:

The inspector may, where, in relation to any such payment as aforesaid, any person has made default in delivering an account required by this paragraph...

That visualises default in delivering an account. That default would be on the part of the purchaser or a person through whom the money was paid. It goes on:

or where he is not satisfied with the account, estimate the amount of the payment to the best of his judgement and, notwithstanding section 5 (1), assess and charge that person to capital gains tax for the year of assessment in which the payment was made on an amount equal to one-half of the amount so estimated at the rate specified in section 3 (3).

In other words, this subparagraph (4) clearly envisages default by the purchaser in one of two ways. The first way is that he does not hand over the money that he gets and deliver details of the transaction. The second is where he does hand over the money and delivers details of the transaction but the inspector has reason to believe that the details furnished are inaccurate, in other words, that the amount of the consideration and, in particular, the gain disclosed is too small.

In either of those cases the subparagraph provides that the inspector may then step in, make his own estimate, assess the purchaser for a particular liability based on the inspector's own estimate and then go after him with all the powers available under the Bill to recover it.

That is a wise and adequate precaution on the part of the Minister to protect the revenue in a case of the kind we envisaged here, but what I want to know is where is there a similar prudent, wise and reasonable precaution to protect the vendor in precisely the same circumstances, that is, where the purchaser fails to discharge his statutory obligation to pay over the money to the Revenue Commissioners, or pays it late or does not pay the full amount? In any of these cases the vendor is going to suffer but there is no provision that I can see here that enables the vendor in such circumstances to do anything that is going to protect him, to do anything that will get his money back, or to do anything that will get him interest on that money even if, in fact, the purchaser was liable to pay him interest on that money under their contract. There is no provision that I can see in this amendment which would protect the vendor in such circumstances in any way although, as I say, there is provision in subparagraph (4) as to what the inspector on behalf of the Revenue Commissioners may do in such circumstances to recover the money involved and to get the machinery moving.

I am suggesting that the Minister is clearly visualising default of the kind I was visualising. Otherwise, there would not be the provisions of subparagraph (4). But I am also saying that where such default occurs it is not just the Revenue Commissioners who lose, it is the vendor, and I am asking what provision is being made to protect the interests of the vendor where such default occurs.

It is not sufficient for the Revenue Commissioners to say, "we have not got the money and therefore we will go after the purchaser". That is really no consolation to the vendor. I do think that if the Minister is going to prescribe a statutory deduction of this kind there is an obligation on him in such circumstances to be responsible for what happens to that money when it is deducted until it is handed over to the Revenue Commissioners. It seems to me that he is excluding that possibility at the moment, that he is not accepting that responsibility, but I do not think he can avoid that responsibility.

I do not think it is sufficient answer for the Minister to say that the vendor can overcome this difficulty by going along to the Revenue Commissioners in advance and having his liability assessed and paying it. I do not think that is reasonable because, first, there may be difficulty in getting the assessment in advance, but even supposing he can overcome that, what about the payment in advance? That is open only to somebody who not alone is wealthy but is in a sufficiently good liquidity position to enable him to discharge what could be a substantial liability for capital gains tax in advance of receiving the purchase money. Admittedly, if somebody is in a position to do that, he can produce his certificate and the purchaser is not entitled to deduct anything. One proceeds then in the way one would proceed in respect of an ordinary sale. I agree that the vendor is not running any risk there, but I suggest to the Minister that, perhaps, that would be a fairly unusual case and that there will be at least as many, and probably very many more, cases in which it will not be possible for the vendor to have the capital gains tax assessed in advance and, in particular, that it will not be possible for him to pay the capital gains tax in advance of receiving the purchase money. Where that happens, the vendor has no certificates in which circumstances the purchaser has the statutory obligation to deduct an amount equivalent to capital gains tax on half of the purchase money and he has the obligation to pay that money to the Revenue Commissioners.

This takes us back to my point in relation to subparagraph (4) which, clearly, is the clause put in to enable the Revenue Commissioners in the event of a default by the purchaser in carrying out his obligation, to move in, make their own assessment and put in action the machinery to recover the money due to them. It is right and proper that they should do this, but let us think for a moment of the position of a vendor in such circumstances. He had not been in a position to pay the capital gains tax in advance of receiving the purchase money. So far as he is concerned the purchaser, on foot of subparagraph (2) has a clear, statutory obligation to deduct the money. He must accept that as part of the purchase money. He finds then that the purchaser should have paid the money to the Revenue Commissioners but did not do so. Perhaps the Revenue Commissioners are thinking of going after the purchaser for recovery of the money. They may be a bit slow because they have a lot of other work to do, but in the meantime there is the vendor from whom money was deducted by statutory authority, money which in all probability, is in excess of his tax liability, but there is nothing he can do to recover it because the money is due, not to him, but to the Revenue Commissioners. Also, if there is interest due on the money, the vendor foregoes it. I do not see how he could recover it from the purchaser and the Minister has made it clear that the vendor will not recover it from the Revenue Commissioners. In such case the position of the vendor is anything but enviable. While the Minister has given power, and rightly so, to the Commissioners in a case of this kind, he has not given any thought to the position of the vendor for whom it is necessary to provide some protection. I find it difficult to produce a complete answer to this problem, but that is not my obligation. The obligation to do so lies entirely with the Minister, since he is bringing in the legislation, but something that suggests itself immediately is that where there has been a default by the purchaser in complying with the statutory obligation, the Revenue Commissioners, who are the ones standing to benefit from the carrying out of that obligation, should stand in the shoes of the purchaser vis-á-vis the vendor in such circumstances and should at least be responsible for interest on the money outstanding, money which the vendor cannot recover even by legal action against either the Revenue Commissioners or the purchaser because at that point neither owes him any money. So far as I can see, in the event of such default, the only persons who can give any assistance or protection to the position of the vendor are the Revenue Commismissioners. Therefore, I suggest that some provision be incorporated to ensure that, at the very least, the Revenue Commissioners will pay interest on the money they owe to the vendor from the date on which the necessary information is furnished to enable them to assess the tax until the date on which they pay him the money due to him. While more might be required, that is the very minimum to which a vendor in the circumstances I have described should be entitled to.

Mr. R. Ryan

It strikes me that the more precautions I would build into this in response to pleas from Deputy Colley, the more I would be tying people to one arrangement, and people might not thank us for building in these restrictions. For instance, I could provide that the purchaser might not only deduct the money but should deliver it to the Revenue Commissioners and I could provide that the vendor later should allow such deductions on receipt of confirmation of receipt of the money. That would not only lead to a situation in which the purchaser would have to pay the sum deducted prior to the closing of a sale and then produce a receipt but a person who did that in good faith might find that simultaneously, the vendor acting independently, having had tax assessed, had paid it. There are so many different situations and arrangements that could arise that it is far better to leave it to the parties concerned to decide how, respectively, they should discharge the legal obligations which arise for the payment of capital gains tax by the vendor. It would seem best to leave people some area of manoeuverability, some discretion as to whether the purchaser or the vendor would pay, and when and whether it should be paid before or after the transaction. For a variety of reasons it might suit one vendor to allow the tax to be deducted afterwards while another might wish to have it all determined beforehand.

Deputy Colley's point that a vendor may not have the money necessary to pay the tax beforehand is one with which I agree. However, under the old estate duty code that sort of situation arose often but personal representatives made arrangements with banks to pay advances pending realisation of the assets in the administration of the estate. I would not contemplate that many vendors would have difficulty in obtaining accommodation from the bank in payment of capital gains tax against lodgement with the bank of the proceeds of the sale as soon as the transaction is closed.

Debate adjourned.